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 such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a 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 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 ☒

Number of shares of the registrant’s common stock, $.125 par value per share, outstanding on ~~November~~May 1, ~~2019:~~2020: 48,755,734.

Items 2, 3, 4 and 5 of Part II are omitted because there is no information to report.

	December 31,		September 30,		December 31,		March 31,
	2018		2019		2019		2020
			(unaudited)				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	116,259	$	109,419	$	129,730	$	133,406
Restricted cash and cash equivalents		3,727		2,913		2,695		2,697
Accrued insurance recovery related to litigation settlement		15,000		-
Accounts and other receivables, net		12,440		13,797		11,929		15,294
Inventories, net		17,102		18,826		18,348		18,962
Receivable from affiliates		792		648
Receivables from affiliates						581		438
Prepaid expenses and other		1,324		1,149		1,401		1,272

Total current assets		166,644		146,752		164,684		172,069

Other assets:
Restricted cash and cash equivalents		1,003		25,310		25,445		25,475
Notes receivable from affiliate		34,000		36,700
Note receivable from affiliate						28,100		25,500
Marketable securities		27,740		27,309		26,877		14,804
Investment in Kronos Worldwide, Inc.		255,565		257,717		248,355		238,067
Goodwill		27,156		27,156		27,156		27,156
Other assets, net		3,108		3,187		5,860		5,672

Total other assets		348,572		377,379		361,793		336,674

Property and equipment:
Land		5,151		4,940		4,940		4,940
Buildings		22,842		22,856		23,047		23,047
Equipment		67,446		67,595		67,718		68,443
Construction in progress		603		963		1,002		463
		96,042		96,354		96,707		96,893
Less accumulated depreciation		64,016		65,137		65,692		66,531

Net property and equipment		32,026		31,217		31,015		30,362

Total assets	$	547,242	$	555,348	$	557,492	$	539,105

	December 31,			September 30,			December 31,			March 31,
	2018			2019			2019			2020
				(unaudited)						(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	4,831		$	4,987		$	3,438		$	3,300
Accrued litigation settlement		60,000			11,774			11,830			11,887
Accrued and other current liabilities		10,854			9,797			10,601			7,483
Accrued environmental remediation and related costs		5,027			3,168			3,065			3,357
Payable to affiliates		567			567
Payables to affiliates								801			757
Income taxes		44			64			73			84

Total current liabilities		81,323			30,357			29,808			26,868

Noncurrent liabilities:
Long-term debt from affiliate		500			500			500			500
Accrued pension costs		10,389			7,689
Accrued environmental remediation and related costs		93,184			91,808			91,443			90,882
Long-term litigation settlement		17,000			59,797			60,081			60,367
Deferred income taxes		31,373			31,956			33,957			28,196
Accrued pension costs								8,230			7,894
Other		9,915			9,780			6,260			6,193

Total noncurrent liabilities		162,361			201,530			200,471			194,032

Equity:
NL stockholders' equity:
Common stock		6,090			6,094			6,094			6,094
Additional paid-in capital		301,139			299,102			299,102			298,865
Retained earnings		225,156			244,700			251,000			250,960
Accumulated other comprehensive loss		(248,270	)		(248,812	)		(251,690	)		(260,845	)

Total NL stockholders' equity		284,115			301,084			304,506			295,074

Noncontrolling interest in subsidiary		19,443			22,377			22,707			23,131

Total equity		303,558			323,461			327,213			318,205

Total liabilities and equity	$	547,242		$	555,348		$	557,492		$	539,105

	Three months ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2018			2019			2018			2019			2019			2020
	(unaudited)												(unaudited)
Net sales	$	30,029		$	29,703		$	90,827		$	94,610		$	31,176		$	32,311
Cost of sales		20,433			20,227			60,494			64,571			21,552			21,880

Gross margin		9,596			9,476			30,333			30,039			9,624			10,431

Selling, general and administrative expense		5,075			5,210			15,455			15,860			5,334			5,411
Other operating income (expense):
Insurance recoveries		526			243			889			5,240			283			22
Other income, net		18			4,424			645			4,433
Litigation settlement expense, net		-			305			(62,000	)		(19,266	)
Corporate expense		(1,583	)		(3,429	)		(14,352	)		(9,148	)		(2,055	)		(2,508	)

Income (loss) from operations		3,482			5,809			(59,940	)		(4,562	)
Income from operations														2,518			2,534

Equity in earnings of Kronos Worldwide, Inc.		9,905			5,463			55,029			23,632			9,225			8,207

Other income (expense):
Interest and dividend income														1,519			1,131
Marketable equity securities		(35,645	)		(15,379	)		(55,911	)		(431	)		5,462			(12,073	)
Other components of net periodic pension and OPEB cost		(99	)		(434	)		(297	)		(1,290	)		(428	)		(208	)
Interest and dividend income		1,336			1,571			3,630			5,213
Interest expense		(9	)		(314	)		(25	)		(332	)		(9	)		(352	)

Income (loss) before income taxes		(21,030	)		(3,284	)		(57,514	)		22,230			18,287			(761	)

Income tax expense (benefit)		(6,158	)		(2,286	)		(15,416	)		942			2,561			(3,263	)

Net income (loss)		(14,872	)		(998	)		(42,098	)		21,288
Net income														15,726			2,502
Noncontrolling interest in net income of subsidiary		514			540			1,654			1,744			522	��		592

Net income (loss) attributable to NL stockholders	$	(15,386	)	$	(1,538	)	$	(43,752	)	$	19,544
Net income attributable to NL stockholders													$	15,204		$	1,910

Amounts attributable to NL stockholders:
Basic and diluted net income per share													$	.31		$	.04

Basic and diluted net income (loss) per share	$	(.32	)	$	(.03	)	$	(.90	)	$	.40

Weighted average shares used in the calculation of net income (loss) per share		48,727			48,756			48,721			48,741
Weighted average shares used in the calculation of net income per share														48,727			48,756

	Three months ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2018			2019			2018			2019			2019			2020
	(unaudited)												(unaudited)
Net income (loss)	$	(14,872	)	$	(998	)	$	(42,098	)	$	21,288
Net income													$	15,726		$	2,502

