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 ☒ No ☐

~~Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (~~§~~232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit files). Yes~~ ☒ No ☐

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, smaller reporting company or emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

~~Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes~~ ☐ No ☒

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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Act.

Whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒.

Number of shares of the registrant’s common stock, $.01 par value per share, outstanding on April 30, ~~2019: 339,185,449~~2020: 339,235,449

Items 2, 3 4 and 54 of Part II are omitted because there is no information to report.

					December 31,		March 31,
	December 31, 2018		March 31, 2019		2019		2020
			(unaudited)				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	499.8	$	463.9	$	523.8	$	483.1
Restricted cash equivalents		15.0		15.1		27.0		12.5
Marketable securities		2.5		1.9		2.1		2.1
Accounts and other receivables, net		352.6		389.9		329.2		351.0
Land held for development		—		1.3
Inventories, net		515.8		515.1		522.1		499.2
Other current assets		23.1		17.9		21.2		23.3
Total current assets		1,408.8		1,405.1		1,425.4		1,371.2

Other assets:
Investment in TiO₂ manufacturing joint venture		81.3		82.1		90.2		92.4
Goodwill		379.7		379.7		379.7		379.7
Deferred income taxes		101.0		96.0		106.0		104.1
Other assets		175.3		203.7		230.1		233.8
Total other assets		737.3		761.5		806.0		810.0

Property and equipment:
Land		46.6		46.4		46.2		45.5
Buildings		250.5		246.1		248.0		239.0
Equipment		1,155.2		1,143.6		1,166.0		1,133.7
Mining properties		28.6		22.8		26.2		8.1
Construction in progress		44.2		52.0		62.7		58.9
		1,525.1		1,510.9		1,549.1		1,485.2
Less accumulated depreciation		961.6		952.8
Less accumulated depreciation and amortization						986.1		955.8
Net property and equipment		563.5		558.1		563.0		529.4
Total assets	$	2,709.6	$	2,724.7	$	2,794.4	$	2,710.6

	December 31, 2018			March 31, 2019			December 31,			March 31,
				(unaudited)			2019			2020
LIABILITIES AND EQUITY
										(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	2.9		$	2.9		$	4.9		$	3.8
Accounts payable and accrual liabilities		339.0			335.7
Accounts payable and accrued liabilities								307.4			257.6
Income taxes		9.1			9.1			10.2			15.9
Total current liabilities		351.0			347.7			322.5			277.3
Noncurrent liabilities:
Long-term debt		797.5			786.3			789.4			779.7
Deferred income taxes		41.2			42.3			38.1			33.0
Payable to affiliates		56.3			56.3
Payable to affiliate - income taxes								56.3			56.3
Accrued pension costs		273.3			266.5			315.6			309.3
Accrued environmental remediation and related costs		96.9			96.1			95.2			94.6
Other liabilities		104.4			123.4			197.2			193.5
Total noncurrent liabilities		1,369.6			1,370.9			1,491.8			1,466.4
Equity:
Valhi stockholders’ equity:
Valhi stockholders' equity:
Preferred stock		667.3			667.3			667.3			667.3
Common stock		3.6			3.6			3.6			3.6
Additional paid-in capital		—			—			-			-
Retained earnings		220.3			231.7			239.4			256.4
Accumulated other comprehensive loss		(206.2	)		(204.9	)		(220.7	)		(246.2	)
Treasury stock, at cost		(49.6	)		(49.6	)		(49.6	)		(49.6	)
Total Valhi stockholders’ equity		635.4			648.1
Total Valhi stockholders' equity								640.0			631.5
Noncontrolling interest in subsidiaries		353.6			358.0			340.1			335.4
Total equity		989.0			1,006.1			980.1			966.9
Total liabilities and equity	$	2,709.6		$	2,724.7		$	2,794.4		$	2,710.6

					Three months ended
					March 31,
	Three months ended March 31,				2019		2020
	2018		2019		(unaudited)
	(unaudited)
Revenues and other income:
Net sales	$	466.0	$	479.6	$	479.6	$	459.3
Other income, net		20.4		6.6		6.6		34.9
Total revenues and other income		486.4		486.2		486.2		494.2
Costs and expenses:
Cost of sales		280.7		357.8		357.8		359.6
Selling, general and administrative		80.2		71.4		71.4		70.9
Other components of net periodic pension and OPEB cost		3.7		4.1
Other components of net periodic pension expense						4.1		4.7
Interest		15.4		10.3		10.3		9.7
Total costs and expenses		380.0		443.6		443.6		444.9
Income from continuing operations before income taxes		106.4		42.6
Income before income taxes						42.6		49.3
Income tax expense		36.2		14.2		14.2		11.4
Net income from continuing operations		70.2		28.4
Income from discontinued operations, net of tax		37.6		—
Net income		107.8		28.4		28.4		37.9
Noncontrolling interest in net income of subsidiaries		18.5		10.2		10.2		13.5
Net income attributable to Valhi stockholders	$	89.3	$	18.2	$	18.2	$	24.4

Amounts attributable to Valhi stockholders:
Income from continuing operations	$	51.7	$	18.2
Income from discontinued operations		37.6		—
Net income attributable to Valhi stockholders	$	89.3	$	18.2

Basic and diluted net income per share:
Income from continuing operations	$	.15	$	.05
Income from discontinued operations		.11		—
Net income attributable to Valhi stockholders	$	.26	$	.05
Basic and diluted net income per share					$	.05	$	.07

Basic and diluted weighted average shares outstanding		342.0		342.0		342.0		342.1

	Three months ended March 31, 2019 (unaudited)
										Accumulated
					Additional		Retained			other						Non-
	Preferred		Common		paid-in		earnings			comprehensive			Treasury			controlling
	stock		stock		capital		(deficit)			loss			stock			interest			Total

Balance at December 31, 2018	$	667.3	$	3.6	$	-	$	220.3		$	(206.2	)	$	(49.6	)	$	353.6		$	989.0

Net income		-		-		-		18.2			-			-			10.2			28.4
Other comprehensive income, net		-		-		-		-			1.3			-			.5			1.8
Dividends paid to noncontrolling interest		-		-		-		-			-			-			(6.3	)		(6.3	)
Cash dividends - $.02 per share		-		-		-		(6.8	)		-			-			-			(6.8	)
Balance at March 31, 2019	$	667.3	$	3.6	$	-	$	231.7		$	(204.9	)	$	(49.6	)	$	358.0		$	1,006.1



	Three months ended March 31, 2020 (unaudited)
										Accumulated
					Additional		Retained			other						Non-
	Preferred		Common		paid-in		earnings			comprehensive			Treasury			controlling
	stock		stock		capital		(deficit)			loss			stock			interest			Total

Balance at December 31, 2019	$	667.3	$	3.6	$	-	$	239.4		$	(220.7	)	$	(49.6	)	$	340.1		$	980.1

Net income		-		-		-		24.4			-			-			13.5			37.9
Other comprehensive loss, net		-		-		-		-			(25.5	)		-			(9.3	)		(34.8	)
Dividends paid to noncontrolling interest		-		-		-		-			-			-			(8.6	)		(8.6	)
Cash dividends - $.02 per share		-		-		-		(6.8	)		-			-			-			(6.8	)
Equity transaction with noncontrolling interest, net and other		-		-		-		(.6	)		-			-			(.3	)		(.9	)
Balance at March 31, 2020	$	667.3	$	3.6	$	-	$	256.4		$	(246.2	)	$	(49.6	)	$	335.4		$	966.9

							Three months ended
	Three months ended March 31,						March 31,
	2018			2019			2019			2020
	(unaudited)						(unaudited)
Cash flows from operating activities:
Net income	$	107.8		$	28.4		$	28.4		$	37.9
Depreciation and amortization		14.5			12.8			12.8			17.0
Benefit plan expense greater than cash funding		.5			1.1			1.1			3.1
Deferred income taxes		37.2			3.6			3.6			-
Gain on sale of WCS		(58.4	)		—
Gain on land sales		(12.5	)		—
Distributions from (contributions to) Ti0₂ manufacturing joint venture, net		5.5			(.8	)
Contributions to TiO₂ manufacturing joint venture, net								(.8	)		(2.2	)
Other, net		1.6			1.1			1.1			3.1
Change in assets and liabilities:
Accounts and other receivables, net		(40.9	)		(46.0	)		(46.0	)		(39.7	)
Inventories, net		(41.8	)		(3.7	)		(3.7	)		2.7
Land held for development, net		(1.4	)		(1.1	)		(1.1	)		(2.7	)
Accounts payable and accrued liabilities		23.0			(4.2	)		(4.2	)		(35.0	)
Accounts with affiliates		3.4			1.8			1.8			(1.5	)
Income taxes		7.5			1.6			1.6			11.8
Other, net		1.7			3.2			3.2			(12.7	)
Net cash provided by (used in) operating activities		47.7			(2.2	)
Net cash used in operating activities								(2.2	)		(18.2	)
Cash flows from investing activities:
Capital expenditures		(16.9	)		(16.8	)		(16.8	)		(16.0	)
Cash, cash equivalents and restricted cash and cash equivalents of discontinued operations at time of sale		(28.9	)		—
Proceeds from sale of land		19.5			—
Purchases of marketable securities		(3.5	)		(1.0	)		(1.0	)		(.4	)
Disposals of marketable securities		3.4			1.7
Proceeds from disposal of marketable securities								1.7			.6
Other, net		.6			—			-			2.7
Net cash used in investing activities		(25.8	)		(16.1	)		(16.1	)		(13.1	)
Cash flows from financing activities:
Indebtedness:
Borrowings		—			—
Principal payments		(2.5	)		(2.1	)
Principal payments on indebtedness								(2.1	)		(3.2	)
Valhi cash dividends paid		(6.8	)		(6.8	)		(6.8	)		(6.8	)
Distributions to noncontrolling interest in subsidiaries		(3.9	)		(6.3	)		(6.3	)		(8.6	)
Subsidiary treasury stock acquired								-			(1.0	)
Net cash used in financing activities		(13.2	)		(15.2	)		(15.2	)		(19.6	)
Cash, cash equivalents and restricted cash and cash equivalents - net change from:
Operating, investing and financing activities		8.7			(33.5	)		(33.5	)		(50.9	)
Effect of exchange rates on cash		5.4			(2.6	)		(2.6	)		(3.9	)
Balance at beginning of period		489.4			523.7			523.7			583.8
Balance at end of period	$	503.5		$	487.6		$	487.6		$	529.0
Supplemental disclosures:
Cash paid for:
Cash paid (received) for:
Interest, net of capitalized interest	$	19.4		$	13.7		$	13.7		$	12.7
Income taxes, net		13.7			6.3			6.3			(.7	)
Noncash investing activities:
Change in accruals for capital expenditures		1.8			2.0			2.0			2.2
Noncash financing activities:
Trade payable to affiliate converted to indebtedness		36.3			—

Valhi Stockholders’ Equity

Preferred
stock


Common
stock


Additional
paid-in
capital


Retained earnings (deficit)

Accumulated
other
comprehensive
loss

Treasury
stock

Non-
controlling
interest

Total
equity

Balance at December 31, 2017
$
667.3


$
3.6


$
—


$
(17.9
)

$
(179.0
)

$
(49.6
)

$
342.3


$
766.7

Change in accounting principle – ASU 2014-09

—



—



—



2.7

—


—


2.3

5.0

Balance at January 1, 2018, as adjusted

667.3



3.6



—



(15.2
)

(179.0
)

(49.6
)

344.6


771.7

Net income

—



—



—



89.3

—


—


18.5

107.8

Other comprehensive income, net

—



—



—



—


8.8

—

3.2


12.0

Dividends paid to noncontrolling interest

—

—

—

—

—

—

(3.9
)

(3.9
)
Cash dividends - $.02 per share

—



—



—



(6.8
)

—


—


—

(6.8
)
Balance at March 31, 2018
$
667.3


$
3.6


$
—


$
67.3

$
(170.2
)

$
(49.6
)

$
362.4


$
880.8


Balance at December 31, 2018
$
667.3


$
3.6


$
—


$
220.3

$
(206.2
)

$
(49.6
)

$
353.6


$
989.0

Net income

—



—



—



18.2

—


—


10.2

28.4

Other comprehensive income, net

—



—



—



—

1.3

—

.5


1.8

Dividends paid to noncontrolling interest

—



—



—



—

—

—

(6.3
)

(6.3
)
Cash dividends - $.02 per share

—

—

—

(6.8
)

—

—

—

(6.8
)
Balance at March 31, 2019
$
667.3


$
3.6


$
—


$
231.7

$
(204.9
)

$
(49.6
)

$
358.0


$
1,006.1

~~Organization~~— Organization—We are majority owned by a wholly-owned subsidiary of Contran Corporation (“Contran”), which owns approximately 92% of our outstanding common stock at March 31, ~~2019.~~ ~~All~~2020. At March 31, 2020, a majority of ~~Contran's~~Contran’s outstanding voting stock iswas held directly by ~~a family trust established for the benefit of~~ Lisa K. Simmons and Serena Simmons Connelly and ~~their children,~~various family trusts established for ~~which~~the benefit of Ms. Simmons and Ms. Connelly ~~are co-trustees,~~and their children and for which Ms. Simmons or ~~is held directly by~~Ms. Connelly, as applicable, served as trustee (collectively, the “Other Trusts”). In addition, each of Ms. Simmons and Ms. Connelly ~~or entities related to them.~~served as co-chair of the Contran board of directors. The remainder of Contran’s outstanding voting stock was held by another trust (the “Family Trust”), which was established for the benefit of Ms. Simmons and Ms. Connelly and their children and for which a third-party financial institution serves as trustee. Consequently, at March 31, 2020, Ms. Simmons, ~~and~~ Ms. Connelly and the Family Trust may be deemed to control Contran, and us.

Following the death of Ms. Connelly on April 22, 2020, Ms. Simmons and the Family Trust continue to directly hold their shares of Contran voting stock. Under the terms of the Contran Corporation Amended and Restated Stockholders Agreement dated September 9, 2019 (the “Contran Stockholders Agreement”), and with respect to the shares of Contran voting stock held directly by Ms. Connelly at the time of her death (the “Connelly Direct Shares”), the independent executor of the estate of Ms. Connelly (prior to the completion of the probate of such estate) and the legatee of the Connelly Direct Shares (following completion of the probate of such estate) is required to vote the Connelly Direct Shares in the same manner as Ms. Simmons. Also under the terms of the Contran Stockholders Agreement, and with respect to the shares of Contran voting stock held by the Other Trusts for which Ms. Connelly previously served as trustee and for which her successor trustee is someone other than Ms. Simmons (the “Connelly Indirect Shares”), such successor trustee is also required to vote the Connelly Indirect Shares in the same manner as Ms. Simmons. Such voting rights of Ms. Simmons with respect to the Connelly Direct Shares and the Connelly Indirect Shares last through April 22, 2030 and are personal to Ms. Simmons. Consequently, as of April 22, 2020, Ms. Simmons and the Family Trust may be deemed to control Contran and us.

Basis of Presentation—Consolidated in this Quarterly Report are the results of our ~~majority-owned~~wholly-owned and ~~wholly-owned~~majority-owned subsidiaries, including NL Industries, Inc., Kronos Worldwide, Inc., CompX International Inc., Tremont LLC, Basic Management, Inc. (“BMI”) and The LandWell Company (“LandWell”). Kronos (NYSE: KRO), NL (NYSE: NL), and CompX (NYSE American: CIX) each file periodic reports with the Securities and Exchange Commission (“SEC”). ~~In January 2018, we sold Waste Control Specialists LLC (“WCS”). See Note 3.~~

The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 that we filed with the SEC on March ~~11, 2019~~12, 2020 (the ~~“2018~~“2019 Annual Report”). In our opinion, we have made all necessary adjustments (which include only normal recurring ~~adjustments, other than the gain on the sale of WCS recognized in the first quarter of 2018 as discussed in Note 3)~~adjustments), in order to state fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. We have condensed the Consolidated Balance Sheet at December 31, ~~2018~~2019 contained in this Quarterly Report as compared to our audited Consolidated Financial Statements at that date, and we have omitted certain information and footnote disclosures (including those related to the Consolidated Balance Sheet at December 31, ~~2018)~~2019) normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our results of operations for the interim period ended March 31, ~~2019~~2020 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this Quarterly Report should be read in conjunction with our ~~2018~~2019 Consolidated Financial Statements contained in our ~~2018~~2019 Annual Report.

Unless otherwise indicated, references in this report to “we,” “us” or “our” refer to Valhi, Inc. and its subsidiaries (NYSE: VHI), taken as a whole.

Our control of Kronos includes 50% we hold directly and 30% held directly by NL. We own 83% of NL. Our control of CompX is through NL. We own 63% of BMI. Our control of LandWell includes the 27% we hold directly and 50% held by BMI.