Other comprehensive income (loss), net of tax:
Currency translation		1,103			(4,500	)		(2,414	)		(2,805	)		(25	)		(10,118	)
Defined benefit pension plans		959			818			2,916			2,463			828			1,043
Other postretirement benefit plans		(65	)		(65	)		(203	)		(200	)		(70	)		(80	)

Total other comprehensive income (loss), net		1,997			(3,747	)		299			(542	)		733			(9,155	)

Comprehensive income (loss)		(12,875	)		(4,745	)		(41,799	)		20,746			16,459			(6,653	)
Comprehensive income attributable to noncontrolling interest		514			540			1,654			1,744			522			592

Comprehensive income (loss) attributable to NL stockholders	$	(13,389	)	$	(5,285	)	$	(43,453	)	$	19,002		$	15,937		$	(7,245	)

Accumulated

Additional

other

Noncontrolling

Common

paid-in

Retained

comprehensive

interest in

Total

stock

capital

earnings

income (loss)

subsidiary

equity

Balance at December 31, 2017
$
6,089

$
300,866

$
220,104

$
(191,737
)

$
17,756

$
353,078

Change in accounting principle - ASU 2016-01

-

-

46,069

(46,069
)

-

-

Balance at January 1, 2018, as adjusted

6,089

300,866

266,173

(237,806
)

17,756

353,078

Net income

-

-

14,249

-

487

14,736

Other comprehensive income, net of tax

-

-

-

3,501

-

3,501

Dividends paid to noncontrolling interest

-

-

-

-

(83
)

(83
)

Balance at March 31, 2018

6,089

300,866

280,422

(234,305
)

18,160

371,232

Net income (loss)

-

-

(42,615
)

-

653

(41,962
)
Other comprehensive loss, net of tax

-

-

-

(5,199
)

-

(5,199
)
Issuance of NL common stock

1

119

-

-

-

120

Dividends paid to noncontrolling interest

-

-

-

-

(84
)

(84
)
Other, net

-

154

-

-

18

172

Balance at June 30, 2018

6,090

301,139

237,807

(239,504
)

18,747

324,279

Net income (loss)

-

-

(15,386
)

-

514

(14,872
)
Other comprehensive income, net of tax

-

-

-

1,997

-

1,997

Dividends paid to noncontrolling interest

-

-

-

-

(84
)

(84
)

Balance at September 30, 2018
$
6,090

$
301,139

$
222,421

$
(237,507
)

$
19,177

$
311,320

	Three months ended March 31, 2019 (unaudited)
									Accumulated
			Additional						other			Noncontrolling
	Common		paid-in			Retained			comprehensive			interest in			Total
	stock		capital			earnings			income (loss)			subsidiary			equity
Balance at December 31, 2018	$	6,090	$	301,139		$	225,156		$	(248,270	)	$	19,443		$	303,558

Net income		-		-			15,204			-			522			15,726
Other comprehensive income, net of tax		-		-			-			733			-			733
Dividends paid to noncontrolling interest		-		-			-			-			(117	)		(117	)

Balance at March 31, 2019	$	6,090	$	301,139		$	240,360		$	(247,537	)	$	19,848		$	319,900




	Three months ended March 31, 2020 (unaudited)
									Accumulated
			Additional						other			Noncontrolling
	Common		paid-in			Retained			comprehensive			interest in			Total
	stock		capital			earnings			loss			subsidiary			equity
Balance at December 31, 2019	$	6,094	$	299,102		$	251,000		$	(251,690	)	$	22,707		$	327,213

Net income		-		-			1,910			-			592			2,502
Other comprehensive loss, net of tax		-		-			-			(9,155	)		-			(9,155	)
Dividends paid - $.04 per share		-		-			(1,950	)		-			-			(1,950	)
Dividends paid to noncontrolling interest		-		-			-			-			(168	)		(168	)
Other, net		-		(237	)		-			-			-			(237	)

Balance at March 31, 2020	$	6,094	$	298,865		$	250,960		$	(260,845	)	$	23,131		$	318,205

Accumulated

Additional

other

Noncontrolling

Common

paid-in

Retained

comprehensive

interest in

Total

stock

capital

earnings

income (loss)

subsidiary

equity

Balance at December 31, 2018
$
6,090

$
301,139

$
225,156

$
(248,270
)

$
19,443

$
303,558

Net income

-

-

15,204

-

522

15,726

Other comprehensive income, net of tax

-

-

-

733

-

733

Dividends paid to noncontrolling interest

-

-

-

-

(117
)

(117
)

Balance at March 31, 2019

6,090

301,139

240,360

(247,537
)

19,848

319,900

Net income

-

-

5,878

-

682

6,560

Other comprehensive income, net of tax

-

-

-

2,472

-

2,472

Issuance of NL common stock

4

96

-

-

-

100

Dividends paid to noncontrolling interest

-

-

-

-

(118
)

(118
)
Equity transactions with noncontrolling
interest, net and other

-

(1,831
)

-

-

1,543

(288
)

Balance at June 30, 2019

6,094

299,404

246,238

(245,065
)

21,955

328,626

Net income (loss)

-

-

(1,538
)

-

540

(998
)
Other comprehensive loss, net of tax

-

-

-

(3,747
)

-

(3,747
)
Dividends paid to noncontrolling interest

-

-

-

-

(118
)

(118
)
Other

-

(302
)

-

-

-

(302
)

Balance at September 30, 2019
$
6,094

$
299,102

$
244,700

$
(248,812
)

$
22,377

$
323,461

	Nine months ended						Three months ended
	September 30,						March 31,
	2018			2019			2019			2020
	(unaudited)						(unaudited)
Cash flows from operating activities:
Net income (loss)	$	(42,098	)	$	21,288
Net income							$	15,726		$	2,502
Depreciation and amortization		2,609			2,739			901			950
Deferred income taxes		(16,624	)		913			2,552			(3,278	)
Equity in earnings of Kronos Worldwide, Inc.		(55,029	)		(23,632	)		(9,225	)		(8,207	)
Dividends received from Kronos Worldwide, Inc.		17,961			19,017			6,339			6,339
Marketable equity securities		55,911			431			(5,462	)		12,073
Cash funding of benefit plans in excess of net benefit plan expense		(2,074	)		(1,658	)		9			244
Net gain from sale of excess property		-			(4,424	)
Other, net		426			211			39			225
Change in assets and liabilities:
Accounts and other receivables, net		(18,203	)		13,627			(3,244	)		(3,364	)
Inventories, net		(1,935	)		(1,888	)		(1,475	)		(673	)
Prepaid expenses and other		110			175			181			129
Accounts payable and accrued liabilities		62,025			(25,842	)		(3,949	)		(3,196	)
Income taxes		11			20			9			15
Accounts with affiliates		2,939			144			559			99
Accrued environmental remediation and related costs		(428	)		(3,235	)		(1,194	)		(269	)
Other noncurrent assets and liabilities, net		16,698			19,516			(16	)		(3	)

Net cash provided by operating activities		22,299			17,402			1,750			3,586

Cash flows from investing activities:
Capital expenditures		(2,043	)		(2,453	)		(439	)		(360	)
Promissory notes receivable from affiliate:
Note receivable from affiliate:
Collections								11,400			18,228
Loans		(39,000	)		(28,100	)		(17,400	)		(15,628	)
Collections		44,200			25,400
Proceeds from sale of excess property		-			4,636
Other, net		225			121

Net cash provided by (used in) investing activities		3,382			(396	)		(6,439	)		2,240

Cash flows from financing activities -
Cash flows from financing activities:
Dividends paid								-			(1,950	)
Distributions to noncontrolling interests in subsidiary		(251	)		(353	)		(117	)		(168	)

Net cash used in financing activities								(117	)		(2,118	)

Cash and cash equivalents and restricted cash and cash equivalents - net change from:
Operating, investing and financing activities		25,430			16,653			(4,806	)		3,708
Balance at beginning of period		102,941			120,989			120,989			157,870

Balance at end of period	$	128,371		$	137,642		$	116,183		$	161,578

Supplemental disclosures - cash paid (received) for:
Interest	$	25		$	27		$	9		$	8
Income taxes, net		(1,740	)		(227	)		(16	)		(9	)

Organization – At ~~September 30, 2019,~~March 31, 2020, Valhi, Inc. (NYSE: VHI) held approximately 83% of our outstanding common stock and a wholly-owned subsidiary of Contran Corporation ~~(“Contran”)~~ held approximately 92% of Valhi’s outstanding common stock. At ~~September 30, 2019,~~March 31, 2020, a majority of Contran’s outstanding voting stock iswas held directly by Lisa K. Simmons and Serena Simmons Connelly and various family trusts established for the benefit of Ms. Simmons and Ms. Connelly and their children and for which Ms. Simmons or Ms. Connelly, as applicable, ~~serves~~served as ~~trustee.~~trustee (collectively, the “Other Trusts”). In addition, each of Ms. Simmons and Ms. Connelly ~~serves~~served as co-chair of the Contran board of directors. The remainder of Contran’s outstanding voting stock iswas 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 ~~September 30, 2019,~~March 31, 2020, Ms. Simmons, Ms. Connelly and the Family Trust may be deemed to control Contran, and therefore may be deemed to indirectly control the wholly-owned subsidiary of Contran, Valhi 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, at April 22, 2020, Ms. Simmons and the Family Trust may be deemed to control Contran, and therefore may be deemed to indirectly control the wholly-owned subsidiary of Contran, Valhi and us.

Basis of presentation – Consolidated in this Quarterly Report are the results of our majority-owned subsidiary, CompX International Inc. We also own 30% of Kronos Worldwide, Inc. (Kronos). CompX (NYSE American: CIX) and Kronos (NYSE: KRO) each file periodic reports with the Securities and Exchange Commission (SEC).

The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the audited Consolidated Financial Statements 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~~2020 (the ~~2018~~2019 Annual Report). In our opinion, we have made all necessary adjustments (which include only normal recurring 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 ~~periods~~period ended ~~September 30, 2019~~March 31, 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 “NL,” “we,” “us” or “our” refer to NL Industries, Inc. and its subsidiaries and affiliate, Kronos, taken as a whole.

	December 31,			September 30,			December 31,			March 31,
	2018			2019			2019			2020
	(In thousands)						(In thousands)
Trade receivables - CompX	$	12,210		$	13,503		$	11,940		$	15,302
Accrued insurance recoveries		266			289
Other receivables		34			75			59			62
Allowance for doubtful accounts		(70	)		(70	)		(70	)		(70	)

Total	$	12,440		$	13,797		$	11,929		$	15,294

	December 31,		September 30,		December 31,		March 31,
	2018		2019		2019		2020
	(In thousands)				(In thousands)
Raw materials	$	2,661	$	3,313	$	2,941	$	3,104
Work in process		11,130		11,952		11,771		12,237
Finished products		3,311		3,561		3,636		3,621

Total	$	17,102	$	18,826	$	18,348	$	18,962

Our marketable securities consist of investments in the publicly-traded shares of our immediate parent company Valhi, Inc. ~~All~~Our shares of ~~our marketable securities~~Valhi common stock are accounted for as available-for-sale securities, which are carried at fair value using quoted market prices in active markets ~~representing~~and represent a Level 1 input within the fair value hierarchy. Any unrealized gains or losses on the securities are recognized in Marketable equity securities on our Condensed Consolidated Statements of ~~Operations.~~Income.

	Fair value measurement level	Market value		Cost basis		Unrealized gain		Fair value measurement level	Market value		Cost basis		Unrealized gain (loss)
		(In thousands)							(In thousands)
December 31, 2018
December 31, 2019
Valhi common stock	1	$	27,740	$	24,347	$	3,393	1	$	26,877	$	24,347	$	2,530

September 30, 2019
March 31, 2020
Valhi common stock	1	$	27,309	$	24,347	$	2,962	1	$	14,804	$	24,347	$	(9,543	)

At December 31, ~~2018~~2019 and ~~September 30, 2019,~~March 31, 2020, we held approximately 14.4 million shares of common stock of ~~Valhi. See Note 1.~~our immediate parent company, Valhi, Inc. At December 31, ~~2018~~2019 and ~~September 30, 2019,~~March 31, 2020, the quoted per share market price of Valhi common stock was ~~$1.93~~$1.87 and ~~$1.90,~~$1.03, respectively.

The Valhi common stock we own is subject to the restrictions on resale pursuant to certain provisions of the SEC Rule 144. In addition, as a majority-owned subsidiary of Valhi, we cannot vote our shares of Valhi common stock under Delaware General Corporation Law, but we do receive dividends from Valhi on these shares, when declared and paid.