									Three months ended
		Three months ended March 31,							March 31,
		2018				2019			2019			2020
			(unaudited)						(unaudited)
Net sales:
Chemicals	$		430.4		$		436.5		$	436.5		$	421.0
Component products			28.4				31.2			31.2			32.3
Real estate management and development			7.2				11.9			11.9			6.0
Total net sales	$		466.0		$		479.6		$	479.6		$	459.3
Cost of sales:
Chemicals	$		256.1		$		327.7		$	327.7		$	333.3
Component products			18.9				21.5			21.5			21.9
Real estate management and development			5.7				8.6			8.6			4.4
Total cost of sales	$		280.7		$		357.8		$	357.8		$	359.6
Gross margin:
Chemicals	$		174.3		$		108.8		$	108.8		$	87.7
Component products			9.5				9.7			9.7			10.4
Real estate management and development			1.5				3.3			3.3			1.6
Total gross margin	$		185.3		$		121.8		$	121.8		$	99.7
Operating income:
Chemicals	$		110.6		$		52.8		$	52.8		$	46.8
Component products			4.4				4.4			4.4			5.0
Real estate management and development			3.8				3.2			3.2			19.2
Total operating income			118.8				60.4			60.4			71.0
General corporate items:
Securities earnings			8.3				3.1			3.1			1.6
Insurance recoveries			.2				.3			.3			1.6
Gain on land sales			12.5				—
Changes in market value of Valhi common stock held by subsidiaries			(.3	)			1.1			1.1			(2.4	)
Other components of net periodic pension and OPEB cost			(3.7	)			(4.1	)
Other components of net periodic pension expense										(4.1	)		(4.7	)
General expenses, net			(14.0	)			(7.9	)		(7.9	)		(8.1	)
Interest expense			(15.4	)			(10.3	)		(10.3	)		(9.7	)
Income from continuing operations before income taxes	$		106.4		$		42.6
Income before income taxes									$	42.6		$	49.3

Segment results we report may differ from amounts separately reported by our various subsidiaries due to purchase accounting adjustments and related amortization or differences in the way we define operating income. Intersegment sales are not material.

In accordance with GAAP, the Waste Management Segment has been classified as discontinued operations in our Condensed Consolidated Statement of Income for the three months ended March 31, 2018. Also in accordance with GAAP, we have not reclassified our Condensed Consolidated Statement of Cash Flows to reflect the Waste Management Segment as discontinued operations. We recognized a pre-tax gain of approximately $58 million Infrastructure reimbursement income is included in the ~~first quarter~~determination of 2018 on the transaction ($38.2 million, or $.11 per diluted share, net of tax) because the carrying value of the liabilities of the business assumed by JFL Partners exceeded the carrying value of the assets sold at the time of the sale in large part due to the previously-reported long-lived asset impairment of $170.6 million recognized in the second quarter of 2017, as discussed in the 2018 Annual Report. Selected financial data for the operations of the disposed WasteReal Estate Management ~~Segment for periods prior to completing the sale is presented below.~~ and Development operating income. See Note 11.

⁽¹⁾ ~~Reflects the results of the Waste Management Segment though January 26, 2018, the date of the sale.~~

In connection with the January 2018 sale, JFL Partners did not assume WCS’ trade payable owed to Contran, which consisted primarily of intercorporate service fees charged to WCS by Contran which WCS had not paid to Contran for several years. Immediately prior to the closing of the sale of WCS, Contran transferred its associated receivable of $36.3 million from WCS to Valhi, in return for a deemed $36.3 million borrowing by Valhi under its revolving credit facility with Contran. Valhi subsequently contributed such receivable from WCS to WCS’s equity, and the trade payable obligation of WCS was deemed paid in full.

~~The accrued insurance recovery related to litigation is discussed in~~ Note ~~16.~~4—Inventories, net:

December 31,
2018

March 31,
2019

(In millions)

Raw materials:

Chemicals
$
93.1

$
102.0

Component products

2.7

3.3

Total raw materials

95.8

105.3

Work in process:

Chemicals

23.5

29.2

Component products

11.1

11.8

Total in-process products

34.6

41.0

Finished products:

Chemicals

317.6

299.7

Component products

3.3

3.4

Total finished products

320.9

303.1

Supplies (chemicals)

64.5

65.7

Total
$
515.8

$
515.1

	December 31,			March 31,
	2019			2020
	(In millions)
Valhi:
Contran credit facility	$	313.0		$	313.0
Subsidiary debt:
Kronos:
Senior Notes		442.6			435.1
Tremont:
Promissory note payable		2.0			.5
BMI:
Bank loan - Western Alliance Bank		17.2			17.2
LandWell:
Note payable to Western Alliance Business Trust		15.0		14.9
Note payable to the City of Henderson		1.6			-
Other		2.9			2.8
Total subsidiary debt		481.3			470.5
Total debt		794.3			783.5
Less current maturities		(4.9	)		(3.8	)
Total long-term debt	$	789.4		$	779.7

Land contract receivables classified as a noncurrent asset relate to our Real Estate Management and Development Segment. Such receivables relate to certain fees we collect from builders when the builder sells a home to a customer.

We enter into various arrangements (or leases) that convey the rights to use and control identified underlying assets for a period of time in exchange for consideration. We lease various manufacturing facilities and equipment. In addition, o~~ur Chemicals Segment’s principal German operating subsidiary leases the land under its Leverkusen TiO~~₂ ~~production facility pursuant to a lease with Bayer AG that expires in 2050. The Leverkusen facility itself, which Kronos owns and which represents approximately one-third of our current TiO~~₂ production capacity, is located within Bayer’s extensive manufacturing complex. From time to time, we may also enter into an arrangement in which the right to use and control an identified underlying asset is embedded in another type of contract.

~~On January 1, 2019 we adopted Accounting Standards Update (“ASU 2016-02”),~~ ~~Leases (Topic 842)~~. See Note 18. We determine if an arrangement is a lease (including leases embedded in another type of contract) at inception. All of our leases are classified as operating leases under this new ASU. Operating leases are included in operating lease right-of-use assets, current operating lease liabilities and noncurrent operating lease liabilities in our Condensed Consolidated Balance Sheet beginning January 1, 2019. See Notes 8 and 9.

Right-of-use assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. For leases in effect as of the January 1, 2019 date of adoption of the new

ASU, the right-of-use operating lease assets and liabilities were recognized based on the estimated present value of remaining lease payments over the remaining lease term as of the adoption date. For new leases entered into subsequent to the date of adoption of the new ASU, the right-of-use operating lease asset and liabilities will be recognized based on the estimated present value of lease payments over the lease term as of the respective lease commencement dates.

We use an estimated incremental borrowing rate to determine the present value of lease payments (unless we can determine the rate implicit in the lease, which is generally not the case). Our incremental borrowing rate for each of our leases is derived from available information, including our current debt and credit facilities and U.S. and European yield curves as well as publicly available data for instruments with similar characteristics, adjusted for factors such as collateralization and term. For leases in effect as of the January 1, 2019 date of adoption of the new ASU, we used an estimated incremental borrowing rate for each lease on the date of adoption. For new leases entered into subsequent to the date of adoption of the new ASU, we use an estimated incremental borrowing rate for each lease as of the respective lease commencement dates.

Our leases generally do not include termination or purchase options. Certain of our leases include an option to renew the lease after expiration of the initial lease term, but we have not included such renewal periods in our lease term because it is not reasonably certain that we would exercise the renewal option. Our leases generally have fixed lease payments, with no contingent or incentive payments. Certain of our leases include variable lease payments that depend on a specified index or rate, and in accordance with ASU 2016-02 the determination of the operating lease liabilities is based on the index or rate existing at the date of adoption of the new ASU (for leases in effect as of January 1, 2019) or the index or rate in effect as of the lease commencement date (for leases entered into subsequent to the date of adoption of the new ASU). Our lease agreements do not contain any residual value guarantees.

With respect to our land lease associated with Kronos’ Leverkusen facility, we periodically establish the amount of rent for such land lease by agreement with Bayer for periods of at least two years at a time. The lease agreement provides for no formula, index or other mechanism to determine changes in the rent of such land lease; rather, any change in the rent is subject solely to periodic negotiation between Bayer and us. As such, we will account for any change in the rent associated with such lease subsequent to the January 1, 2019 adoption of the new ASU as a lease modification.

During the first three months of 2019, our operating lease expense approximated $2.1 million (which amount approximates the amount of cash paid during the period for our operating leases included in the determination of our net cash flows from operating activities). During the first three months of 2019, variable lease expense and short-term lease expense were not material. During the first three months of 2019, we entered into new operating leases which resulted in the recognition of a nominal right-of-use operating lease asset and operating lease liability. At March 31, 2019, the weighted average remaining lease term of our operating leases was approximately 13 years, and the weighted average discount rate associated with such leases was approximately 4.5%. Such average remaining lease term is weighted based on each arrangement’s lease obligation, and such average discount rate is weighted based on each arrangment’s total remaining lease payments.

Net operating lease rent expense approximated $14.3 million in 2016, $16.3 million in 2017 and $14.8 million in 2018. At December 31, 2018, future minimum payments under non-cancellable operating leases having an initial or remaining term of more than one year were as follows:

As disclosed in Note 7 to our 2018 Annual Report under an Owner Participation Agreement (“OPA”) entered into by LandWell with the Redevelopment Agency of the City of Henderson, Nevada, as LandWell develops certain real property for commercial and residential purposes in its master planned community in Henderson, Nevada, and the cost of certain public infrastructure may be reimbursed to LandWell through tax increment.

Prior to 2018, due to the significant uncertainty of the timing and amount of any of such potential tax increment reimbursements, we recognized any such tax increment reimbursements only when received. However, due to growth in the master planned community and the increase in tax increment funds to which LandWell is entitled, we determined in the first quarter of 2018 the tax increment reimbursements expected to be collected in the future would at least be sufficient to support recognizing the promissory note payable issued by the City of Henderson to LandWell. During the first quarter of 2018, we recognized $3.8 million of other income related to the existing promissory note and accrued interest as of January 1, 2018. During the first quarter of 2019, we received approval for additional tax increment reimbursement of $1.1 million, which was recognized as other income and is evidenced by a promissory note issued to LandWell by the City of Henderson. See Note 12.

Valhi – Contran credit facility – During the first three months of ~~2019,~~2020, we ~~repaid a net $1.3 million~~had no borrowings or repayments under this facility. The average interest rate on the existing balance ~~as of and~~ for the three months ended March 31, ~~2019~~2020 was ~~6.50%~~5.4%. At March 31, ~~2019,~~2020, the ~~equivalent of~~interest rate was 4.25% and $47.0 million was available for borrowing under this facility.

Kronos – Senior ~~Secured~~ Notes - At March 31, ~~2019,~~2020, the carrying value of Kronos’ 3.75% Senior Secured Notes due September 15, 2025 (€400 million aggregate principal amount outstanding) is stated net of unamortized debt issuance costs of ~~$5.9~~$4.9 million.

North American and European revolving credit facilities– During the first three months of ~~2019,~~2020, Kronos had no borrowings or repayments under its North American revolving credit facility and its European revolving credit facility. At March 31, ~~2019,~~2020, approximately ~~$123.1~~$117.2 million was available for ~~additional~~ borrowing under the North American ~~Revolving~~revolving credit facility. Kronos’ European revolving credit facility requires the maintenance of certain financial ratios, and one of such requirements is based on the ratio of net debt to last twelve months earnings before income tax, interest, depreciation and amortization expense (EBITDA) of the borrowers. Based upon the borrowers’ last twelve months EBITDA as of March 31, ~~2019~~2020 and the net debt to EBITDA financial test, the full €90.0 million of the credit facility ($~~101.1~~99.0 million) iswas available for borrowing ~~availability~~ at ~~such date.~~March 31, 2020.

Tremont – Promissory note payable – During the first three months of ~~2019,~~2020, Tremont prepaid (without penalty) ~~$.7~~$1.5 million principal amount on the note as required under the terms of the note agreement. The remaining outstanding balance of $.5 million was repaid in April 2020.

LandWell – In January 2020, LandWell fully prepaid (without penalty) its promissory note payable to the City of Henderson, Nevada.

Restrictions and other – Certain of the credit facilities with unrelated, third-party lenders described above require the respective borrowers 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. We are in compliance with all of our debt covenants at March 31, ~~2019.~~2020.

					December 31,		March 31,
	December 31, 2018		March 31, 2019		2019		2020
	(In millions)				(In millions)
Accounts payable:
Kronos	$	103.2	$	111.8	$	137.2	$	111.2
CompX		3.2		3.3		2.5		2.8
BMI and LandWell		2.9		4.0		3.7		2.2
NL		1.6		1.2		.9		.5
Other		.6		.5		.4		.4
Payable to affiliates:
Contran – income taxes		10.0		12.2
LPC – trade items		16.7		15.2
Contran - income taxes						4.0		3.6
LPC						16.4		16.3
Accrued litigation settlement		60.0		60.0		11.8		11.9
Operating lease liability		—		6.8
Employee benefits		37.5		34.8		30.6		28.1
Operating lease liabilities						6.2		6.0
Accrued sales discounts and rebates						33.7		21.5
Deferred income		28.3		18.9		10.3		12.1
Accrued sales discounts and rebates		29.7		22.1
Environmental remediation and related costs		6.5		6.4		4.5		4.5
Interest		5.2		1.2		5.2		1.4
Other		33.6		37.3		40.0		35.1
Total	$	339.0	$	335.7	$	307.4	$	257.6

~~The accrued litigation settlement is discussed in~~ Note ~~16. The operating lease liability is discussed in Notes 6 and 18.~~

~~The accrued litigation settlement is discussed in Note 16. The operating lease liability is discussed in Notes 6 and 18.~~

The following table disaggregates the net sales of our Chemicals Segment by place of manufacture (point of origin) and to the location of the customer (point of destination), which are the categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The following table disaggregates the net sales of our Component Products and Real Estate Management and Development Segments by major product line.

The components of our net periodic defined benefit pension cost are presented in the table below.

We expect to contribute the equivalent of approximately ~~$18.2~~$19.0 million to all of our defined benefit pension plans during ~~2019.~~

Insurance recoveries reflect, in part, amounts NL received from certain of its former insurance carriers and relate to the recovery of prior lead pigment and asbestos litigation defense costs incurred by NL. See Note ~~16.~~15. In the first three months of 2020, Kronos recognized a $1.5 million gain related to an insurance settlement for a property damage claim.

Infrastructure reimbursement ~~costs relate principally~~–As disclosed in Note 7 to our 2019 Annual Report, under an Owner Participation Agreement (“OPA”) entered into by LandWell with the Redevelopment Agency of the City of Henderson, Nevada, as LandWell develops certain real property for commercial and residential purposes in its master planned community in Henderson, Nevada, the cost of certain public infrastructure may be reimbursed to LandWell through tax increment. During the first quarters of 2019 and 2020, we received approval for additional tax increment ~~reimbursements~~reimbursement of ~~our Real Estate Management and Development Segment discussed in Note 6.~~

~~In the first quarter of 2018 we sold two parcels of land not used in our operating activities. We sold the first parcel for net proceeds of $18.9~~$1.1 million and $19.1 million, respectively, which was recognized as other income and is evidenced by a ~~pre-tax gain on~~promissory note issued to LandWell by the ~~sale~~City of ~~$11.9 million. In addition NL sold excess property with a nominal book value for proceeds of $.6 million.~~Henderson.

								Three months ended
		Three months ended March 31,						March 31,
		2018			2019			2019			2020
		(In millions)						(In millions)
Expected tax expense, at U.S. federal statutory income tax rate of 21%	Expected tax expense, at U.S. federal statutory income tax rate of 21%	$	22.4		$	8.9		$	8.9		$	10.3
Incremental net tax (benefit) on earnings and losses of non-U.S. and non-tax group companies			4.1			(.2	)
Incremental net tax benefit on earnings and losses of non-U.S., U.S. and non-tax group companies									(.2	)		(1.8	)
Non-U.S. tax rates	Non-U.S. tax rates		7.0			2.3			2.3			.9
Valuation allowance	Valuation allowance		.3			1.0			1.0			(.2	)
Adjustment to the reserve for uncertain tax positions, net									.5			.6
Global intangible low-tax income, net	Global intangible low-tax income, net		—			.7			.7			1.2
Adjustment to the reserve for uncertain tax positions, net			1.6			.5
Canada – Germany APA			(1.4	)		—
U.S. state income taxes and other, net	U.S. state income taxes and other, net		2.2			1.0			1.0			.4
Income tax expense	Income tax expense	$	36.2		$	14.2		$	14.2		$	11.4

Comprehensive provision for income taxes (benefit) allocable to:
Income from continuing operations		$	36.2		$	14.2
Discontinued operations			20.1			—
Retained earnings – change in accounting principle			1.1			—
Comprehensive provision for income taxes allocable to:
Net income								$	14.2		$	11.4
Other comprehensive income (loss):	Other comprehensive income (loss):
Currency translation	Currency translation		1.4			—			-			(4.7	)
Pension plans	Pension plans		1.5			1.6			1.5			1.8
OPEB plans			(.1	)		(.1	)
Other									-			(.2	)
Total	Total	$	60.2		$	15.7		$	15.7		$	8.3

The amount shown in the above table of our income tax rate reconciliation for non-U.S. tax rates represents the result determined by multiplying the pre-tax earnings or losses of each of our non-U.S. subsidiaries by the difference between the applicable

statutory income tax rate for each non-U.S. jurisdiction and the U.S. federal statutory tax ~~rate of 21%.~~rate. The amount shown on such

table for incremental net tax expense (benefit) on earnings and losses on non-U.S., U.S. and non-tax group companies includes, as applicable, (i) deferred state and ~~foreign~~non-U.S. income taxes (or deferred income tax benefits) and deferred withholding taxes, as applicable, associated with the current-year change in the aggregate amount of undistributed earnings of all of our non-U.S. subsidiaries, which earnings are not permanently reinvested , (ii) current U.S. income taxes (or current income tax benefit) attributable to current-year income (losses) of one of Kronos’ non-U.S. subsidiaries, which subsidiary is treated as a dual resident for U.S. income tax purposes, (iii) deferred income taxes associated with our direct investment in Kronos and (iv) current and deferred income taxes associated with distributions and earnings from our ~~investment~~investments in LandWell and BMI.