In March 2019, Valhi filed a Form S-3 registration statement with the SEC, registering our shares of Valhi common stock for resale. The registration statement has been declared effective by the SEC. We may sell all or a portion of such shares from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares are sold through underwriters or broker-dealers, we would be responsible for underwriting discounts or commissions or agents’ commissions. The shares may be sold in one or more transactions at fixed prices, prevailing market prices determined at the time of the sale, varying prices determined at the time of sale or negotiated prices (in each case we may determine). We agreed to reimburse Valhi for its expenses incurred in connection with such registration statement (which expenses were not material). We have not sold any of our shares of Valhi common stock under the registration statement.

At December 31, ~~2018~~2019 and ~~September 30, 2019,~~March 31, 2020, we owned approximately 35.2 million shares of Kronos common stock. At ~~September 30, 2019,~~March 31, 2020, the quoted market price of Kronos’ common stock was ~~$12.37~~$8.44 per share, or an aggregate market value of ~~$435.7~~$297.3 million. At December 31, ~~2018,~~2019, the quoted market price was ~~$11.52~~$13.40 per share, or an aggregate market value of ~~$405.7~~$471.9 million.

The change in the carrying value of our investment in Kronos during the first ~~nine~~three months of ~~2019~~2020 is summarized below.

	Amount			Amount
	(In millions)			(In millions)
Balance at the beginning of the period	$	255.5		$	248.4
Equity in earnings of Kronos		23.6			8.2
Dividends received from Kronos		(19.0	)		(6.3	)
Equity in Kronos' other comprehensive income:
Currency translation		(3.5	)		(12.8	)
Defined benefit pension plans		2.0			.9
Equity in Kronos' treasury stock acquired		(.9	)

Other					(.3	)
Balance at the end of the period	$	257.7		$	238.1

	December 31,		September 30,		December 31,		March 31,
	2018		2019		2019		2020
	(In millions)				(In millions)
Current assets	$	1,201.4	$	1,186.9	$	1,219.7	$	1,163.4
Property and equipment, net		486.4		465.5		490.6		459.0
Investment in TiO₂ joint venture		81.3		83.1		90.2		92.4
Other noncurrent assets		129.0		149.4		165.3		160.0

Total assets	$	1,898.1	$	1,884.9	$	1,965.8	$	1,874.8

Current liabilities	$	233.4	$	227.5	$	270.6	$	231.2
Long-term debt		455.1		434.6		444.0		436.3
Accrued pension costs		262.9		249.3		307.4		301.4
Other noncurrent liabilities		106.9		126.6		127.7		123.6
Stockholders' equity		839.8		846.9		816.1		782.3

Total liabilities and stockholders' equity	$	1,898.1	$	1,884.9	$	1,965.8	$	1,874.8

	Three months ended				Nine months ended
	September 30,				September 30,				Three months ended March 31,
	2018		2019		2018		2019		2019		2020
	(In millions)								(In millions)
Net sales	$	410.3	$	437.4	$	1,312.5	$	1,358.4	$	436.5	$	421.0
Cost of sales		291.2		349.7		846.8		1,051.9		327.2		332.9
Income from operations		58.1		33.1		285.5		128.6		49.0		43.5
Income tax expense		14.1		6.3		75.5		30.5		12.8		8.4
Net income		32.6		17.9		181.0		77.7		30.3		27.0

	December 31,		September 30,		December 31,		March 31,
	2018		2019		2019		2020
	(In thousands)				(In thousands)
Employee benefits	$	9,001	$	7,742	$	8,917	$	5,138
Other		1,853		2,055		1,684		2,345

Total	$	10,854	$	9,797	$	10,601	$	7,483

During the first ~~nine~~three months of ~~2019,~~2020, our wholly owned subsidiary, NLKW Holding, LLC had no borrowings or repayments under its $50 million secured revolving credit facility with Valhi. At ~~September 30, 2019, we had outstanding borrowings of~~March 31, 2020, $.5 million ~~under such facility,~~was outstanding and ~~the remaining~~ $49.5 million was available for future borrowing under this facility. Outstanding borrowings ~~under such credit facility~~ bear interest at the prime rate plus 1.875% per annum, and the average interest rate for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~7.3%~~6.31%. The interest rate was ~~6.9%~~5.13% at ~~September 30, 2019.~~March 31, 2020. We are in compliance with all ~~of the~~ covenants ~~contained in such facility~~ at ~~September 30, 2019.~~March 31, 2020.

	December 31,		September 30,		December 31,		March 31,
	2018		2019		2019		2020
	(In thousands)				(In thousands)
Reserve for uncertain tax positions	$	7,312	$	7,312	$	4,053	$	4,053
OPEB		1,519		1,409		1,129		1,068
Insurance claims and expenses		621		621		665		686
Other		463		438		413		386

Total	$	9,915	$	9,780	$	6,260	$	6,193

The following table disaggregates our net sales by reporting unit, which are the categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

	Three months ended				Nine months ended				Three months ended
	September 30,				September 30,				March 31,
	2018		2019		2018		2019		2019		2020
	(In thousands)								(In thousands)
Net sales:
Security Products	$	24,541	$	23,405	$	75,845	$	75,036	$	24,704	$	25,469
Marine Components		5,488		6,298		14,982		19,574		6,472		6,842
Total	$	30,029	$	29,703	$	90,827	$	94,610	$	31,176	$	32,311

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

	Three months ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2018			2019			2018			2019			2019			2020
	(In thousands)												(In thousands)
Interest cost	$	372		$	474		$	1,116		$	1,422		$	474		$	355
Expected return on plan assets		(590	)		(477	)		(1,770	)		(1,431	)		(477	)		(461	)
Recognized actuarial losses		365			406			1,095			1,218			406			380

Total	$	147		$	403		$	441		$	1,209		$	403		$	274

We currently expect our ~~2019~~2020 contributions to our defined benefit pension plans to be approximately ~~$3.3~~$2.0 million.

	Three months ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2018			2019			2018			2019			2019			2020
	(In millions)												(In millions)
Expected tax expense (benefit), at U.S. federal statutory income tax rate of 21%	$	(4.4	)	$	(.7	)	$	(12.1	)	$	4.7		$	3.8		$	(.2	)
Rate differences on equity in earnings of Kronos		(1.9	)		(1.5	)		(4.3	)		(4.0	)		(1.4	)		(3.2	)
U.S. state income taxes and other, net		.2			(.1	)		1.0			.2			.2			.1

Income tax expense (benefit)	$	(6.1	)	$	(2.3	)	$	(15.4	)	$	.9		$	2.6		$	(3.3	)

Comprehensive provision for income taxes (benefit) allocable to:
Comprehensive provision (benefit) for income taxes allocable to:
Net income (loss)	$	(6.1	)	$	(2.3	)	$	(15.4	)	$	.9		$	2.6		$	(3.3	)
Additional paid-in capital		-			(.2	)		-			(.2	)		-			(.1	)
Other comprehensive income (loss):
Currency translation		.3			(1.2	)		(.6	)		(.7	)		-			(2.7	)
Pension plans		.3			.3			.8			.7			.2			.3
OPEB plans		(.1	)		(.1	)		(.1	)		(.1	)

Total	$	(5.6	)	$	(3.5	)	$	(15.3	)	$	.6		$	2.8		$	(5.8	)

In accordance with GAAP, we recognize deferred income taxes on our undistributed equity in earnings (losses) of Kronos. Because we and Kronos are part of the same U.S. federal income tax group, any dividends we receive from Kronos are nontaxable to us. Accordingly, we do not recognize and we are not required to pay income taxes on dividends from Kronos. We received aggregate dividends from Kronos of ~~$18.0~~$6.3 million in the first ~~nine~~three months of ~~2018~~2019 and ~~$19.0 million in the first nine months of 2019.~~2020. The amounts shown in the above table of our income tax rate reconciliation for rate differences on equity in earnings of Kronos are primarily ~~represents~~attributable to the net effects of Kronos’ earnings and the income tax benefit ~~associated with such non-taxability of~~related to the nontaxable dividends we receive from Kronos, as it relates to the amount of deferred income taxes we recognize on our undistributed equity in earnings (losses) of Kronos. Our equity in earnings of Kronos in 2020 is expected to be lower than our equity in earnings of Kronos in 2019.

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 credits, deferment of employer side social security payments, modifications to net operating loss carryovers and carrybacks, modifications to the limitation of business interest for 2019 and 2020 and technical corrections to tax depreciation methods for qualified improvement property. We have evaluated the relevant provisions of the CARES Act and do not expect the NOL carryback provisions to result in a cash tax benefit to us because we do not have any prior year refundable income taxes and other provisions of the CARES Act will not have a material impact on our tax provision.

Under the CARES Act, the modification to the business interest provisions increases the business interest limitation from 30% of adjusted taxable income ~~(GILTI) tax as a current-period~~to 50% of adjusted taxable income which increases Kronos’ allowable interest expense ~~when incurred under the period cost method. Kronos has evaluated the tax impact of GILTI~~deduction for 2019 and ~~base erosion anti abuse tax (BEAT) provisions and related U.S. tax credit provisions applicable to tax years beginning~~2020. Consequently, in 2018 based on the relevant statutes, including final GILTI and foreign tax credit regulations issued by the IRS in June 2019 which did not materially impact its determinations with respect to such items.

None of Kronos’ 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. During the first quarter of 2018, Kronos’ German subsidiary executed and finalized the related Advance Pricing Agreement with the Competent Authority for Germany (the “Canada-Germany APA”) effective for tax years 2005 - 2017. In the first quarter of 2018,2020 Kronos recognized a ~~net $1.4 million non-cash income~~cash tax benefit of $.5 million related to ~~an APA~~the reversal of the valuation allowance recognized in 2019 for the portion of the disallowed interest expense Kronos did not expect to fully utilize at December 31, 2019. Pursuant to the business interest modification provisions, Kronos does not expect its deductible interest expense in 2020 to be limited and, accordingly, Kronos has considered such modifications in its estimate of the effective tax ~~settlement payment between~~rate. Kronos has determined other provisions of the CARES Act will not have a material impact on its ~~German and Canadian subsidiaries.~~provision for income taxes in 2020.

Changes in accumulated other comprehensive loss attributable to NL stockholders, including amounts resulting from our investment in Kronos Worldwide (see Note 5), are presented in the table below.

	Three months ended						Nine months ended
	September 30,						September 30,						Three months ended
	2018			2019			2018			2019			March 31,
	(In thousands)												2019			2020
													(In thousands)
Accumulated other comprehensive loss, net of tax:
Currency translation:
Balance at beginning of period	$	(167,984	)	$	(170,739	)	$	(164,467	)	$	(172,434	)	$	(172,434	)	$	(172,843	)
Other comprehensive income (loss)		1,103			(4,500	)		(2,414	)		(2,805	)

Other comprehensive loss														(25	)		(10,118	)
Balance at end of period	$	(166,881	)	$	(175,239	)	$	(166,881	)	$	(175,239	)	$	(172,459	)	$	(182,961	)

Defined benefit pension plans:
Balance at beginning of period	$	(70,994	)	$	(73,641	)	$	(72,951	)	$	(75,286	)	$	(75,286	)	$	(78,257	)
Other comprehensive income - amortization of net losses included in net periodic pension cost		959			818			2,916			2,463			828			1,043

Balance at end of period	$	(70,035	)	$	(72,823	)	$	(70,035	)	$	(72,823	)	$	(74,458	)	$	(77,214	)

OPEB plans:
Balance at beginning of period	$	(526	)	$	(685	)	$	(388	)	$	(550	)	$	(550	)	$	(590	)
Other comprehensive loss - amortization of net gains included in net periodic OPEB cost		(65	)		(65	)		(203	)		(200	)		(70	)		(80	)

Balance at end of period	$	(591	)	$	(750	)	$	(591	)	$	(750	)

Marketable securities:
Balance at beginning of period	$	-		$	-		$	46,069		$	-
Change in accounting principle		-			-			(46,069	)		-

Balance at end of period	$	-		$	-		$	-		$	-		$	(620	)	$	(670	)

Total accumulated other comprehensive loss:
Balance at beginning of period	$	(239,504	)	$	(245,065	)	$	(191,737	)	$	(248,270	)	$	(248,270	)	$	(251,690	)
Change in accounting principle		-			-			(46,069	)		-
Balance at beginning of period, as adjusted		(239,504	)		(245,065	)		(237,806	)		(248,270	)
Other comprehensive income (loss)		1,997			(3,747	)		299			(542	)		733			(9,155	)