~~We record global intangible low-tax income (GILTI)~~On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to refundable payroll tax ~~as a current-period expense when incurred under~~credits, deferment of employer-side social security payments, modifications to the ~~period cost method. We have evaluated the tax impact~~limitation of ~~GILTI and base erosion anti abuse tax (BEAT) provisions and related U.S. tax credit provisions applicable to~~business interest for tax years beginning in ~~2018 based on~~2019 and 2020 and technical corrections to tax depreciation methods for qualified improvement property. The modification to the ~~relevant statutes~~business interest provisions increases the business interest limitation from 30% of adjusted taxable income to 50% of adjusted taxable income which increases our allowable interest expense deduction for 2019 and guidance provided under the proposed regulations. Given the complexity of the international provisions, it is possible that final regulations could differ from the proposed regulations and materially impact our determinations with respect to such items. Any material change will be recognized2020. Consequently, in ~~the period in which the final regulations are published.~~

None of our federal U.S. and non-U.S. tax returns are currently under examination. As a result of prior audits in certain jurisdictions, which are now settled, in 2008 Kronos filed Advance Pricing Agreement Requests with the tax authorities in the U.S., Canada and Germany. These requests had been under review with the respective tax authorities since 2008 and prior to 2016, it was uncertain whether an agreement would be reached between the tax authorities and whether we would agree to execute and finalize such agreements. During the first quarter of 2018, Kronos’ German subsidiary executed and finalized the related Advance Pricing Agreement with the Competent Authority for Germany (the “Germany-Canada APA”) effective for tax years 2005 - 2017. In the first quarter of 2018,2020 we recognized a ~~net $1.4 million non-cash income~~cash tax benefit of $1.0 million related to ~~an APA tax settlement payment between Kronos’ German and Canadian subsidiaries.~~

~~The 2017 Tax Act amended~~ the ~~rules limiting~~reversal of the ~~deduction~~valuation allowance recognized in 2019 for ~~business~~the portion of the disallowed interest expense ~~beginning in 2018. The limitation applies~~we did not expect to all taxpayers, and our annual deduction for business interest expense is limited to the sum of our business interest income and 30% of our adjusted taxable income as defined under the 2017 Tax Act. Any business interest expense not allowed as a deduction as a resultfully utilize at December 31, 2019. We have determined other provisions of the limitation may be carried forward indefinitely and is treated as interest paid in the carryforward year subject to the respective year’s limitation. We determined that our interest expense for 2018 and 2019 was limited under these provisions. The limitation in 2018 resulted in part because of the loss we recognizedCARES Act will not have a material impact on the sale of WCS for income tax purposes. We concluded that we were required to recognize a non-cash deferred income tax asset valuation allowance under the more-likely-than-not recognition criteria with respect to a portion of our deferred tax asset attributable to the nondeductible amount of business interest expense carryforward. Consequently, our provision for income taxes ~~includes a non-cash deferred~~in 2020.

Tax authorities may in the future propose tax deficiencies, including penalties and interest, related to examinations of our U.S. and non-U.S. income tax expense of $5.9 million in the first quarter of 2018 and $1.0 million in the first quarter of 2019 for the amount of such deferred income tax asset that we have determined does not meet the more-likely-than-not recognition criteria. In accordance with the ASC 740 guidance regarding intra-period allocation of income taxes, such non-cash deferred income tax expense in 2018 is classified as partreturns. Because of the ~~income taxes associated with the pre-tax gain~~uncertainties involved in settlement initiatives and court and tax proceedings, we ~~recognized for financial reporting purposes on the sale of WCS, which~~cannot guarantee that these tax matters, if any, will be resolved in our favor, and therefore our potential exposure, if any, is ~~classified as part of discontinued operations as discussed in Note 3.~~

also uncertain. We believe we have adequate accruals for additional taxes and related interest expense which could ultimately result from tax examinations. We believe the ultimate disposition of tax examinations should not have a material adverse effect on our consolidated financial position, results of operations or liquidity. We currently estimate that our unrecognized tax benefits will decrease by approximately ~~$3.7~~$5.5 million during the next twelve months primarily due to certain adjustments to our prior year returns and the expiration of certain statutes of limitations.

Other Comprehensive Income – Changes in accumulated other comprehensive income (loss) attributable to Valhi stockholders for the three months ended March 31, ~~2018~~2019 and ~~2019~~2020 are presented in the table below.

							Three months ended
		Three months��ended March 31,					March 31,
		2018			2019		2019			2020
		(In millions)					(In millions)
Accumulated other comprehensive income (loss), net of tax and noncontrolling interest:
Marketable securities:
Balance at beginning of period	$	1.7		$	1.7		$	1.7		$	1.7
Other comprehensive loss – unrealized losses arising during the period		(.1	)		—
Other comprehensive loss - unrealized losses arising during the period								-			-
Balance at end of period	$	1.6		$	1.7		$	1.7		$	1.7
Currency translation adjustment:
Balance at beginning of period	$	(54.1	)	$	(75.6	)	$	(75.6	)	$	(76.8	)
Other comprehensive income (loss)		7.2			(.2	)		(.2	)		(27.6	)
Balance at end of period	$	(46.9	)	$	(75.8	)	$	(75.8	)	$	(104.4	)
Defined benefit pension plans:
Balance at beginning of period	$	(129.0	)	$	(134.0	)	$	(134.0	)	$	(146.6	)
Other comprehensive income— amortization of prior service cost and net losses included in net periodic pension cost		1.9			1.7
Other comprehensive income - amortization of prior service cost and net losses included in net periodic pension cost							1.7				2.3
Balance at end of period	$	(127.1	)	$	(132.3	)	$	(132.3	)	$	(144.3	)
OPEB plans:
Balance at beginning of period	$	2.4		$	1.7		$	1.7		$	1.0
Other comprehensive loss – amortization of prior service credit		(.2	)		(.2	)
Other comprehensive loss - amortization of prior service credit and net losses included in net periodic OPEB cost								(.2	)		(.2	)
Balance at end of period	$	2.2		$	1.5		$	1.5		$	.8
Total accumulated other comprehensive income (loss):
Balance at beginning of period	$	(179.0	)	$	(206.2	)	$	(206.2	)	$	(220.7	)
Other comprehensive income		8.8			1.3
Other comprehensive income (loss)								1.3			(25.5	)
Balance at end of period	$	(170.2	)	$	(204.9	)	$	(204.9	)	$	(246.2	)

~~See Note 11~~Reverse stock split – As disclosed in our proxy statement filed with the Securities and Exchange Commission on April 7, 2020, our stockholders will vote on a proposal to approve a reverse stock split of our common stock at a reverse stock split ratio of 1-for-8, 1-for-10 or 1-for-12, as determined by our board of directors following stockholder approval, at our annual meeting of stockholders scheduled to be held on May 28, 2020. Also as disclosed in our proxy statement, our controlling stockholder has indicated its intention to have its shares represented at the meeting and to vote its shares in favor of the reverse stock split proposal, in which case the proposal will be approved. We expect to effect the reverse stock split promptly following the annual meeting, at the reverse stock split ratio selected by our board of directors immediately following the stockholders meeting. Once the reverse stock split has been implemented, we will adjust all share and per-share disclosures for ~~amounts related~~all periods presented in our consolidated financial statements to ~~our defined benefit pension plans.~~give effect to the split.

Other – During the first three months of 2020, Kronos acquired 122,489 shares of its common stock in market transactions for an aggregate purchase price of $1.0 million. At March 31, 2020, 1.6 million shares are available for repurchase under Kronos’ previously authorized stock repurchase program.

NL’s former operations included the manufacture of lead pigments for use in paint and lead-based paint. NL, other former manufacturers of lead pigments for use in paint and lead-based paint (together, the “former pigment manufacturers”), and the Lead Industries Association (LIA), which discontinued business operations in 2002, have been named as defendants in various legal proceedings seeking damages for personal injury, property damage and governmental expenditures allegedly caused by the use of lead-based paints. Certain of these actions have been filed by or on behalf of states, counties, cities or their public housing authorities and school districts, and certain others have been asserted as class actions. These lawsuits seek recovery under a variety of theories, including public and private nuisance, negligent product design, negligent failure to warn, strict liability, breach of warranty, conspiracy/concert of action, aiding and abetting, enterprise liability, market share or risk contribution liability, intentional tort, fraud and misrepresentation, violations of state consumer protection statutes, supplier negligence and similar claims.

The plaintiffs in these actions generally seek to impose on the defendants responsibility for lead paint abatement and health concerns associated with the use of lead-based paints, including damages for personal injury, contribution and/or indemnification for medical expenses, medical monitoring expenses and costs for educational programs. To the extent the plaintiffs seek compensatory or punitive damages in these actions, such damages are generally unspecified. In some cases, the damages are unspecified pursuant to the requirements of applicable state law. A number of cases are inactive or have been dismissed or withdrawn. Most of the remaining cases are in various pre-trial stages. Some are on appeal following dismissal or summary judgment rulings or a trial verdict in favor of either the defendants or the plaintiffs.

We believe that these actions are without merit, and ~~we intend~~NL intends to continue to deny all allegations of wrongdoing and liability and to defend against all actions vigorously. Other than with respect to the Santa Clara, California public nuisance case discussed below, we do not believe it is probable that we have incurred any liability with respect to all of the lead pigment litigation cases to which ~~we are~~NL is a party, and with respect to all such lead pigment litigation cases to which ~~we are~~NL is a party, ~~other than with respect to the Santa Clara case discussed below,~~ we believe liability to usNL that may result, if any, in this regard cannot be reasonably estimated, because:

Accordingly, other than with respect to the Santa Clara case discussed below, we have not accrued any amounts for any of the pending lead pigment and lead-based paint litigation cases filed by or on behalf of states, counties, cities or their public housing authorities and school districts, or those asserted as class ~~actions other than the Santa Clara case noted below.~~actions. In addition, we have determined that liability to usNL which may result, if any, cannot be reasonably estimated at this time because there is no prior history of a loss of this nature on which an estimate could be made and there is no substantive information available upon which an estimate could be based.

In ~~one of these lead pigment cases, in April 2000 we were served with a complaint in~~the matter titled County of Santa Clara v. Atlantic Richfield Company, et al. (Superior Court of the State of California, County of Santa Clara, Case No. 1-00-CV-788657) ~~brought by~~, on July 24, 2019 an order approving a ~~number~~global settlement agreement entered into among all of ~~California government entities against the former pigment manufacturers, the LIA and certain paint manufacturers. The County of Santa Clara sought to recover compensatory damages for funds~~ the plaintiffs ~~have expended or would~~and the three defendants remaining in the ~~future expend for medical treatment, educational expenses, abatement or other costs due to exposure to, or potential exposure to, lead paint, disgorgement of profit,~~case (the Sherwin Williams Company, ConAgra Grocery Products and punitive damages. In July 2003, the trial judge granted defendants’ motion to dismiss all remaining claims. Plaintiffs appealed and the intermediate appellate court reinstated public nuisance, negligence, strict liability, and fraud claims in March 2006. A fourth amended complaintNL) was ~~filed in March 2011 on behalf of The People of California~~entered by the ~~County Attorneys of Alameda, Ventura, Solano, San Mateo, Los Angeles~~court and Santa Clara, and the City Attorneys of San Francisco, San Diego and Oakland. That complaint alleged that the presence of lead paint created a public nuisance in each of the prosecuting jurisdictions and sought its abatement. In July and August 2013, the case was ~~tried. In January 2014, the judge issued a judgment finding NL,~~dismissed with prejudice. The ~~Sherwin Williams Company and ConAgra Grocery Products Company jointly and severally liable for the abatement of lead paint in pre-1980 homes, and ordered the defendants to pay~~global settlement agreement provides that an aggregate ~~$1.15 billion to~~$305 million will be paid collectively by the ~~people~~three co-defendants in full satisfaction of the State of California to fund such abatement. The trial court’s judgment also found that to the extent any abatement funds remained unspent after four years, such funds were to be returned to the defendants. In February 2014, we filed a motion for a new trial, and in March 2014 the trial court denied the motion. Subsequently in March 2014, we filed a notice of appeal with the Sixth District Court of Appeal for the State of California. On November 14, 2017, the Sixth District Court of Appeal issued its opinion, upholding the trial court’s judgment, except that it reversed the portion of the judgment requiring abatement of homes built between 1951 and 1980 which significantly reduced the number of homes subject to the abatement order. In addition, the appellate court ordered the case be remanded to the trial court to

recalculate the amount of the abatement fund, to limit it to the amount necessary to cover the cost of investigating and remediating pre-1951 homes, and to hold an evidentiary hearing to appoint a suitable receiver. In addition, the appellate court found that we and the other defendants had the right to seek recovery from liable parties that contributed to a hazardous condition at a particular property. Subsequently, we and the other defendants filed a Petition with the California Supreme Court seeking its review of a number of issues. On February 14, 2018, the California Supreme Court denied such petition.

~~The Santa Clara case is unusual in that this is the second time that an adverse verdict~~all claims resulting in a public nuisance lead pigment case has been entered against us (the first adverse verdict against us was ultimately overturned on appeal). Given the appellate court’s November 2017 ruling, and the denialdismissal of ~~an appeal by the California Supreme Court, we previously concluded that the likelihood of a loss in this case has reached a standard of “probable” as contemplated by ASC 450.~~

Under the remand ordered by the appellate court, the trial court was required to, among other things, (i) recalculate the amount of the abatement fund, excluding remediation of homes built between 1951 and 1980, (ii) hold an evidentiary hearing to appoint a suitable receiver for the abatement fund and (iii) enter an order or orders setting forth its rulings on these issues. We believe any party will have a right to appeal any of these new decisions to be made by the trial court from the remand of the case. Several uncertainties will still exist with respect to the new decisions to be made by the trial court from the remand of the case, including the following:

In May 2018, we and the plaintiffs entered into a settlement agreement pursuant to which, as supplemented, the plaintiffs would be paid an aggregate of $80 million, in return for which we would be dismissed from the case with prejudice and the resolution of (i) all pending and future claims ~~causes of action, cross-complaints, actions~~by the plaintiffs in the case, and (ii) all potential claims for contribution or ~~proceedings against us~~indemnity between NL and ~~our affiliates for indemnity, contribution, reimbursement or declaratory relief~~its co-defendants in respect to the ~~case would be barred, discharged~~case. In the agreement, NL expressly denies any and ~~enjoined as a matter~~all liability and the dismissal of applicable law. Of such $80 million, $65 million would be paid by us and $15 million would be provided by one of our former insurance carriers that has previously placed such amount on deposit with the trial court in satisfaction of potential liability such former carrier might have with respect to the case ~~under certain insurance policies we had~~ with ~~such former carrier. Of such $65 million which would be paid~~prejudice was entered by ~~us, $45 million would be paid upon approval~~the court without a final judgment of liability entered against NL. The settlement agreement fully concludes this matter.

Under the terms of the global settlement agreement, each defendant must pay an aggregate $101.7 million to the plaintiffs as follows: $25.0 million within sixty days of the court’s approval of the settlement and dismissal of the case and the remaining ~~$20~~$76.7 million ~~would be paid~~ in ~~five~~six annual installments beginning ~~four years from such approval~~on the first anniversary of the initial payment ($612.0 million for the first ~~installment, $5~~five installments and $16.7 million for the ~~second~~sixth installment). NL’s sixth installment ~~and $3 million for each~~will be made with funds already on deposit at the court that are committed to the settlement, including all accrued interest at the date of payment, with any remaining balance to be paid by NL (and any amounts on deposit in excess of the ~~third, fourth and fifth installments). The settlement agreement is subject~~final payment would be returned to a number of conditions including the trial court’s approval of the terms of the settlement (which trial court approval includes a determination that such settlement agreement meets the standards for a “good faith” settlement under applicable California law). The other defendants filed motions with the trial court objecting to the terms of the settlement.