Balance at end of period	$	(237,507	)	$	(248,812	)	$	(237,507	)	$	(248,812	)	$	(247,537	)	$	(260,845	)

We are involved in various environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to our current and former businesses. At least quarterly our management discusses and evaluates the status of any pending litigation or claim to which we are a party or which has been asserted against us. The factors considered in such evaluation include, among other things, the nature of

such pending cases and claims, the status of such pending cases and claims, the advice of legal counsel and our experience in similar cases and claims (if any). Based on such evaluation, we make a determination as to whether we believe (i) it is probable a loss has been incurred, and if so if the amount of such loss (or a range of loss) is reasonably estimable, or (ii) it is reasonably possible but not probable a loss has been incurred, and if so, if the amount of such loss (or a range of loss) is reasonably estimable, or (iii) the probability a loss has been incurred is remote.

Our former operations included the manufacture of lead pigments for use in paint and lead-based paint. We, 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 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 a party, and with respect to all such lead pigment litigation cases to which we are a party ~~other than with respect to the Santa Clara case discussed below,~~ we believe liability to us 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. In addition, we have determined that liability to us 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 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) on July 24, 2019, an order approving a global settlement agreement entered into among all of the plaintiffs and the three defendants remaining in the case (the Sherwin Williams Company, ConAgra Grocery Products and us) was entered by the court and the case was

dismissed with prejudice. The global settlement agreement provides that an aggregate $305 million will be paid collectively by the three co-defendants in full satisfaction of all claims resulting in a dismissal of the case with prejudice and the resolution of (i) all pending and future claims by the plaintiffs in the case, and (ii) all potential claims for contribution or indemnity between us and our co-defendants in respect to the case. In the agreement, we expressly deny any and all liability and the dismissal of the case with prejudice was entered by the court without a final judgment of liability entered against us. 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 $76.7 million in six annual installments beginning on the first anniversary of the initial payment ($12.0 million for the first five installments and $16.7 million for the sixth installment). Our sixth installment 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 us (and any amounts on deposit in excess of the final payment would be returned to us).

As previously disclosed during the second quarter of 2018 and based on the terms of a May 2018 settlement agreement between us and the plaintiffs which had an aggregate cost of $80 million to us, we determined that the loss to us could be reasonably estimated and 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). The May 2018 settlement was never approved by the court and was superseded in July 2019 by the global settlement agreement discussed above.

At June 30, 2019, based on the terms of the global settlement agreement approved by the court in July 2019 we increased the amount accrued for the litigation settlement and a final immaterial adjustment was made to the litigation settlement accrual in the third quarter of 2019. For financial reporting purposes ~~using~~we used a discount rate of 1.9% per annum ~~we discounted~~to discount the ~~aggregate $101.7 million~~ settlement to the estimated net present ~~value of $96.3 million.~~value. We recognized additional litigation settlement expense during 2019 of $19.3 million ~~($19.6 million expense~~(primarily in the second ~~quarter of 2019 and $.3 million credit in the third quarter of 2019)~~quarter). ~~We made the initial $25.0 million payment in September 2019 and recognized $.3 million in accretion expense during the third quarter of 2019.~~

For purposes of our Condensed Consolidated Balance Sheet at September 30, 2019, we have recognized the net present value of the $12.0 million payment due in 2020, $11.8 million, as a current liability and the net present value of the five remaining annual installments, $59.8 million, as a noncurrent liability. Under the terms of the settlement, we reclassified the $15.6 million on deposit at the court from an accrued insurance receivable to noncurrent restricted cash at September 30, 2019. Pursuant to the settlement agreement, during the third quarter of 2019 we placed an additional $9.0 million into an escrow account which is included in noncurrent restricted cash on our Condensed Consolidated Balance Sheet.

~~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. We do not know if we will incur liability in the future with respect to 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~~non-

appealable adverse verdict against us 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 us 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 our 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 that~~it is possible 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, we had recognized$15.0 million of receivables for recoveries related to the lead pigment litigation in California 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.

Changes in the accrued environmental remediation and related costs during the first ~~nine~~three months of ~~2019~~2020 are as follows:

	Amount			Amount
	(In thousands)			(In thousands)
Balance at the beginning of the period	$	98,211		$	94,508
Additions charged (credited) to expense, net		(579	)
Additions charged to expense					20
Payments, net		(2,656	)		(289	)

Balance at the end of the period	$	94,976		$	94,239

Amounts recognized in the Condensed Consolidated
Balance Sheet at the end of the period:
Current liability	$	3,168		$	3,357
Noncurrent liability		91,808			90,882

Balance at the end of the period	$	94,976		$	94,239

On a quarterly basis, we evaluate the potential range of our liability for environmental remediation and related costs at sites where we have been named as a PRP or defendant, including sites for which our wholly-owned environmental management subsidiary, NL Environmental Management Services, Inc. (EMS), has contractually assumed our obligations. At ~~September 30, 2019,~~March 31, 2020, we had accrued approximately ~~$95~~$94 million related to approximately 32 sites associated with remediation and related matters that we believe are at the present time and/or in their current phase reasonably estimable. The upper end of the range of reasonably possible costs to us for remediation and related matters for which we believe it is possible to estimate costs is approximately $115 million, including the amount currently accrued. These accruals have not been discounted to present value.

We believe that it is not reasonably possible to estimate the range of costs for certain sites. At ~~September 30, 2019,~~March 31, 2020, there were approximately five sites for which we are not currently able to reasonably estimate a range of costs. For these sites, generally the investigation is in the early stages, and we are unable to determine whether or not we actually had any association with the site, the nature of our responsibility 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 control, such as when the party alleging liability provides information to us. At certain of these previously inactive sites, we have received general and special notices of liability from the EPA and/or state agencies alleging that we, sometimes with other PRPs, are liable for past and future costs of remediating environmental contamination allegedly caused by former operations. These notifications may assert that we, along with any other alleged PRPs, are 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, results of operations and liquidity.

We are involved in certain legal proceedings with a number of our former insurance carriers regarding the nature and extent of the carriers’ obligations to us 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 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 agreements with certain of our former insurance carriers pursuant to which the carriers reimburse us for a portion of our future lead pigment litigation defense costs, and one such carrier reimburses us for a portion of our 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 us because of certain issues that arise regarding which defense costs qualify for reimbursement. While we continue 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. In this regard we recognized $5.2 million in insurance recoveries in the first nine months of 2019 which represented recovery of past and future litigation defense costs related primarily to a single insurance recovery settlement.

For a complete discussion of certain litigation involving us and certain of our former insurance carriers, refer to our ~~2018~~2019 Annual Report.

In addition to the litigation described above, we and our affiliates are also involved in various other environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to present and former businesses. In certain cases, we have insurance coverage for these items, although we do not expect additional material insurance coverage for environmental matters. We currently believe the disposition of all of these various other claims and disputes (including asbestos related claims), individually and 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.

See Note 4 for information on how we determine fair value of our marketable securities.

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

	December 31, 2018				September 30, 2019				December 31, 2019				March 31, 2020
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
	amount		value		amount		value		amount		value		amount		value
	(In thousands)								(In thousands)
Cash, cash equivalents and restricted cash	$	120,989	$	120,989	$	137,642	$	137,642	$	157,870	$	157,870	$	161,578	$	161,578
Noncontrolling interest in CompX common stock		19,443		22,871		22,377		24,188		22,707		24,627		23,131		25,657

The fair value of our noncontrolling interest in CompX stockholders’ equity is based upon its quoted market price at each balance sheet date, which represents a Level 1 input. Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value.

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

~~Note 16~~determining how to apply the income tax guidance to franchise taxes that are partially based on income. – ~~Recent accounting pronouncement:~~

OnWe adopted this ASU as of January 1, ~~2019, we adopted ASU 2016-02,~~ ~~Leases (Topic 842), which was a comprehensive rewriting of the lease accounting guidance which aimed to increase comparability and transparency with regard to lease transactions.~~2020. The primary change for leases currently classified as operating leases is the balance sheet recognition of a lease asset for the right to use the underlying asset and a lease liability for the lessee’s obligation to make payments. Due to our minimal utilization of lease financing, the adoption of this ~~standard~~ASU in the first quarter of 2020 did not have a material effect on our ~~consolidated financial statements.~~Condensed Consolidated Financial Statements.

Following the spread of the COVID-19 virus beyond China in late January 2020, various national, state and local governments began to implement a number of increasingly restrictive measures to contain the spread of the virus, including travel restrictions, gathering limitations, event cancellations, border closures and 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 resume commercial activities in most global markets, the impacts of COVID-19, including the efforts to mitigate its spread, are expected to continue to challenge workers, businesses and governments for the 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 impact will depend on numerous factors, including future developments, and therefore is uncertain and cannot be predicted.

We are primarily a holding company. We operate in the component products industry through our majority-owned subsidiary, CompX International Inc. We also own a non-controlling interest in Kronos Worldwide, Inc. Both CompX (NYSE American: CIX ) and Kronos (NYSE: KRO) file periodic reports with the Securities and Exchange Commission (SEC).

CompX is a leading manufacturer of engineered components utilized in a variety of applications and industries. Through its Security Products operations, CompX manufactures mechanical and electronic cabinet locks and other locking mechanisms used in recreational transportation, postal, office and institutional furniture, cabinetry, tool storage and healthcare applications. CompX also manufactures stainless steel exhaust systems, gauges, throttle controls, wake enhancement systems and trim tabs for the recreational marine and other industries through our Marine Components operations.

We account for our 30% non-controlling interest in Kronos by the equity method. Kronos is a leading global producer and marketer of value-added titanium dioxide pigments (TiO₂). TiO₂ is used for a variety of manufacturing applications including paints, plastics, paper and other industrial and specialty products.

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Statements in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking in nature and represent management’s beliefs and assumptions based on currently available information. Statements in this report including, but not limited to, statements found in Item 2 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements that represent our 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 the expectations reflected in 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 our actual future results to differ materially from those described herein are the risks and uncertainties discussed in this Quarterly Report and those described from time to time in our other filings with the SEC including, but are not limited to, the following:

Should one or more of these risks materialize (or if the consequences of such a 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 ~~September 30, 2019~~March 31, 2020 compared to the quarter ended ~~September 30, 2018~~March 31, 2019

Our net ~~loss~~income attributable to NL stockholders was ~~$1.6~~$1.9 million, or ~~$.03~~$.04 per share, in the ~~third~~first quarter of ~~2019~~2020 compared to a net ~~loss~~income attributable to NL stockholders of ~~$15.4~~$15.2 million, or ~~$.32~~$.31 per share, in the ~~third~~first quarter of ~~2018.~~2019. As more fully described below, the ~~increase~~decrease in our earnings per share from ~~2018~~2019 to ~~2019~~2020 is primarily due to the net effects of:

Our ~~2019~~2020 net ~~loss~~income per share attributable to NL stockholders includes income of ~~$.07~~$.01 per share ~~net of income tax expense,~~ related to ~~a gain from a sale~~Kronos’ first quarter recognition of ~~excess property.~~

~~Nine months ended September 30, 2019 compared to nine months ended September 30, 2018~~

We had net income attributable to NL stockholders of $19.5 million, or $.40 per share, in the first nine months of 2019 compared to a net loss attributable to NL stockholders of $43.8 million, or $.90 per share, in the first nine months of 2018. As more fully described below, the increase in our earnings per share from 2018 to 2019 is primarily due to the net effects of:

~~Our~~ ~~2018 net loss per share attributable to NL stockholders includes a loss of $1.01 per share, net of income tax benefit, related to the litigation settlement expense recognized in the second quarter.~~ gain.

The following table shows the components of our income ~~(loss)~~ from operations.

	Three months ended September 30,						%				Nine months ended September 30,						%				Three months ended March 31,						%
	2018			2019			Change				2018			2019			Change				2019			2020			Change
	(In millions)										(In millions)										(in millions)
CompX	$	4.5		$	4.3			(6	)	%	$	14.9		$	14.2			(5	)	%	$	4.3		$	5.0			17		%
Insurance recoveries		.5			.2			(54	)			.9			5.2			489				.3			-			(92	)
Other income, net		-			4.4		n.m.					.6			4.4			587
Litigation settlement expense, net		-			.3		n.m.					(62.0	)		(19.3	)		(69	)
Corporate expense		(1.6	)		(3.4	)		117				(14.4	)		(9.1	)		(36	)			(2.1	)		(2.5	)		22
Income (loss) from operations	$	3.4		$	5.8			67			$	(60.0	)	$	(4.6	)		92
Income from operations																					$	2.5		$	2.5			-

Amounts attributable to CompX relate primarily to its components products business, while the other amounts generally relate to NL. Each of these items is further discussed below.