With all of the uncertainties that exist with respect to the new decisions to be made by the trial court from the remand of the case, as noted above, we had previously concluded that the amount of such loss could not be reasonably estimated (nor could a range of loss be reasonably estimated). However, the terms of the settlement agreement entered into by us and the plaintiffs in May 2018, as

~~supplemented, provides evidence that the amount of the loss to us could be reasonably estimated (and provides evidence of the low end of a range of loss to us)~~NL). For financial reporting purposes we ~~discounted the five payments aggregating $20 million to be paid in installments to their estimated net present value, using~~used a discount rate of ~~3.0%~~1.9% per ~~annum. Such~~annum to discount the settlement to the estimated net present ~~value is $17~~value. We recognized additional litigation settlement expense of $19.3 million ~~and we would begin to accrete such present value amount upon approval of the settlement agreement. Accordingly, in~~during 2019 (primarily during the second quarter of 2018 we recognized a net $62 million pre-tax charge with respect to this matter ($45 million for the amount to be paid by us upon approval of the terms of the settlement and $17 million for the net present value of the five payments aggregating $20 million to be paid by us in installments beginning four years from such approval), representing the net amount we would pay in full settlement of our liability under the terms of the proposed settlement agreement. For purposes of our Condensed Consolidated Balance Sheet, we have presented the aggregate $45 million that would be paid to the plaintiffs upon approval of the terms of the settlement and the $15 million that would be paid to the plaintiffs from the amount placed on deposit with the trial court by one of our former insurance carriers (for a total of $60 million) as a current liability, $17 million for the net present value of the five payments aggregating $20 million to be paid by us in installments beginning four years from such approval as a noncurrent liability and the $15 million portion of such aggregate $80 million undiscounted amount which would be funded from the amount placed on deposit with the trial court by one of our former insurance carriers as a current insurance recovery receivable. quarter).

In July 2018, we and the other defendants filed appeals with the U.S. Supreme Court, seeking its review of two federal issues in the trial court’s original judgment. Review by the U.S. Supreme Court is discretionary, and in October 2018 the U.S. Supreme Court denied the petitions for the Court to hear such appeals.- 18 -

In September 2018, following a case-management hearing regarding the recalculated abatement fund amount held in August 2018, the trial court issued an order setting the recalculated amount of the abatement fund at $409 million. Also in September 2018, the trial court denied approval of the settlement agreement, finding among other things that the settlement agreement did not meet the standards for a “good faith” settlement under applicable California law.

Subsequently in October 2018, we filed an appeal of the trial court’s denial of approval of the settlement agreement with the Sixth District Court of Appeal for the State of California, asserting among other things that in denying such approval the trial court made several legal errors in applying applicable California law to the terms of the settlement. The plaintiffs ~~filed a brief in support of~~ our appeal. The appellate court has discretion whether to hear such appeal, and the appellate court has not yet issued its decision as to whether it will hear such appeal. There can be no assurance that the appellate court will agree to hear such appeal, or if it agrees to hear such appeal, that it would rule in favor of us and approve the settlement agreement. We continue to believe the settlement agreement satisfies the standards for a “good faith” settlement under applicable California law.

The trial court has selected and appointed a receiver for the abatement fund. The trial court has also previously stated it will not enter the judgment in the case until after the Sixth District Court of Appeal determines whether to hear the appeal regarding our settlement agreement. In March 2019, the trial court entered an order granting an offset of $8 million from a previous settlement thereby lowering the abatement fund amount from $409 million to $401 million. In April 2019, the plaintiffs filed a motion asking the trial court to move forward with entry of a judgment, even if the Sixth District Court of Appeals has not yet decided whether to hear the appeal. Subsequently, NL and the other defendants filed a response, opposing the plaintiffs’ motion. ~~We expect the judgment will require full payment of all amounts due by us and the other defendants in respect to the abatement fund within sixty days of entry of the judgment.~~

If the appellate court does not reverse the trial court decision and approve the terms of this or any other settlement agreement between us and the plaintiffs, the proceedings in the trial court under the remand, as discussed above, would continue. In such event, NL’s share of the recalculated amount of the abatement fund ($401 million) is not presently known, and other uncertainties exist with respect to the new decisions to be made by the trial court from the remand of the case, as discussed above, including but not limited to the final amount of the abatement fund ($401 million) which will ultimately be expended, particularly because participation in the abatement program by eligible homeowners is voluntary and the ultimate extent of participation and how the abatement fund will be administered is uncertain. As with any legal proceeding, there is no assurance that any appeal would be successful, and it is reasonably possible, based on the outcome of the appeals process and the remand proceedings in the trial court, that NL may in the future incur liability resulting in the recognition of an additional loss contingency accrual that could have a material adverse impact on our results of operations, financial position and liquidity.

~~In November 2018, NL was served with two complaints filed by county governments in Pennsylvania.~~ Each county alleges that NL and several other defendants created a public nuisance by selling and promoting lead-containing paints and pigments in the counties. The plaintiffs seek abatement and declaratory relief. We believe these lawsuits are inconsistent with Pennsylvania law and without merit, and we intend to defend ourselves vigorously.

New cases may continue to be filed against ~~us.~~NL. We ~~cannot assure you that~~do not know if we will ~~not~~ incur liability in the future inwith respect ofto any of the pending or possible litigation in view of the inherent uncertainties involved in court and jury rulings. In the future, if new information regarding such matters becomes available to us (such as a final, non-appealable adverse verdict against usNL or otherwise

ultimately being found liable with respect to such matters), at that time we would consider such information in evaluating any remaining cases then-pending against usNL as to whether it might then have become probable we have incurred liability with respect to these matters, and whether such liability, if any, could have become reasonably estimable. The resolution of any of these cases could result in the recognition of a loss contingency accrual that could have a material adverse impact on our net income for the interim or annual period during which such liability is recognized and a material adverse impact on our consolidated financial condition and liquidity.

Our operations are governed by various environmental laws and regulations. Certain of our 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 and regulations. As with other companies engaged in similar businesses, certain of our past and current operations and products have the potential to cause environmental or other damage. We have implemented and continue to implement various policies and programs in an effort to minimize these risks. Our policy is to maintain compliance with applicable environmental laws and regulations at all of our plants and to strive to improve environmental performance. From time to time, we may be subject to environmental regulatory enforcement under U.S. and non-U.S. statutes, the resolution of which typically involves the establishment of compliance programs. It is possible that future developments, such as stricter requirements of environmental laws and enforcement policies, could adversely affect our production, handling, use, storage, transportation, sale or disposal of such substances. We believe that all of our facilities are in substantial compliance with applicable environmental laws.

Certain properties and facilities used in NL’s former operations, including divested primary and secondary lead smelters and former mining locations, are the subject of civil litigation, administrative proceedings or investigations arising under federal and state environmental laws and common law. Additionally, in connection with past operating practices, we are currently involved as a defendant, potentially responsible party (“PRP”) or both, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act (“CERCLA”), and similar state laws in various governmental and private actions associated with waste disposal sites, mining locations, and facilities that we or our predecessors, our subsidiaries or their predecessors currently or previously owned, operated or used, certain of which are on the United States Environmental Protection Agency’s (“EPA”) Superfund National Priorities List or similar state lists. These proceedings seek cleanup costs, damages for personal injury or property damage and/or damages for injury to natural resources. Certain of these proceedings involve claims for substantial amounts. Although we may be jointly and severally liable for these costs, in most cases we are only one of a number of PRPs who may also be jointly and severally liable, and among whom costs may be shared or allocated. In addition, we are occasionally named as a party in a number of personal injury lawsuits filed in various jurisdictions alleging claims related to environmental conditions alleged to have resulted from our operations.

Obligations associated with environmental remediation and related matters are difficult to assess and estimate for numerous reasons including the:

In addition, the imposition of more stringent standards or requirements under environmental laws or regulations, new developments or changes regarding site cleanup costs or the allocation of costs among PRPs, solvency of other PRPs, the results of future testing and analysis undertaken with respect to certain sites or a determination that we are potentially responsible for the release of hazardous substances at other sites, could cause our expenditures to exceed our current estimates. ~~We cannot assure you~~It is possible that actual costs will ~~not~~ exceed accrued amounts or the upper end of the range for sites for which estimates have been made, and ~~we cannot assure you~~it is possible that costs will ~~not~~ be incurred for sites where no estimates presently can be made. Further, additional environmental and related matters may arise in the

future. If we were to incur any future liability, this could have a material adverse effect on our consolidated financial statements, results of operations and liquidity.

We record liabilities related to environmental remediation and related matters (including costs associated with damages for personal injury or property damage and/or damages for injury to natural resources) when estimated future expenditures are probable and reasonably estimable. We adjust such accruals as further information becomes available to us or as circumstances change. Unless the amounts and timing of such estimated future expenditures are fixed and reasonably determinable, we generally do not discount estimated future expenditures to their present value due to the uncertainty of the timing of the payout. We recognize recoveries of costs from other parties, if any, as assets when their receipt is deemed probable. ~~At December 31, 2018 and March 31, 2019, we have recognized $15.0 million of receivables for recoveries related to the California case discussed above.~~

We do not know and cannot estimate the exact time frame over which we will make payments for our accrued environmental and related costs. The timing of payments depends upon a number of factors, including but not limited to the timing of the actual remediation process; which in turn depends on factors outside of our control. At each balance sheet date, we estimate the amount of our accrued environmental and related costs which we expect to pay within the next twelve months, and we classify this estimate as a current liability. We classify the remaining accrued environmental costs as a noncurrent liability.

The table below presents a summary of the activity in our accrued environmental costs during the first three months of ~~2019 are presented below.~~

NL – On a quarterly basis, NL evaluates the potential range of its liability for environmental remediation and related costs at sites where it has been named as a PRP or defendant. At March 31, ~~2019,~~2020, NL had accrued approximately ~~$97~~$94 million related to approximately 32 sites associated with remediation and related matters that it believes are at the present time and/or in their current phase reasonably estimable. The upper end of the range of reasonably possible costs to NL for remediation and related matters for which we believe it is possible to estimate costs is approximately ~~$117~~$115 million, including the amount currently accrued.

NL believes that it is not reasonably possible to estimate the range of costs for certain sites. At March 31, ~~2019,~~2020, there were approximately 5five sites for which NL is not currently able to estimate a range of costs. For these sites, generally the investigation is in the early stages, and NL is unable to determine whether or not NL actually had any association with the site, the nature of its responsibility, if any, for the contamination at the site, if any, and the extent of contamination at and cost to remediate the site. The timing and availability of information on these sites is dependent on events outside of ~~our~~NL’s control, such as when the party alleging liability provides information to us. At certain of these previously inactive sites, NL has received general and special notices of liability from the EPA and/or state agencies alleging that NL, sometimes with other PRPs, ~~are~~is liable for past and future costs of remediating environmental contamination allegedly caused by former operations. These notifications may assert that NL, along with any other alleged PRPs, ~~are~~is liable for past and/or future clean-up costs. As further information becomes available to us for any of these sites which would allow us to estimate a range of costs, we would at that time adjust our accruals. Any such adjustment could result in the recognition of an accrual that would have a material effect on our ~~consolidated~~ financial ~~statements,~~position, results of operations and liquidity.

Other – We have also accrued approximately ~~$5.5~~$5 million at March 31, ~~2019~~2020 for other environmental cleanup matters.

~~We are~~NL is involved in certain legal proceedings with a number of ~~our~~its former insurance carriers regarding the nature and extent of the carriers’ obligations to usNL under insurance policies with respect to certain lead pigment and asbestos lawsuits. The issue of whether insurance coverage for defense costs or indemnity or both will be found to exist for ~~our~~NL’s lead pigment and asbestos litigation depends upon a variety of factors and we cannot assure you that such insurance coverage will be available.

~~We have~~NL has agreements with certain of ~~our~~its former insurance carriers pursuant to which the carriers reimburse usit for a portion of ~~our~~its future lead pigment litigation defense costs, and one such carrier reimburses usNL for a portion of ~~our~~its future asbestos litigation defense

costs. We are not able to determine how much weNL will ultimately recover from these carriers for defense costs incurred by usNL because of certain issues that arise regarding which defense costs qualify for reimbursement. While ~~we continue~~NL continues to seek additional insurance recoveries, we do not know if we will be successful in obtaining reimbursement for either defense costs or indemnity. Accordingly, we recognize insurance recoveries in income only when receipt of the recovery is probable and we are able to reasonably estimate the amount of the recovery.

For additional discussion of certain litigation involving NL and certain of its former insurance carriers, please refer to our ~~2018~~2019 Annual Report.

In addition to the litigation described above, we and our affiliates are involved in various other environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to our present and former businesses. In certain cases, we have insurance coverage for these items, although we do not expect any additional material insurance coverage for our environmental claims. We currently believe that the disposition of all of these various other claims and disputes (including asbestos-related claims), individually or in the aggregate, should not have a material adverse effect on our consolidated financial position, results of operations or liquidity beyond the accruals already provided.

Certain sales generated by our Chemicals Segment’s non-U.S. operations are denominated in U.S. dollars. Our Chemicals Segment periodically uses currency forward contracts to manage a very nominal portion of currency exchange rate risk associated with trade receivables denominated in a currency other than the holder’s functional currency or similar exchange rate risk associated with future sales. Derivatives that we use are primarily currency forward contracts and interest rate swaps. We have not entered into these contracts for trading or speculative purposes in the past, nor do we currently anticipate entering into such contracts for trading or speculative purposes in the future. Derivatives used to hedge forecasted transactions and specific cash flows associated with financial assets and liabilities denominated in currencies other than the U.S. dollar and which meet the criteria for hedge accounting are designated as cash flow hedges. Consequently, the effective portion of gains and losses is deferred as a component of accumulated other comprehensive income (loss) and is recognized in earnings at the time the hedged item affects earnings. Contracts that do not meet the criteria for hedge accounting are marked-to-market at each balance sheet date with any resulting gain or loss recognized in income currently as part of net currency transactions. The fair value of the currency forward contracts is determined using Level 1 inputs based on the currency spot forward rates quoted by banks or currency dealers. During 2018 and the first quarter of 2019, Kronos had no currency forward contracts outstanding.

The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure:

									December 31, 2019				March 31, 2020
	December 31, 2018				March 31, 2019				Carrying amount		Fair value		Carrying amount		Fair value
	Carrying amount		Fair value		Carrying amount		Fair value		(In millions)
	(In millions)
Cash, cash equivalents and restricted cash equivalents	$	523.7	$	523.7	$	487.6	$	487.6	$	583.8	$	583.8	$	529.0	$	529.0
Deferred payment obligation		9.6		9.6		9.7		9.7		9.9		9.9		9.9		9.9
Long-term debt (excluding capitalized leases):
Kronos Senior Notes		452.4		412.9		443.2		428.6		442.6		457.0		435.1		374.8
Valhi credit facility with Contran		314.3		314.3		313.0		313.0		313.0		313.0		313.0		313.0
Tremont promissory note payable		9.4		9.4		8.7		8.7		2.0		2.0		.5		.5
BMI bank note payable		18.0		18.8		18.0		18.8		17.2		17.9		17.2		17.9
LandWell note payable to the City of Henderson		2.1		2.1		2.1		2.1		1.6		1.6		-		-

LandWell bank note payable										15.0		15.0		14.9		15.0

At March 31, ~~2019,~~2020, the estimated market price of Kronos’ Senior Notes was ~~€954~~€852 per €1,000 principal amount. The fair value of Kronos’ Senior Notes was based on quoted market prices; however, these quoted market prices represent Level 2 inputs because the markets in which the term loan trades were not active. The fair value of variable interest rate debt and other fixed-rate debt, which represents Level 2 inputs, is deemed to approximate carrying values. See Note 7.6. Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value. See Notes 43 and 8.7.

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes, which changes the accounting for certain income tax transactions and reduces complexity in accounting for income taxes in certain areas. The ASU introduces new guidance including providing a policy election for an entity to not allocate consolidated current and deferred tax expense when a member of a consolidated tax return is not subject to income tax in its separate financial statements and is a disregarded entity by the taxing authority; and providing guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The ASU also changes existing guidance in a number of areas, including: the method of making an intraperiod allocation of total income tax expense if there is a loss in continuing operations and gains outside of continuing operations; determining when a deferred tax liability is recognized after an investor in a non-U.S. entity transitions to or from the equity method of accounting; accounting for tax law changes and year-to-date losses in interim periods; and determining how to apply the income tax guidance to franchise taxes that are partially based on income. We adopted this ASU as of January 1, 2020. The adoption of this ASU in the first quarter of 2020 did not have a material effect on our Condensed Consolidated Financial Statements.

~~On January 1, 2019, we adopted ASU 2016-02,~~ ~~Leases (Topic 842), which is a comprehensive rewriting~~Following the spread of the ~~lease accounting guidance which aims~~COVID-19 virus beyond China in late January 2020, various national, state and local governments began to ~~increase comparability~~implement a number of increasingly restrictive measures to contain the spread of the virus, including travel restrictions, gathering limitations, event cancellations, border closures and ~~transparency with regard~~stay-at-home orders, resulting in sharp contractions of vast areas of the global economy beginning in March 2020. While measured efforts are underway to ~~lease transactions. The primary change was~~resume commercial activities in most global markets, the ~~recognition~~impacts of ~~lease assets~~COVID-19, including the efforts to mitigate its spread, are expected to continue to challenge workers, businesses and governments for the ~~right-of-use~~foreseeable future. Although the COVID-19 pandemic had limited impact on our operations during the first quarter of 2020, we believe U.S. and worldwide gross domestic product will be significantly impacted for an indeterminate period, including the demand for our products and those of our customers. Consequently, we expect to report lower sales and earnings than would otherwise have been expected for the remainder of 2020. The extent of the ~~underlying asset~~impact will depend on numerous factors, including future developments, and lease liabilities for the obligation to make payments by lessees on the balance sheet for leases previously classified as operating leases. ASU 2016-02, as amended, also requires increased qualitative disclosure about leases in addition to quantitative disclosures previously required. As permitted, we adopted this ASU prospectively as of January 1, 2019 with no restatement of prior period financial statements. This ASU permits companies to elect certain practical expedients upon adoption,therefore is uncertain and at adoption we elected the package of practical expedients related to, among other things, lease classification (in which existing leases classified as operating leases under prior GAAP are classified as an operating lease under the new ASU, and existing leases classified as a capital lease under prior GAAP are classified as a finance lease under the new ASU), nonlease components (in which nonlease components associated with a lease and paid by us to the lessor, such as property taxes, insurance and maintenance, are treated as a lease component and considered part of minimum lease rental payments), and short-term leases (in which leases with an original maturity of 12 months or less are excluded from the recognition requirements of the new ASU). Upon adoption of this new ASU, at January 1, 2019 we recognized an aggregate right-of-use operating lease asset of $35.1 million and a corresponding aggregate operating lease liability of $34.5 million (there was no impact to the opening balance of retained earnings at January 1, 2019 as a result of adopting this new ASU). See Note 6.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, Basic Management, Inc. (“BMI”) and the LandWell Company (“LandWell”). Kronos (NYSE: KRO), NL (NYSE: NL) and CompX (NYSE ~~MKT:~~American: CIX) each file periodic reports with the SEC.

On January 26, 2018 we sold our Waste Management Segment to JFL-WCS Partners, LLC ("JFL Partners"), an entity sponsored by certain investment affiliates of J.F. Lehman & Company, for consideration consisting of the assumption of all of WCS' third-party indebtedness and other liabilities; accordingly the results of operations of our Waste Management Segment is reflected as discontinued operations in our Consolidated Statement of Income for the three months ended March 31, 2018. We recognized a pre-tax gain of approximately $58 million on the transaction in the first quarter of 2018 because the carrying value of the liabilities of the business assumed by the purchaser exceeded the carrying value of the assets sold at the time of sale in large part due to a long-lived asset impairment of $170.6 million recognized with respect to the Waste Management Segment in the second quarter of 2017. Such pre-tax gain is classified as part of discontinued operations. The sale of our former Waste Management Segment enables us to focus on our remaining profitable businesses. See Note 3 to our Condensed Consolidated Financial Statements.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Statements in this Quarterly Report that are not historical facts are forward-looking in nature and represent management’s beliefs and assumptions based on currently available information. In some cases, you can identify forward-looking statements by the use of words such as “believes,” “intends,” “may,” “should,” “could,” “anticipates,” “expects” or comparable terminology, or by discussions of strategies or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we do not know if these expectations will be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly impact expected results. Actual future results could differ materially from those predicted. The factors that could cause 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 and include, but are not limited to, the following:

Should one or more of these risks materialize (or the consequences of such development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those currently forecasted or expected. We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of changes in information, future events or otherwise.

Quarter Ended March 31, ~~2019~~2020 Compared to the Quarter Ended March 31, ~~2018~~2019 —

We reported net income ~~from continuing operations~~ attributable to Valhi stockholders of $24.4 million or $.07 per diluted share in the first quarter of 2020 compared to $18.2 million or $.05 per diluted share in the first quarter of ~~2019 compared to $51.7 million or $.15 per diluted share in the first quarter of 2018.~~2019. As discussed more fully below, our net income ~~from continuing operations~~ attributable to Valhi stockholders ~~decreased~~increased from ~~2018~~2019 to 2020 primarily due to the net effects of:

Our diluted net income per share in the first quarter of 2020 includes income of $.03 per share related to the tax increment infrastructure reimbursement.

We currently expect to report lower consolidated operating income for 2020 as compared to 2019 primarily due to the net effects of:

~~Our net diluted income from continuing operations per share in 2018 includes a gain of $.03 per share related to the sale of land not used in our operations.~~

~~We currently expect to report lower consolidated operating income for 2019 as compared to 2018 primarily~~2020 due to ~~the net effects of:~~

The advance of the COVID-19 pandemic and the global efforts to mitigate its spread have already resulted in sharp contractions of vast areas of the global economy and are expected to continue to challenge workers, businesses and governments for the foreseeable future. Government actions in various regions to gradually permit the resumption of limited commercial activities following various regional shutdowns are currently in progress, but it is believed that the success and timing of these actions will depend in part on deployment of effective tools to fight COVID-19, including increased testing, enhanced monitoring, data analysis and effective treatments, before economic growth returns to pre-pandemic levels, particularly in service related sectors of the economy. Even as these measures are implemented and become effective, they will not directly address the business and employment losses already experienced. As a result, we expect U.S. and worldwide gross domestic product to be significantly impacted for an indeterminate period which in turn would impact demand for our products and those of our customers. Consequently, we expect to report lower sales and earnings than would otherwise have been expected for the remainder of 2020. The extent of the impact will depend on numerous factors, including future developments, and therefore is uncertain and cannot be predicted.

We consider TiO₂ to be a “quality of life” product, with demand affected by gross domestic product, or 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,~~be 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 that our customers’ inventory levels are influenced in part by their expectations for future changes in market TiO₂ selling prices as well as their expectations for future availability of product. Although certain of our TiO₂grades are considered specialty pigments, the majority of our grades and substantially all of our production are considered commodity pigment products with price and availability being the most significant competitive factors along with product quality and customer and technical support service.

The factors having the most impact on our Chemicals Segment’s reported operating results are:

~~Our Chemicals Segment’s key~~Key performance indicators are our Chemicals Segment’s TiO₂ average selling prices, ~~our~~the level of TiO₂ sales and production volumes, and the cost of our Chemicals Segment’s third-party ~~feedstock ore.~~feedstock. TiO₂selling prices generally follow industry trends and prices will increase or decrease generally as a result of competitive market pressures.

	Three months ended March 31,								Three months ended March 31,
		2018			2019		% Change		2019			2020			% Change
	(Dollars in millions)								(Dollars in millions)
Net sales	$	430.4		$	436.5		1	%	$	436.5		$	421.0			(4	)	%
Cost of sales		256.1			327.7		28			327.7			333.3			2
Gross margin	$	174.3		$	108.8		(38	)	$	108.8		$	87.7			(19	)
Operating income	$	110.6		$	52.8		(52	)	$	52.8		$	46.8			(11	)
Percent of net sales:
Cost of sales		60	%		75	%				75	%	79		%
Gross margin		40			25					25		21
Operating income		26			12					12		11
Ti0₂ operating statistics:
Sales volumes*		125			143		15	%		143		136				(5	)	%
Production volumes*		133			134		1			134		132				(1	)
Percent change in net sales:
Ti0₂ sales volumes																(5	)	%
Ti0₂ product pricing							(8	)%								-
Ti0₂ sales volumes							15
Ti0₂ product mix							(3	)
Ti0₂ product mix/other																3
Changes in currency exchange rates							(3	)								(2	)
Total							1	%								(4	)	%

Current ~~industry conditions~~Industry Conditions—Due to the successful implementation of previously-announced price increases, average selling prices rose during the first six months of 2018, however such average selling prices began to decline in the last six months of 2018 and continued to decline into the first three months of 2019. Our Chemicals Segment started ~~2019~~2020 with average TiO₂selling prices 3%1% lower than at the beginning of ~~2018~~2019, and ~~our~~ average TiO₂selling prices at the end of the first quarter of ~~2019~~2020 were 4%2% lower than at the end of ~~2018. Lower prices~~2019. Our Chemicals Segment experienced lower sales volumes in the ~~European,~~ North American, ~~and~~ Latin American and export markets ~~were~~ partially offset by higher ~~prices in the export market at the end of the first quarter of 2019 compared to the end of 2018. Our Chemicals Segment experienced higher~~ sales volumes in ~~all major markets~~the European market in the first three months of ~~2019~~2020 as compared to the same period of ~~2018.~~2019.

Our Chemicals Segment operated ~~its~~our production facilities at overall average ~~practical~~ capacity utilization rates of 95% ~~and~~in the first quarter of 2020 compared to 97% in the first quarter of ~~2018 and 2019, respectively.~~2019.

Primarily due to a moderate rise in the cost of third-party feedstock ~~ore~~ we procured in ~~2018,~~2019, our Chemicals Segment’s cost of sales per metric ton of TiO₂ sold in the first three months of ~~2019~~2020 was higher as compared to the first three months of ~~2018~~2019 (excluding the effect of changes in currency exchange rates).

Net ~~sales~~Sales—Our Chemicals Segment’s net sales in the first quarter of ~~2019 increased 1%~~2020 decreased 4%, or ~~$6.1~~$15.5 million, compared to the first quarter of ~~2018~~2019 primarily due to ~~the~~a 5% decrease in sales volumes (which decreased net ~~effect of an 8% decrease in~~sales by approximately $22 million). Our Chemicals Segment’s average TiO₂ selling prices ~~(which decreased net sales by approximately $34 million) and a 15% increase~~ in ~~sales volumes (which increased net sales by approximately $65 million).~~the first quarter of 2020 were comparable to our average TiO₂ selling prices in the first quarter of 2019. TiO₂ selling prices will increase or decrease generally as a result of competitive market pressures, changes in the relative level of supply and demand as well as changes in raw material and other manufacturing costs.

Our Chemicals Segment’s sales volumes ~~increased 15%~~decreased 5% in the first quarter of ~~2019~~2020 as compared to the first quarter ~~sales volumes~~ of ~~2018~~2019 primarily due to lower sales volumes in the North American, Latin American and export markets partially offset by higher sales volumes in ~~all major markets.~~the European market. In addition to the impact of ~~changes in average TiO~~₂ ~~selling prices and~~lower sales volumes, we estimate that changes in currency exchange rates (primarily the euro) decreased our Chemicals Segment’s net sales by approximately ~~$15~~$7 million in the first quarter of 2020 as compared to the first quarter of ~~2018.~~2019.

Cost of Sales and Gross Margin—Our Chemicals Segment’s cost of sales increased ~~28%~~2% in the first quarter of ~~2019~~2020 compared to the first quarter of ~~2018~~2019 due to the net effect of ~~a 15% increase in sales volumes,~~ higher raw materials and other production costs of approximately ~~$46~~$23 million ~~a 1% increase in TiO~~₂ ~~production volumes~~(including higher cost for third-party feedstock, energy and other raw materials), favorable effects from currency fluctuations (primarily the euro). and a 5% decrease in sales volumes. Our ~~Chemicals Segment’s~~ cost of sales as a percentage of net sales increased to ~~75%~~79% in the first quarter of ~~2019~~2020 compared to ~~60%~~75% in the same period of ~~2018 as~~2019 primarily due to the unfavorable ~~effect~~effects of ~~lower average selling prices and~~ higher raw materials and other production costs, ~~(primarily third-party feedstock ore) more than offset the favorable impact of higher sales and production volumes,~~ as discussed above.

Our Chemicals Segment’s gross margin as a percentage of net sales decreased to 21% in the first quarter of 2020 compared to 25% in the first quarter of ~~2019 compared to 40% in the first quarter of 2018.~~2019. As discussed and quantified above, our Chemicals Segment’s gross margin ~~increased~~decreased primarily due to the ~~net effect~~effects of lower ~~average selling prices, higher~~ sales ~~and production~~ volumes and higher raw materials and other production costs.

Operating Income—Our Chemicals Segment’s operating income decreased ~~52%~~11% in the first quarter of ~~2019~~2020 compared to the first quarter of ~~2018,~~2019, and operating income as a percentage of net sales decreased to 11% in 2020 from 12% in ~~2019 from 26% in 2018.~~2019. This decrease ~~in operating income~~ was driven by the ~~decrease in~~lower gross margin discussed above. We estimate that changes in currency exchange rates increased our Chemicals Segment’s operating income by approximately $8$11 million in the first quarter of ~~2019~~2020 as compared to the same period in ~~2018,~~2019, as discussed below.

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 additional depreciation expense of $.5 million in the first three months of 2020 and $.6 million in ~~each~~the same period of ~~the first quarters of 2018 and~~ 2019, which reduced our reported Chemicals Segment’s operating income as compared to amounts reported 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 our Chemicals Segment’s sales from non-U.S. operations are denominated in currencies other than the U.S. dollar, principally the euro, other major European currencies and the Canadian dollar. A portion of our sales generated from our non-U.S. operations is denominated in the U.S. dollar (and consequently our non-U.S. operations will generally hold U.S. dollars from time to time). Certain raw materials used worldwide, primarily titanium-containing feedstocks, are purchased primarily 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 non-U.S. sales and operating results are subject to currency exchange rate fluctuations which may favorably or unfavorably impact reported earnings and may affect the comparability of period-to-period operating results. In addition to the impact of the translation of sales and expenses over time, our non-U.S. operations also generate currency transaction gains and losses which primarily relate to (i) the difference between the currency exchange rates in effect when non-local currency sales or operating costs (primarily U.S. dollar denominated) are initially accrued and when such amounts are settled with the non-local currency, (ii) changes in currency exchange rates during time periods when our non-U.S. operations are holding non-local currency (primarily U.S. dollars), and (iii) relative changes in the aggregate fair value of currency forward contracts held from time to time. ~~As discussed in Note 17 to our Consolidated Financial Statements, we~~Our Chemicals Segment periodically ~~use~~uses currency forward contracts to manage a portion of our currency exchange risk, and relative changes in the aggregate fair value of any currency forward contracts we hold from time to time ~~serves~~serve in part to mitigate the currency transaction gains or losses we would otherwise recognize from the first two items described above.

Overall, we estimate that fluctuations in currency exchange rates had the following effects on the reported amounts of our Chemicals Segment’s sales and operating income for the periods indicated.

The ~~$15~~$7 million decrease in our Chemicals Segment’s net sales (translation loss) was caused primarily by a strengthening of the U.S. dollar relative to the euro, as our euro-denominated sales were translated into ~~less~~fewer U.S. dollars in ~~2019~~2020 as compared to ~~2018.~~2019. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in ~~2019~~2020 did not have a significant effect on the reported amount of our Chemicals Segment’s net sales, as a substantial portion of the sales generated by our Chemicals Segment’s Canadian and Norwegian operations are denominated in the U.S. dollar.

The $8$11 million increase in our Chemicals Segment’s operating income ~~was comprised of the following:~~

~~Outlook—~~Weglobal economy, we expect our Chemicals Segment’s ~~production volumes~~sales and earnings will be lower than originally planned for 2020. The extent of the impact will depend on numerous factors, including future developments, and therefore is uncertain and cannot be predicted. If significant declines in ~~2019 to be slightly higher as compared to 2018 production volumes. Assuming current~~ global ~~economic conditions remain stable and based on anticipated production levels,~~demand occur, we ~~also~~would expect a reduction in our Chemicals Segment’s ~~2019~~ sales volumes and potentially, average sales prices, which in turn would cause us to reduce our production volumes, resulting in an increase to our per unit costs of production. If this occurs, spending for raw materials and other production costs would be ~~higher as compared~~reduced, but not enough to ~~2018 sales volumes.~~offset the negative impacts of reduced sales. Depending on the length and severity of the impact of COVID-19 on the global economy, we may decide to curtail production or temporarily close manufacturing facilities, or we may be required to temporarily close certain facilities if outbreaks escalate in a particular region. We will continue to monitor current and anticipated near-term customer demand ~~levels~~throughout the year and align our production and ~~inventories accordingly.~~

The cost of third-party feedstock ore our Chemicals Segment purchased in 2018 was higher as compared to 2017 and such higher cost feedstock ore was reflected in our Chemicals Segment’s results of operations beginning in the second quarter of 2018. Consequently, our cost of sales per metric ton of TiO₂ sold in the first three months of 2019 was moderately higher than our per-metric ton cost in the first three months of 2018 (excluding the effect of changes in currency exchange rates) primarily due to higher third-party feedstock ore costs. We expect our cost of sales per metric ton of TiO₂ ~~sold in 2019 to be higher than our per-metric ton cost in 2018 primarily due to higher feedstock costs.~~

Our Chemicals Segment started 2019 with average selling prices 3% lower than the beginning of 2018. Average selling prices decreased by an additional 4% in the first three months of 2019. Industry data indicates that overall TiO₂ ~~inventory held by producers stood at adequate-to-low levels in the last half of 2018 and into the first quarter of 2019. We expect customer~~ inventory levels accordingly.

Though it is not possible to ~~continue to decline through~~predict the ~~second quarter of 2019 which could result in stabilization or minor increases in TiO~~₂~~selling prices during the remainder of 2019.~~

~~Overall, we expect our Chemicals Segment’s sales in 2019 will be higher as compared to 2018, principally as a result~~impact of the favorable impact of higher expected sales volumes partially offset by the unfavorable impact of lower expected average selling prices. In addition, we expect our Chemicals Segment’s operating income in 2019 will be lower as compared to 2018, as the favorable impact of higher expected sales volumes would be more than offset by the unfavorable impact of lower expected average selling prices and higher raw material costs (principally feedstock ore) in 2019.

~~Due to the constraints of high capital costs and extended lead time associated with adding significant new TiO~~₂ ~~production capacity, especially for premium grades of TiO~~₂ ~~products produced from the chloride process, we believe increased and sustained profit margins will be necessary to financially justify major expansions of TiO~~₂ ~~production capacity required to meet expected~~COVID-19 pandemic on future ~~growth in demand. Any major expansion of TiO~~₂ ~~production capacity, if announced, would take several years before such production would become available to meet future growth in demand.~~

~~Our expectations~~demand for our Chemicals Segment’s ~~future operating results~~products or those of our customers, we believe that we have sufficient cash on-hand and available borrowing capacity under our revolving credit facilities to meet our obligations, and we are ~~based upon a number~~prepared to implement multiple cash-saving strategies if necessary, including reduction of ~~factors beyond our control, including worldwide growth of gross domestic product, competition~~inventories, delays in ~~the marketplace, continued operation of competitors, unexpected or earlier-than-expected capacity additions or reductions~~capital expenditures and ~~technological advances. If actual developments differ from our expectations, our results of operations could be unfavorably affected.~~other cost saving initiatives.

Our Component Products Segment’s product offerings consist of a significantly large number of products that have a wide variation in selling price and manufacturing cost, which results in certain practical limitations on our ability to quantify the impact of changes in individual product sales quantities and selling prices on ~~our~~the segment’s net sales, cost of sales and gross margin. In addition, small variations in period-to-period net sales, cost of sales and gross margin can result from changes in the relative mix of our products sold. The key performance indicator for our Component Products Segment is operating income and margins.

	Three months ended March 31,
	2019			2020			% Change
	(Dollars in millions)
Net sales:
Security products	$	24.7		$	25.5			3	%
Marine components		6.5			6.8			6
Total net sales		31.2			32.3			4

Cost of sales		21.5			21.9			2
Gross margin	$	9.7		$	10.4			8

Operating income	$	4.4		$	5.0			14

Percent of net sales:
Cost of sales		69	%		68	%
Gross margin	31			32
Operating income	14			15

Net Sales — Our Component Products Segment’s net sales increased ~~$2.8~~$1.1 million in the first quarter of ~~2019~~2020 compared to the same period ~~of 2018,~~in 2019 primarily due to higher ~~marine component~~ sales of ~~$2.2 million, primarily surf pipes and wake enhancement systems~~security products to ~~an original equipment boat manufacturer,~~existing government security customers and to a lesser extent higher ~~security products~~ sales ~~volumes~~of marine components to ~~existing government security customers of $.8 million.~~the towboat and center console boat markets. Relative changes in selling prices did not have a material impact on net sales comparisons.

Costs of Sales and Gross Margin — ~~Our~~As a percentage of net sales, our Component Products Segment’s cost of sales ~~as a percentage of sales increased 2%~~decreased 1% in the first quarter of ~~2019~~2020 compared to the same period in ~~2018.~~2019 due to the favorable effects of customer and product mix, partially offset by increased medical costs for both security products and marine components. As a result, gross margin as a percentage of sales ~~decreased~~increased over the same period. ~~The decrease in gross~~Gross margin ~~percentage was primarily the result of~~dollars increased ~~labor rates and medical costs at our security products reporting unit as well as a less favorable customer and product mix at our marine components reporting unit.~~ due to higher sales for both business segments.

Operating Income — Our Component Products Segment’s operating income as a percentage of net sales for the first quarter of ~~2019 was comparable~~2020 increased compared to the same period of ~~2018 as a result of~~2019 and was primarily impacted by the factors impacting cost of ~~goods sold,~~sales and gross margin ~~and operating costs~~ discussed above.

Outlook— Our Component Products ~~Segment’s~~Segment experienced minimal disruptions to our supply chain or customer base from COVID-19 during the first quarter of 2020. First quarter sales ~~exceeded prior year largely due to~~reflect continued ~~high~~strong demand for our ~~marine~~ products, ~~where we continue to benefit from innovation and diversification in~~including high-security applications for our product offerings to the recreational boat markets. Our Component Products Segment’s operating income for the quarter was comparable to prior year, as operating margin for the security products reporting unit decreased relative to prior year due to higher labor rates and medical costs, the effect of which we were not able to offset through higher selling prices. At present we expect this pattern to continue, with full year sales for 2019 tracking above 2018 and full year profitability comparable to prior year. We will continue to monitor economic conditions and sales order rates and respond to fluctuations in customer demand through continuous evaluation of staffing levels and consistent execution of our lean manufacturing and cost improvement initiatives. Additionally, we continue to seek opportunities to gain market share in markets we currently serve, to expand into new markets and to develop new product features in order to mitigate the impact of changes in demandexisting government customers as well as ~~broaden~~ our ~~sales base.~~marine products. We have been identified as an essential business in the states where we operate, and we are considered critical in supplying components to many essential and mandatory markets. Beginning in late March 2020, we began receiving requests from certain customers of both our security products and marine components reporting units to delay or postpone shipments, in some cases because our customers’ production facilities have temporarily closed. We operate three facilities, each of which specializes in certain manufacturing processes and is therefore dependent upon the other facilities to some extent to manufacture finished goods. With the onset of COVID-19, within each facility we increased sanitizing, mandated social distancing and implemented other health and safety protocols. In late April 2020, we temporarily closed our facility that is located outside of Chicago, Illinois, which has been considered a COVID-19 “hotspot,” due to an increase of COVID-19 cases in the community. During the closure we completed a deep clean and sanitization within the facility, and we successfully reopened the plant and resumed production after a one week pause. We believe the temporary closure of our Illinois facility will have minimal negative impact on our ability to manufacture and ship during the second quarter, in part due to the anticipated decline in demand during the same period.

Based on current conditions, we expect to report reduced revenue and operating income during the second quarter of 2020 compared to the first quarter of 2020, but the severity of the decline will depend on customer demand for our products, including the timing and extent to which our customers restart their operations, on our customers’ perception as to when consumer demand for their products will return and on any future disruptions in our operations or our suppliers’ operations, all of which are difficult to predict. Our operations teams meet daily to ensure we are maintaining a safe working environment for all of our employees, minimizing operational disruptions and managing inventory levels. It is possible we may temporarily close one or more of our facilities again for the health and safety of our employees before the COVID-19 crisis is over. CompX has significant cash balances of approximately $58.6 million at March 31, 2020, and believes it is well positioned to navigate the uncertainty ahead.

General—Our Real Estate Management and Development Segment consists of BMI and LandWell. BMI provides utility services, among other things, to an industrial park located in Henderson, Nevada, and is responsible for the delivery of water to the city of Henderson and various other users through a water distribution system owned by BMI. LandWell is actively engaged in efforts to develop certain real estate in Henderson, Nevada including approximately 2,100 acres zoned for residential/planned community purposes and approximately 400 acres zoned for commercial and light industrial use.

InBeginning in December 2013 and through the first quarter of ~~2019,~~2020, LandWell has closed or entered into escrow on approximately ~~575~~680 acres of the residential/planned community and approximately 6568 acres zoned for commercial and light industrial use. Contracts for land sales are negotiated on an individual basis and sales terms and prices will vary based on such factors as location (including location within a planned community), expected development work, and individual buyer needs. Although land may be under contract, we do not recognize revenue until we have satisfied the criteria for revenue recognition set forth in ASC Topic 606. In some instances, we will receive cash proceeds at the time the contract closes and record deferred revenue for some or all of the cash amount received, with such deferred revenue being recognized in subsequent periods. We expect the development work to continue for 10 to 15 years on the rest of the land held for development, especially the remainder of the residential/planned community.

Net Sales and Operating Income— A substantial portion of the net sales from our Real Estate Management and Development Segment in the first quarter of ~~2018~~2019 and ~~2019~~2020 consisted of revenues from land sales. ~~We recognized $9.5 million in revenues on land sales during the first quarter of 2019 compared to $5.8 million in the first quarter of 2018.~~ As noted above we recognize revenue onin our residential/planned community over time using ~~costs~~cost based ~~inputs~~input methods (previously known as percentage completion method) and ~~a large majority~~substantially all of the revenue we recognized in ~~2018~~2019 and ~~2019~~2020 was under this method of revenue recognition. The contracts on these sales (both within the planned community and otherwise) include approximately ~~535~~645 acres of the residential planned community and certain other acreage which closed in December ~~2015~~2013 and through the first quarter of 2020. Land sales revenues were lower in the first quarter of 2020 as compared to the first quarter of 2019 primarily due to a decrease in the amount of acreage sold in 2020 compared to 2019 and due to higher infrastructure development spending in 2019. Cost of sales related to land sales revenues was $2.7 million in the first quarter of 2020 compared to $6.9 million in the first quarter of ~~2019 and $4.3~~2019. Operating income also includes $19.1 million in the first quarter of ~~2018. Operating income also includes~~2020 and $1.1 million in the first quarter inof 2019 ~~and $3.1 million in the first quarter of 2018~~ of income related to the recognition of tax increment reimbursement note receivables, as discussed in Note 611 to our Condensed Consolidated Financial Statements.

The remainder of net sales and cost of sales related to this segment primarily relates to water delivery fees and expenses. We deliver water to several customers under long-term contracts.

Outlook—~~We are~~Our Real Estate Management and Development Segment experienced minimal impact on operations and financial performance from COVID-19 during the first quarter of 2020. BMI continues to provide utility and water delivery services to its customers without interruption and LandWell is continuing to actively ~~pursuing opportunities to maximize cash proceeds from the sale of our~~develop and sell land ~~held for development. In the near term, we are focused on developing and selling land we manage,~~it manages, primarily to residential builders, for the approximately 2,100 acres zoned for a residential/planned community in Henderson, Nevada. WeOur Real Estate Management and Development management team is focused on protecting the health and safety of our employees and contractors through implementation of social distancing and work-from-home strategies among other health and safety protocols.

In April 2020 LandWell began receiving requests from some residential builders to delay or cancel closing on certain parcels in escrow. Given the impact of COVID-19 on the overall economy, including the greater Las Vegas area, we expect the level of land sales to be negatively impacted in the near term. The extent of the impact will depend on numerous factors, including customer demand and future developments, and therefore is uncertain and cannot be predicted. Given the current liquidity of our Real Estate

Management and Development Segment, including approximately $11.2 million of cash and cash equivalents at March 31, 2020, we believe we are well positioned to meet our obligations. Depending on the length and severity of the impact of COVID-19 on the economy and our operations, we may decide to delay or curtail infrastructure development ~~work~~activities in the near term where possible and implement other cash-saving initiatives. Because we recognize revenue over time using cost based inputs for most of our land sales, delays or curtailments in infrastructure development activities will lower the amount of revenue we would recognize on previously closed land sales. As a result we expect land sales revenue to be lower in the second quarter of 2020 than the first ~~phase~~quarter of 2020. In addition delays or curtailments in infrastructure development activities will also delay our ability to submit completed costs to the ~~residential/planned community to continue over the next several years, including those parcels currently under contract~~City of Henderson for ~~which the development work is expected to be completed in 2019. We do~~approval of additional tax increment reimbursement note receivables and, as a result, we would not expect to recognize significant amounts of operating income related to these sales for the parcels currently under contract because our basis in the land value is the December 2013 acquisition date fair value; however, we do expect to generate cash proceeds from these sales in excess of our acquisition costs, which proceeds are expected to be used, in part, to fund ongoing development work for the remainder of these properties. Beginning in the fourth quarter of 2017, we began sales of parcels that have a lower book value than the parcels previously sold; as a result we would expect to recognize more land sales related operating income in 2019 than in 2018. additional note receivables during 2020.

General Corporate Items, Interest Expense, Income Taxes and Noncontrolling Interest—~~2019~~2020 Compared to ~~2018~~

~~Securities Earnings~~—A significant portion of our interest and dividend income in 2018 relates to the distributions we received from The Amalgamated Sugar Company LLC. We recognized dividend income from Amalgamated of $6.3 million in the first quarter of 2018. As discussed in the 2018 Annual Report, on August 31, 2018, we sold our interest in Amalgamated for consideration consisting of $12.5 million in cash and the deemed payment in full of our $250 million in loans we owed Snake River Sugar Company. Securities earnings is expected to be significantly lower in 2019 ~~as compared to 2018 primarily due to the August 2018 sale of our interest in Amalgamated.~~

~~Gain on Land Sales—In the first quarter of 2018 we sold two parcels of land not used in our operating activities. See Note 12 to our Condensed Consolidated Financial Statements.~~

Insurance Recoveries—~~Insurance recoveries relate to amounts~~ NL ~~received from certain of its former insurance carriers, and relate principally to the recovery of prior lead pigment and asbestos litigation defense costs incurred by NL. We have~~has agreements with ~~four former~~certain insurance carriers pursuant to which the carriers reimburse usNL for a portion of ~~our future~~its past lead pigment and asbestos litigation defense ~~costs, and one such carrier reimburses us~~costs. Insurance recoveries include amounts NL received from these insurance carriers.

The agreements with certain of NL’s insurance carriers also include reimbursement for a portion of ~~our~~its future ~~asbestos~~ litigation defense costs. We are not able to determine how much we will ultimately recover from these carriers for defense costs incurred by usNL because of certain issues that arise regarding which defense costs qualify for reimbursement. ~~While we continue to seek additional~~Accordingly, these insurance recoveries for lead pigment and asbestos litigation matters, we do not know the extent to which we will be successful in obtaining additional reimbursement for either defense costs or indemnity. Any additional insurance recoveries would beare recognized when the receipt is probable and the amount is determinable. ~~Substantially all of the insurance recoveries recognized in 2018 and 2019 relate to reimbursement of ongoing litigation defense costs.~~ See Note 1615 to our Condensed Consolidated Financial Statements.

Kronos recognized $1.5 million of insurance recoveries in the first quarter of 2020 related to a property damage claim.

Other Components of Net Periodic Pension Expense—We recognized other components of net periodic pension expense of $4.7 million in the first quarter of 2020 compared to $4.1 million in the same period of 2019. The expense increased in both periods primarily due to pension costs as a result of actuarial amortizations, discount rates and expected returns on plan assets.

Changes in the Market Value of Valhi Common Stock held by Subsidiaries—Our subsidiaries, Kronos and NL, hold shares of our common stock. As discussed in the 2019 Annual Report, we account for our proportional interest in these shares of our common stock as treasury stock, at Kronos’ and NL’s historical cost basis. The remaining portion of these shares of our common stock, which are attributable to the noncontrolling interest of Kronos and NL, are reflected in our Condensed Consolidated Balance Sheet at fair value. Kronos and NL recognize unrealized gains or losses on these shares of our common stock in the determination of each of their respective net income or losses. Under the principles of consolidation we eliminate any gains or losses associated with our common stock to the extent of our proportional ownership interest in each subsidiary. We recognized a loss of $2.4 million in the first quarter of 2020 compared to a gain of $1.1 million in the same period of 2019 in our Condensed Consolidated Statements of Income which represents the unrealized gain or loss in respect of these shares during such periods attributable to the noncontrolling interest of Kronos and NL

Other General Corporate Items—Corporate expenses were ~~44% lower at $7.9 million~~3% higher in the first quarter of ~~2019~~2020 compared to ~~$14.0 million in~~ the first quarter of ~~2018. Corporate expenses decreased~~2019 primarily due to ~~lower~~higher environmental remediation and related ~~costs and lower litigation and related costs in 2019 compared to 2018.~~costs. Included in corporate expense are:

Overall, we currently expect that our net general corporate expenses in ~~2019~~2020 will be ~~lower than in 2018 primarily due~~comparable to ~~lower expected litigation and related costs and environmental remediation and related costs.~~2019.

The level of our litigation and related expenses varies from period to period depending upon, among other things, the number of cases in which we are currently involved, the nature of such cases and the current stage of such cases (e.g. discovery, pre-trial motions, trial or appeal, if applicable). See Note 1615 to our Condensed Consolidated Financial Statements. If our current expectations regarding the number of cases in which we expect to be involved during ~~2019,~~2020, or the nature of such cases, were to change, our corporate expenses could be higher than we currently estimate.

Obligations for environmental remediation and related costs are difficult to assess and estimate, and it is possible that actual costs for environmental remediation and related costs will exceed accrued amounts or that costs will be incurred in the future for sites in which we cannot currently estimate the liability. If these events occur in ~~2019,~~2020, our corporate expense could be higher than we currently estimate. In addition, we adjust our accruals for environmental remediation and related costs as further information becomes available to us or as circumstances change. Such further information or changed circumstances could result in an increase or reduction in our accrued environmental remediation and related costs. See Note 1615 to our Condensed Consolidated Financial Statements.

~~Changes in the Market Value of Valhi Common Stock held by Subsidiaries~~—Our subsidiaries Kronos and NL hold shares of our common stock. As discussed in the 2018 Annual Report, we account for our proportional interest in these shares of our common stock as treasury stock, at Kronos’ and NL’s historical cost basis. The remaining portion of these shares of our common stock, which are attributable to the noncontrolling interest of Kronos and NL, are reflected in our condensed consolidated balance sheet at fair value. Kronos and NL recognize unrealized gains or losses on these shares of our common stock in the determination of each of their respective net income or losses. Under the principles of consolidation we eliminate any gains or losses associated with our common stock to the extent of our proportional ownership interest in each subsidiary. The $.3 million loss and $1.1 million income recognized in our Condensed Consolidated Statements of Income for the three months ended March 31, 2018 and 2019, respectively, represents the unrealized gain or loss in respect of these shares during such periods attributable to the noncontrolling interest of Kronos and NL. .

Interest Expense—Interest expense decreased to $9.7 million in the first quarter of 2020 from $10.3 million in the first quarter of 2019 ~~from $15.4 million in the first quarter of 2018~~ primarily due to ~~the net effects of~~ lower ~~average debt levels in 2019 and higher~~ average interest rates on variable-rate ~~indebtedness. The lower average debt levels~~indebtedness in ~~2019 is primarily due to the deemed redemption of our $250 million promissory notes payable to Snake River in connection with the August 2018 sale of our interest in Amalgamated.~~2020.

We expect interest expense will continue to be lower in the remainder of ~~2019~~2020 as compared to ~~2018~~2019 due to lower ~~average balances of outstanding borrowings at Valhi offset by higher~~ average rates.

Provision for Income Taxes—We recognized anincome tax expense of $11.4 million in the first quarter of 2020 compared to income tax expense of $14.2 million in the first quarter of ~~2019 compared to income tax expense of $36.2 million in the first quarter of 2018.~~ 2019. The ~~difference~~decrease is primarily due to ~~the effect of~~ lower ~~income from operations~~earnings at Kronos in ~~the first quarter of 2019.~~2020. Our earnings are subject to income tax in various U.S. and non-U.S. jurisdictions, and the income tax rates applicable to ~~our~~the pre-tax earnings (losses) of our non-U.S. operations are generally higher than the income tax rates applicable to our U.S. operations. Excluding the effect of any increase or decrease in our deferred income tax asset valuation allowance or changes in our reserve for uncertain tax positions, we would generally expect our overall effective tax rate to be higher than the U.S. federal statutory tax rate of 21% primarily because of our non-U.S. operations.

We recognize deferred income taxes with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock because the exemption under GAAP to avoid such recognition of deferred income taxes is not available to us. At December 31, ~~2018,~~2019, we had recognized a deferred income tax liability with respect to our direct investment in Kronos of ~~$40.7~~$37.8 million. There is a maximum amount (or cap) of such deferred income taxes we are required to recognize with respect to our direct investment in Kronos. The maximum amount of such deferred income tax liability we would be required to have recognized (the cap) is $155.4 million. During the first quarter of ~~2019,~~2020, we recognized a non-cash deferred income tax expense with respect to our direct investment in Kronos of ~~$1.0~~$.2 million for the increase in the deferred income taxes required to be recognized with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock, to the extent such increase related to our equity in Kronos’ net income during such period. We recognized a similar non-cash deferred income tax expense of ~~$3.6~~$1.0 million in the first quarter of ~~2018.~~2019. A portion of the net change with respect to the excess of the financial reporting carrying amount over the income tax basis of our direct investment in Kronos common stock during such periods related to our equity in Kronos’ other comprehensive income (loss) items, and the amounts allocated to other comprehensive income (loss) items includes amounts related to our equity in Kronos’ other comprehensive income (loss) items.

See Note 1312 to our Condensed Consolidated Financial Statements for a tabular reconciliation of our statutory income tax provision to our actual tax provision.

~~Discontinued Operations~~—On January 26, 2018, we completed the sale of the Waste Management Segment to JFL-WCS Partners, LLC, an entity sponsored by certain investment affiliates of J.F. Lehman & Company, for consideration consisting of the assumption of all of the Waste Management Segment's third-party indebtedness and other liabilities. We recognized a pre-tax gain of approximately $58 million on the transaction in the first quarter of 2018 because the carrying value of the liabilities of the business assumed by the purchaser exceeded the carrying value of the assets sold in large part due to the long-lived asset impairment of $170.6 million recognized in the second quarter of 2017 with respect to our Waste Management Segment. Such pre-tax gain is classified as part of discontinued operations. See Note 3 to our Condensed Consolidated Financial Statements for additional information.

Noncontrolling Interest in Net Income (Loss) of Subsidiaries—Noncontrolling interest in operations of subsidiaries ~~decreased~~increased from ~~2018~~2019 to ~~2019~~2020 primarily due to ~~lower~~increased earnings at ~~Kronos.~~BMI and LandWell. See Note 13 to our Condensed Consolidated Financial Statements.

Trends in cash flows from operating activities (excluding the impact of significant asset dispositions and relative changes in assets and liabilities) are generally similar to trends in our operating income. In addition to the impact of the operating, investing and financing cash flows discussed below, changes in the amount of cash, cash equivalents and restricted cash we report from period to period can be impacted by changes in currency exchange rates, since a portion of our cash, cash equivalents and restricted cash is held by our non-U.S. subsidiaries.

Cash ~~flows from~~used for operating activities ~~decreased~~was $18.2 million in the first three months of 2020 compared to a use of cash of $2.2 million in the first ~~quarter~~three months of ~~2019 compared to cash provided by operating activities of $47.7~~2019. This $16.0 million ~~in the first quarter of 2018. This $49.9 million decrease~~increase in cash ~~provided by operations~~used was primarily due to the net effect of the following items:

Changes in working capital were affected by accounts receivable and inventory changes as shown below:

For comparative purposes, we have also provided comparable prior period numbers below.

We do not have complete access to the cash flows of our majority-owned subsidiaries, due in part to limitations contained in certain credit agreements of our subsidiaries and because we do not own 100% of these subsidiaries. A detail of our consolidated cash flows from operating activities is presented in the table below. Intercompany dividends have been eliminated.

We spent ~~$16.8~~$16.0 million in capital expenditures during the first ~~three months~~quarter of ~~2019~~2020 including:

The declaration and payment of future dividends, and the amount thereof, is discretionary and is dependent upon ~~these~~ a number of factors including our current and future expected results of operations, financial condition, cash requirements for our businesses, contractual and other requirements and restrictions and other factors deemed relevant by our ~~Board~~board of ~~Directors.~~directors. The amount and timing of past dividends is not necessarily indicative of the amount or timing of any future dividends which might be paid. There are currently no contractual restrictions on the amount of dividends which we may pay. Distributions to noncontrolling interest in subsidiaries in the ~~first~~ three months of ~~2019~~2020 are comprised of CompX dividends paid to shareholders other than NL and Kronos dividends paid to shareholders other than us and NL.

At March 31, ~~2019,~~2020, our consolidated indebtedness ~~attributable to continuing operations~~ was comprised of:

Certain of our credit facilities require the respective borrowers to maintain a number of covenants and restrictions which, among other things, restrict our ability to incur additional debt, incur liens, pay dividends or merge or consolidate with, or sell or transfer substantially all of our assets to, another entity, and contain other provisions and restrictive covenants customary in lending transactions of this type. Certain of our credit agreements contain provisions which could result in the acceleration of indebtedness prior to their stated maturity for reasons other than defaults for failure to comply with typical financial or payment covenants. For example, certain credit agreements allow the lender to accelerate the maturity of the indebtedness upon a change of control (as defined in the agreement) of the borrower. In addition, certain credit agreements could result in the acceleration of all or a portion of the indebtedness following a sale of assets outside the ordinary course of business. Kronos’ North American and European revolvers contain a number of covenants and restrictions which, among other things, restrict its ability to incur additional debt, incur liens, pay dividends or merge or consolidate with, or sell or transfer substantially all of its assets to, another entity, and contain other provisions and restrictive covenants customary in lending transactions of this type. Kronos’ European revolving credit facility also requires the maintenance of certain financial ratios, and one of such requirements is based on the ratio of net debt to the last twelve months EBITDA of the borrowers. The terms of all of our debt instruments (including revolving lines of credit for which we have no outstanding borrowings at March 31, ~~2019)~~2020) are discussed in Note 9 to our ~~2018~~2019 Annual Report. We are in compliance with all of our debt covenants at March 31, ~~2019.~~2020. We believe that we will be able to continue to comply with the financial covenants contained in our credit facilities through their maturity; however, if future operating results differ materially from our expectations we may be unable to maintain compliance.

Our primary source of liquidity on an ongoing basis is our cash flows from operating activities and borrowings under various lines of credit and notes. We generally use these amounts to (i) fund capital expenditures, (ii) repay short-term indebtedness incurred primarily for working capital purposes and (iii) provide for the payment of dividends (including dividends paid to us by our subsidiaries) or treasury stock purchases. From time-to-time we will incur indebtedness, generally to (i) fund short-term working capital needs, (ii) refinance existing indebtedness, (iii) make investments in marketable and other securities (including the acquisition of securities issued by our subsidiaries and affiliates) or (iv) fund major capital expenditures or the acquisition of other assets outside the ordinary course of business. Occasionally we sell assets outside the ordinary course of business, and we generally use the proceeds to (i) repay existing indebtedness (including indebtedness which may have been collateralized by the assets sold), (ii) make investments in marketable and other securities, (iii) fund major capital expenditures or the acquisition of other assets outside the ordinary course of business or (iv) pay dividends.

We routinely compare our liquidity requirements and alternative uses of capital against the estimated future cash flows we expect to receive from our subsidiaries, and the estimated sales value of those units. As a result of this process, we have in the past sought, and may in the future seek, to raise additional capital, refinance or restructure indebtedness, repurchase indebtedness in the market or otherwise, modify our dividend policies, consider the sale of our interests in our subsidiaries, affiliates, business units, marketable securities or other assets, or take a combination of these and 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, we and our subsidiaries may enter into intercompany loans as a cash management tool. Such notes are structured as revolving demand notes and pay and receive interest on terms we believe are generally more favorable than current debt and investment market rates. The companies that borrow under these notes have sufficient liquidity to repay the notes. All of these notes and related interest expense and income are eliminated in our Condensed Consolidated Financial Statements.

We periodically evaluate acquisitions of interests in or combinations with companies (including our affiliates) that may or may not be engaged in businesses related to our current businesses. We intend to consider such acquisition activities in the future and, in connection with this activity, may consider issuing additional equity securities and increasing indebtedness. From time to time, we also evaluate the restructuring of ownership interests among our respective subsidiaries and related companies.

We believe we will be able to comply with the financial covenants contained in our credit facilities through their maturities; however, if future operating results differ materially from our expectations we may be unable to maintain compliance. Based upon our expectations of our operating performance, and the anticipated demands on our cash resources, we expect to have sufficient liquidity to meet our short-term (defined as the twelve-month period ending March 31, ~~2020)~~2021) and long-term obligations (defined as the five-year period ending March 31, ~~2024)~~2025). If actual developments differ from our expectations, our liquidity could be adversely affected.

At March 31, ~~2019,~~2020, we had credit available under existing facilities of ~~$271.2~~$263.2 million, which was comprised of:

At March 31, ~~2019,~~2020, we had an aggregate of ~~$494.5~~$536.6 million of restricted and unrestricted cash, cash equivalents and marketable securities, including ~~$112.1~~$109.5 million held by our non-U.S. subsidiaries. Following implementation of a territorial tax system under the 2017 Tax Act, repatriation of any cash and cash equivalents held by our non-U.S. subsidiaries would not be expected to result in any material income tax liability as a result of such repatriation. A detail by entity is presented in the table below.

We currently expect our aggregate capital expenditures for ~~2019~~2020 will be approximately ~~$100~~$66 million as follows:

~~LandWell expects to spend approximately $34 million on land development costs during 2019 (which are included in the determination of cash provided by operating activities).~~

Capital spending for ~~2019~~2020 is expected to be funded primarily through cash generated from operations and borrowing under existing credit facilities. Planned capital expenditures in ~~2019~~2020 at Kronos and CompX will primarily be to maintain and improve the cost-effectiveness of our facilities. In addition, Kronos’ capital expenditures in the area of environmental compliance, protection and improvement include expenditures which are primarily focused on increased operating efficiency but also result in improved environmental protection, such as lower emissions from our manufacturing plants.

We may further reduce planned capital spending and land development activities if economic conditions warrant.

We, Kronos and CompX have programs to repurchase common stock from time to time as market conditions permit. These stock repurchase programs do not include specific price targets or timetables and may be suspended at any time. Depending on market conditions, these programs may be terminated prior to completion. Cash on hand will be used to acquire the shares and repurchased shares will be added to treasury shares and cancelled.

At March 31, ~~2019~~2020 Valhi had approximately 4.0 million shares of our common stock available to repurchase under the authorizations made by our board of directors.

Kronos’ board of directors authorized the repurchase of up to 2.0 million shares of its common stock in open market transactions, including block purchases, or in privately-negotiated transactions at unspecified prices and over an unspecified period of time. Kronos may repurchase its common stock from time to time as market conditions permit. During the first three months of 2020,

Kronos acquired 122,489 shares of its common stock in open market purchases under such repurchase program for an aggregate purchase price of $1.0 million.. At March 31, ~~2019~~2020, approximately ~~1.95~~1.6 million shares are available for repurchase.

CompX’s board of directors authorized the repurchase of its Class A common stock in open market transactions, including block purchases, or in privately-negotiated transactions at unspecified prices and over an unspecified period of time. At March 31, ~~2019~~2020, approximately ~~678,000~~.7 million shares were available for purchase under these authorizations.

Because our operations are conducted primarily through subsidiaries and affiliates, our long-term ability to meet parent company level corporate obligations is largely dependent on the receipt of dividends or other distributions from our subsidiaries and affiliates. Kronos paid a regular dividend of ~~$.17~~$.18 per share in each quarter of ~~2018 for which we received $39.4 million. In February 2019 the Kronos Board of Directors increased its regular quarterly dividend to $.18 per share.~~2019. If Kronos were to pay its $.18 per share in each quarter of ~~2019~~2020 based on the 58.0 million shares we held of Kronos common stock at March 31, ~~2019,~~2020, we would receive aggregate annual regular dividends from Kronos of $41.8 million. In February 2020 the NL ~~has not paid~~board of directors approved a quarterly dividend ~~since prior~~of $.04 per share. If NL were to ~~2016 and~~pay its $.04 per share dividend in each quarter of 2020 based on the 40.4 million shares we ~~do not know if~~hold of NL common stock at March 31, 2020, we ~~will~~would receive ~~any cash~~aggregate annual dividends from NL ~~during 2019.~~of $6.5 million. BMI and LandWell do pay cash dividends from time to time, but the timing and amount of such dividends are uncertain. In this regard, we received aggregate dividends from BMI and LandWell of ~~$5.7~~$29.1 million in ~~2018~~2019 and ~~$2.9~~$5.9 million ~~in each~~during the first three months of ~~March and April 2019.~~2020. We do not know if we will receive additional ~~distributions~~dividends from BMI and LandWell during ~~2019.~~2020. All of our ownership interest in CompX is held through our ownership in ~~NL,~~NL; as such we do not receive any dividends from CompX. Instead any dividend paid by CompX is paid to NL.

Our subsidiaries have various credit agreements with unrelated third-party lenders which contain customary limitations on the payment of dividends, typically a percentage of net income or cash flow; however, these restrictions in the past have not significantly impacted their ability to pay dividends.

As disclosed in our proxy statement filed with the Securities and Exchange Commission on April 7, 2020, our stockholders will vote on a proposal to approve a reverse stock split of our common stock at a reverse stock split ratio of 1-for-8, 1-for-10 or 1-for-12, as determined by our board of directors following stockholder approval, at our annual meeting of stockholders scheduled to be held on May 28, 2020. Also as disclosed in our proxy statement, our controlling stockholder has indicated its intention to have its shares represented at the meeting and to vote its shares in favor of the reverse stock split proposal, in which case the proposal will be approved. We expect to effect the reverse stock split promptly following the annual meeting, at the reverse stock split ratio selected by our board of directors immediately following the stockholders meeting. Once the reverse stock split has been implemented, we will adjust all share and per-share disclosures for all periods presented in our consolidated financial statements to give effect to the split.

We have in the past, and may in the future, purchase the securities of our subsidiaries and affiliates or third parties in market or privately-negotiated transactions. We base our purchase ~~decision~~decisions on a variety of factors, including an analysis of the optimal use of our capital, taking into account the market value of the securities and the relative value of expected returns on alternative investments. In connection with these activities, we may consider issuing additional equity securities or increasing our indebtedness. We may also evaluate the restructuring of ownership interests of our businesses among our subsidiaries and related companies.

We generally do not guarantee any indebtedness or other obligations of our subsidiaries or affiliates. Our subsidiaries are not required to pay us dividends. If one or more of our subsidiaries were unable to maintain its current level of dividends, either due to restrictions contained in a credit agreement or to satisfy its liabilities or otherwise, our ability to service our liabilities or to pay dividends on our common stock could be adversely impacted. If this were to occur, we might consider reducing or eliminating our dividends or selling interests in subsidiaries or other assets. If we were required to liquidate assets to generate funds to satisfy our liabilities, we might be required to sell at ~~what we believe would be~~ less than what we believe is the long-term value of such assets.

Prior to ~~2018,~~2019, we entered into a $50 million revolving credit facility with a subsidiary of NL secured with approximately 35.2 million shares of the common stock of Kronos held by NL’s subsidiary as collateral. Outstanding borrowings under the credit facility bear interest at the prime rate plus 1.875% per annum, payable quarterly, with all amounts due on December 31, 2023. The maximum principal amount which may be outstanding from time-to-time under the credit facility is limited to 50% of the ~~amount~~value of the Kronos stock using the most recent closing ~~price of the Kronos stock.~~price. The credit facility contains a number of covenants and restrictions which, among other things, restrict NL’s subsidiary’s ability to incur additional debt, incur liens, and merge or consolidate with, or sell or transfer substantially all of NL’s subsidiary’s assets to, another entity, and require NL’s subsidiary to maintain a minimum specified level of consolidated net worth. Upon an event of default (as defined in the credit facility), Valhi will be entitled to terminate its commitment

to make further loans to NL’s subsidiary, declare the outstanding loans (with interest) immediately due and payable, and exercise its rights with respect to the collateral under the ~~Loan Documents.~~loan documents. Such collateral rights include, upon certain insolvency events with respect to NL’s subsidiary or NL, the right to purchase all of the Kronos common stock at a purchase price equal to the aggregate market value, less amounts owing to Valhi under the ~~Loan Documents,~~loan documents, and up to 50% of such purchase price may be paid by Valhi in

the form of an unsecured promissory note bearing interest at the prime rate plus 2.75% per annum, payable quarterly, with all amounts due no later than five years from the date of purchase, with the remainder of such purchase price payable in cash at the date of purchase. We also eliminate any such intercompany borrowings in our Condensed Consolidated Financial Statements. Prior to ~~2018~~2019 NL’s subsidiary borrowed $.5 million under this facility, no additional amounts have been borrowed since then, and $.5 million is outstanding under this facility at March 31, ~~2019.~~2020. We eliminate any such intercompany borrowings in our Consolidated Financial Statements.

We have an unsecured revolving demand promissory note with Kronos which, as amended, provides for borrowings from Kronos of up to $60 million. We also eliminate any such intercompany borrowings in our Condensed Consolidated Financial Statements. The facility, as amended, is due on demand, but in any event no earlier than December 31, ~~2020.~~2021. We had ~~gross~~no borrowings ~~of $3.3 million and gross repayments of $1.8 million~~from Kronos under this facility during the first quarter of ~~2019,~~2020, and ~~$1.5 million~~there was no outstanding balance at March 31, ~~2019.~~2020. We could borrow ~~an additional $58.5~~$60.0 million under our current intercompany facility with Kronos at March 31, ~~2019.~~2020. Kronos’ obligation to loan us money under this note is at Kronos’ discretion.

We also have an unsecured revolving demand promissory note with CompX which, as amended, provides for borrowings from CompX of up to $40 million. We also eliminate any such intercompany borrowings in our Condensed Consolidated Financial Statements. The facility, as amended, is due on demand, but in any event no earlier than December 31, ~~2020.~~2021. We had gross borrowings of ~~$11.4~~$14.9 million and gross repayments of ~~$11.4~~$18.2 million during the first quarter of ~~2019,~~2020, and ~~$40.0~~$30.5 million was outstanding at March 31, ~~2019.~~2020. We ~~have no borrowing availability~~could borrow $9.5 million under our current intercompany facility with CompX at March 31, ~~2019.~~2020. CompX’s obligation to loan us money under this note is at CompX’s discretion.

~~Following the January 1, 2019 adoption of ASU 2016-02,~~ ~~Leases (Topic 842), we~~

There have been no material changes in our contractual obligations since we filed our ~~2018~~2019 Annual Report and we refer you to that report for a complete description of these commitments.

We are subject to certain commitments and contingencies, as more fully described in Notes 1, 14 and 18 to our ~~2018~~2019 Annual Report, or in Notes 1312 and 1615 to our Condensed Consolidated Financial Statements and in Part II, Item 1 of this Quarterly Report, including:

In addition to such legal proceedings, various legislation and administrative regulations have, from time to time, been proposed that seek to (i) 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 and (ii) effectively overturn court decisions in which NL and other pigment manufacturers have been successful. Examples of such proposed legislation include bills which would permit civil liability for damages on the basis of market share, rather than requiring plaintiffs to prove that the defendant’s product caused the alleged damage, and bills which would revive actions barred by the statute of limitations. While no legislation or regulations have been enacted to date that are expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity, enactment of such legislation could have such an effect.

There have been no changes in the first ~~three months~~quarter of ~~2019~~2020 with respect to our critical accounting policies presented in Management’s Discussion and Analysis of Financial Condition and Results of Operation in our ~~2018~~2019 Annual Report.

We are exposed to market risk, including currency exchange rates, interest rates and security prices, and raw material prices. There have been no material changes in these market risks since we filed our ~~2018~~2019 Annual Report, and refer you to Part I, Item 7A.—“Quantitative and Qualitative Disclosure About Market Risk” in our ~~2018~~2019 Annual Report. ~~See also Note 17 to our Condensed Consolidated Financial Statements.~~

We have substantial operations located outside the United States for which the functional currency is not the U.S. dollar. As a result, our assets and liabilities, results of operations and cash flows will fluctuate based upon changes in currency exchange rates.

We periodically use currency forward contracts to manage a nominal portion of currency exchange rate market risk associated with trade receivables, or similar exchange rate risk associated with future sales, denominated in a currency other than the holder’s functional currency. These contracts generally relate to our Chemicals Segment’s operations. We have not entered into these contracts for trading or speculative purposes in the past, nor do we currently anticipate entering into such contracts for trading or speculative purposes in the future. Some of the currency forward contracts we enter into meet the criteria for hedge accounting under GAAP and are designated as cash flow hedges. For these currency forward contracts, gains and losses representing the effective portion of our hedges are deferred as a component of accumulated other comprehensive income, and are subsequently recognized in earnings at the time the hedged item affects earnings. For the currency forward contracts we enter into which do not meet the criteria for hedge accounting, we mark-to-market the estimated fair value of such contracts at each balance sheet date, with any resulting gain or loss recognized in income currently as part of net currency transactions.

We maintain disclosure controls and procedures which, as defined in Exchange Act Rule 13a-15(e), means controls and other procedures that are designed to ensure that information required to be disclosed in the reports we file or submit to the SEC under the Securities Exchange Act of 1934, as amended (the “Act”), is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports we file or submit to the SEC under the Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure. Each of Robert D. Graham, our Vice Chairman of the Board, President and Chief Executive Officer, and ~~Gregory M. Swalwell,~~James W. Brown, our ~~Executive~~Senior Vice President ~~Chief Financial Officer~~ and Chief ~~Accounting~~Financial Officer, have evaluated the design and effectiveness of our disclosure controls and procedures as of March 31, ~~2019.~~2020. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures were effective as of the date of such evaluation.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting which, as defined by Exchange Act Rule 13a-15(f) means a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

As permitted by the SEC, our assessment of internal control over financial reporting excludes (i) internal control over financial reporting of equity method investees and (ii) internal control over the preparation of any financial statement schedules which would be required by Article 12 of Regulation S-X. However, our assessment of internal control over financial reporting with respect to equity method investees did include controls over the recording of amounts related to our investment that are recorded in the consolidated financial statements, including controls over the selection of accounting methods for our investments, the recognition of equity method earnings and losses and the determination, valuation and recording of our investment account balances.

There has been no change to our internal control over financial reporting during the quarter ended March 31, ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~In addition to the matters discussed below, refer~~Refer to Note 1615 to our Condensed Consolidated Financial Statements and our ~~2018~~2019 Annual ~~Report.~~

~~Gowanus Canal Superfund Site, Brooklyn, New York. In April 2019, EPA issued a second Unilateral Administrative Order (“UAO”) to NL and approximately 27 other PRPs~~Report for ~~performance~~descriptions of certain ~~work related to~~legal proceedings.

Refined Metals Corporation v. NL Industries, Inc. In March 2020, Refined Metals’ state law claims were dismissed with prejudice and the ~~Remedial Design at the site. NL continues to believe it has no liability at the site but intends to engage~~court entered a final judgment in ~~further discussions regarding a~~ ~~de minimis settlement~~ ~~and to otherwise take actions necessary to respond to the UAO. If these discussions are unsuccessful, NL will continue to deny liability and will defend vigorously against all~~favor of ~~the claims.~~NL.

For a discussion of the risk factors related to our businesses, please refer to Part I, Item 1A, “Risk Factors,” in our ~~2018~~2019 Annual ~~report.~~Report. There have been no material changes to such risk factors during the ~~first~~ three months ending March 31, 2020.

On April 24, 2020, we received notification from the New York Stock Exchange (“NYSE”) that we are no longer compliant with NYSE continued listing criteria set forth in Section 802.01C of ~~2019.~~the Listed Company Manual of the NYSE that requires listed companies to maintain an average closing share price of at least $1.00 over a consecutive 30 trading-day period. Pursuant to Section 802.01C, we have at least six months from receipt of the notice to regain compliance with the NYSE’s minimum share price requirement. During this period our common stock will continue to be listed and trade on the NYSE, subject to our continued compliance with other NYSE listing requirements. We have notified the NYSE of our intent to cure the deficiency. We intend to cure the share price non-compliance through the reverse stock split of our common stock, subject to stockholder approval and as determined by our board of directors, discussed in Note 14 to our Condensed Consolidated Financial Statements, and we expect to effect the reverse stock split even if we regain compliance by virtue of future share closing prices.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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

~~5430 LBJ Freeway, Suite 1700, Dallas, Texas~~		~~75240-2620~~
~~(Address of principal executive offices)~~		~~(Zip Code)~~

			Page number

Part I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets – December 31, ~~2018~~2019 and March 31, ~~2019~~2020 (unaudited)		3

		Condensed Consolidated Statements of Income (unaudited) – Three months ended March 31, ~~2018~~2019 and ~~2019~~2020		5

		Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) – Three months ended March 31, ~~2018~~2019 and 2020		6

		Condensed Consolidated Statements of Stockholders’ Equity (unaudited) – Three months ended March 31, 2019 and 2020		67

		Condensed Consolidated Statements of Cash Flows (unaudited) – Three months ended March 31, ~~2018~~2019 and ~~2019~~20		7

		~~Condensed Consolidated Statements of Equity (unaudited) – Three months ended March 31, 2018 and 2019~~20		8

		Notes to Condensed Consolidated Financial Statements (unaudited)		9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2823

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4339

	Item 4.	Controls and Procedures		4339

Part II.	OTHER INFORMATION

	Item 1.	Legal Proceedings		4540

	Item 1A.	Risk Factors		4540

	Item 5.	Other Information		40

	Item 6.	Exhibits		4641

			~~Three months~~ ~~ended~~
			~~March 31, 2018~~ ⁽¹⁾
			~~(In millions)~~
~~Net sales~~			~~$4.6~~

~~Operating loss~~			~~$(.4)~~
~~Interest expense, net~~			~~(.3~~)
~~Loss before taxes~~			~~(.7)~~
~~Income tax benefit~~			.1
~~Net loss~~			~~$(.6~~)

~~Pre-tax gain on disposal~~			~~$58.4~~
~~Income tax expense~~			~~20.2~~
~~After-tax gain on disposal~~			~~38.2~~

~~Total~~			~~37.6~~

~~Net cash provided by operating activities~~			~~$2.3~~

~~Net cash used in investing activities~~			~~$(.1)~~

	Three months ended March 31,
		2018			2019
	(In millions)
Net sales – point of origin:
Germany	$	234.5		$	219.2
United States		196.8			245.3
Canada		71.6			78.5
Belgium		69.7			69.7
Norway		53.1			51.5
Eliminations		(195.3	)		(227.7	)
Total	$	430.4		$	436.5

Net sales – point of destination:
Europe	$	233.9		$	215.2
North America		127.0			146.8
Other		69.5			74.5
	$	430.4		$	436.5

Item No.		Exhibit Index

31.1		Certification

31.2		Certification

32.1		Certification

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

~~Large accelerated filer~~	☐	~~Accelerated filer~~	☒

~~Non-accelerated filer~~	☐	~~Smaller reporting company~~	☐
~~Emerging growth company~~	☐


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	VHI	NYSE

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

							Three months ended
	Three months ended March 31,						March 31,
	2018			2019			2019			2020
	(unaudited)						(unaudited)
Net income	$	107.8		$	28.4		$	28.4		$	37.9
Other comprehensive income (loss), net of tax:
Currency translation		9.8			(.3	)		(.3	)		(37.7	)
Marketable securities		(.1	)		—
Defined benefit pension plans		2.6			2.3			2.3			3.0
Other postretirement benefit plans		(.3	)		(.2	)
Total other comprehensive income, net		12.0			1.8
Other								(.2	)		(.1	)
Total other comprehensive income (loss), net								1.8			(34.8	)
Comprehensive income		119.8			30.2			30.2			3.1
Comprehensive income attributable to noncontrolling interest		21.7			10.7			10.7			4.2
Comprehensive income attributable to Valhi stockholders	$	98.1		$	19.5
Comprehensive income (loss) attributable to Valhi stockholders							$	19.5		$	(1.1	)

	Valhi Stockholders’ Equity
	Preferred stock		Common stock		Additional paid-in capital		Retained earnings (deficit)			Accumulated other comprehensive loss			Treasury stock			Non- controlling interest			Total equity
Balance at December 31, 2017	$	667.3	$	3.6	$	—	$	(17.9	)	$	(179.0	)	$	(49.6	)	$	342.3		$	766.7
Change in accounting principle – ASU 2014-09		—		—		—		2.7			—			—			2.3			5.0
Balance at January 1, 2018, as adjusted		667.3		3.6		—		(15.2	)		(179.0	)		(49.6	)		344.6			771.7

Net income		—		—		—		89.3			—			—			18.5			107.8
Other comprehensive income, net		—		—		—		—			8.8			—			3.2			12.0
Dividends paid to noncontrolling interest		—		—		—		—			—			—			(3.9	)		(3.9	)
Cash dividends - $.02 per share		—		—		—		(6.8	)		—			—			—			(6.8	)
Balance at March 31, 2018	$	667.3	$	3.6	$	—	$	67.3		$	(170.2	)	$	(49.6	)	$	362.4		$	880.8

Balance at December 31, 2018	$	667.3	$	3.6	$	—	$	220.3		$	(206.2	)	$	(49.6	)	$	353.6		$	989.0
Net income		—		—		—		18.2			—			—			10.2			28.4
Other comprehensive income, net		—		—		—		—			1.3			—			.5			1.8
Dividends paid to noncontrolling interest		—		—		—		—			—			—			(6.3	)		(6.3	)
Cash dividends - $.02 per share		—		—		—		(6.8	)		—			—			—			(6.8	)
Balance at March 31, 2019	$	667.3	$	3.6	$	—	$	231.7		$	(204.9	)	$	(49.6	)	$	358.0		$	1,006.1

Business segment	Entity	% controlled at March 31, ~~2019~~2020
Chemicals	Kronos	80	%
Component products	CompX	8786	%
Real estate management and development	BMI and LandWell	~~63% -~~63 – 77	%

Years ending December 31,	Amount
	(In millions)
Gross amounts due each year:
2019 (remainder of year)	$	5.8
2020		6.7
2021		6.0
2022		3.4
2023		2.2
2024 and thereafter		21.3
Total lease payments		45.4
Less imputed interest		13.0
Total lease obligations		32.4
Less current obligations		6.8
Long-term lease obligations	$	25.6

Impact of changes in currency exchange rates three months ended March 31, 2019 vs March 31, 2018

Impact of changes in currency exchange rates Three months ended March 31, 2020 vs March 31, 2019															Impact of changes in currency exchange rates Three months ended March 31, 2020 vs March 31, 2019

																					Translation losses - impact of rate changes		Total currency impact 2020 vs 2019
	Transaction gains/(losses) recognized							Translation gains (losses) - impact of rate changes				Total currency impact 2019 vs 2018			Transaction gains recognized
	2018			2019		Change					2019					2020		Change
	(In millions)														(In millions)
Impact on:								Translation gains (losses) - impact of rate changes				Total currency impact 2019 vs 2018
Net sales	$	—		$	—	$	—	$	(15	)		$	(15	)	$	—	$	—	$	—	$	(7)	$	(7)
Income from operations		(5	)		1		6		2				8
Operating income																1		12		11		—		11

	Total		Amount held outside U.S.		Total		Amount held outside U.S.
	(In millions)				(In millions)
Kronos	$	340.7	$	112.0	$	343.0	$	109.5
CompX		36.1		—		58.6		-
NL exclusive of its subsidiaries		80.1		.1		98.4		-
Tremont exclusive of its subsidiaries		8.7		—		8.4		-
LandWell		11.4		—		10.6		-
BMI		17.5		—		16.9		-
Valhi exclusive of its subsidiaries		—		—		.7		-
Total restricted and unrestricted cash, cash equivalents and marketable securities	$	494.5	$	112.1	$	536.6	$	109.5

		VALHI, INC.
		(Registrant)





~~Date~~Date:	May ~~9, 2019~~7, 2020	/s/ ~~Gregory M. Swalwell~~James W. Brown
		~~Gregory M. Swalwell~~James W. Brown (~~Executive~~Senior Vice President ~~Chief Financial Officer~~ and Chief ~~Accounting~~Financial Officer)




~~Date~~Date:	May ~~9, 2019~~7, 2020	/s/ Amy Allbach Samford
		Amy Allbach Samford (Vice President and Controller)