The following table shows the components of our income (loss) before income taxes exclusive of our income ~~(loss)~~ from operations.

	Three months ended September 30,						%				Nine months ended September 30,						%				Three months ended March 31,						%
	2018			2019			Change				2018			2019			Change				2019			2020			Change
	(In millions)										(In millions)										(in millions)
Equity in earnings of Kronos	$	9.9		$	5.4			(45	)	%	$	55.0		$	23.6			(57	)	%	$	9.2		$	8.2			(11	)	%
Marketable equity securities		(35.6	)		(15.3	)		(57	)			(55.9	)		(.4	)		(99	)			5.5			(12.1	)		(321	)
Other components of net periodic pension and OPEB		(.1	)		(.5	)		338				(.3	)		(1.3	)		334
Other components of net periodic pension and OPEB cost																						(.4	)		(.2	)		(51	)
Interest and dividend income		1.3			1.6			18				3.6			5.2			44				1.5			1.1			(26	)
Interest expense		-			(.3	)	n.m.					-			(.3	)	n.m.					-			(.3	)	n.m.

	Three months ended September 30,						%				Nine months ended September 30,						%				Three months ended March 31,						%
	2018			2019			Change				2018			2019			Change				2019			2020			Change
	(In millions)										(In millions)										(in millions)
Net sales	$	30.0		$	29.7			(1	)	%	$	90.8		$	94.6			4		%	$	31.2		$	32.3			4	%
Cost of sales		20.4			20.2			(1	)			60.4			64.6			7				21.6			21.9			2
Gross margin		9.6			9.5			(1	)			30.4			30.0			(1	)			9.6			10.4			8
Operating costs and expenses		5.1			5.2			3				15.5			15.8			3				5.3			5.4			1
Income from operations	$	4.5		$	4.3			(6	)		$	14.9		$	14.2			(5	)		$	4.3		$	5.0			17

Percentage of net sales:
Cost of sales		68	%		68	%						67	%		68	%						69	%		68	%
Gross margin		32			32							33			32							31			32
Operating costs and expenses		17			18							17			17							17			17
Income from operations		15			14							16			15							14			15

Net sales – Net sales ~~decreased $.3~~increased $1.1 million in the ~~third~~first quarter of ~~2019~~2020 compared to the same period in ~~2018 as~~2019 primarily due to higher Security Products sales and to a lesser extent higher Marine Components sales to the towboat market were more than offset by lower Security Products sales across a variety of markets. Net sales increased $3.8 million in the first nine months of 2019 compared to the same period in 2018 due to strong sales growth at Marine Components partially offset by lower Security Products sales predominantly in the third quarter.sales. Relative changes in selling prices did not have a material impact on net sales comparisons.

Cost of sales and gross margin – As a percentage of net sales, cost of sales and gross margin for the third quarter of 2019 were comparable to the same period in 2018 as the improvement in the Marine Components gross margin percentage in the third quarter of 2019 compared to the third quarter 2018 offset the decline in relative contribution of Security Products which generally has higher gross margin percentages than Marine Components. Cost of sales as a percentage of ~~net~~ sales ~~increased~~decreased 1.4% in the first ~~nine months~~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 is the result of the decline in Security Products gross margin percentage~~dollars increased due to higher sales for ~~the first nine months of 2019 as compared to the same period in 2018.~~both business segments.

Operating costs and expenses – Operating costs and expenses consist primarily of sales and administrative-related personnel costs, sales commissions and advertising expenses directly related to product sales and administrative costs relating to business unit and corporate management activities, as well as gains and losses on plant, property and equipment. Operating costs and expenses for the ~~third~~first quarter ~~and first nine months~~ of ~~2019 increased compared~~2020 were comparable to the same period in ~~2018 largely due to increased administration costs at Marine Components.~~2019.

Income from operations – As a percentage of net sales, income from operations for the ~~third~~first quarter ~~and first nine months~~ of ~~2019 decreased~~2020 increased compared to the same ~~periods~~period of ~~2018~~2019 and was primarily impacted by the factors impacting cost of sales, gross margin and operating costs discussed above.

The key performance indicator for CompX’s reporting units is the level of their income from operations (see discussion below).

Three months ended
September 30,

%

Nine months ended
September 30,

%

2018

2019

Change

2018

2019

Change

(In millions)

(In millions)

Net sales:

Security Products
$
24.5

$
23.4

(5
)
%

$
75.8

$
75.0

(1
)
%
Marine Components

5.5

6.3

15

15.0

19.6

31

Total net sales
$
30.0

$
29.7

(1
)

$
90.8

$
94.6

4

Gross margin:

Security Products
$
8.1

$
7.7

(5
)

$
26.1

$
24.6

(6
)

Marine Components

1.5

1.8

22

4.3

5.4

29

Total gross margin
$
9.6

$
9.5

(1
)

$
30.4

$
30.0

(1
)

Income from operations:

Security Products
$
5.3

$
4.9

(9
)

$
17.8

$
16.0

(10
)

Marine Components

.8

1.0

28

2.3

3.2

38

Corporate operating expenses

(1.6
)

(1.6
)

(1
)

(5.2
)

(5.0
)

4

Total income from operations
$
4.5

$
4.3

(6
)

$
14.9

$
14.2

(5
)

Gross margin:

Security Products

33

%

33

%

34

%

33

%

Marine Components

27

29

28

28

Total gross margin

32

32

33

32

Income from operations margin:

Security Products

22

%

21

%

23

%

21

%

Marine Components

15

17

16

17

Total income from
operations margin

15

14

16

15

	Three months ended
	March 31,						%
	2019			2020			Change
	(in millions)

Security Products:
Net sales	$	24.7		$	25.5			3	%
Cost of sales		16.7			16.9			1
Gross margin		8.0			8.6			7
Operating costs and expenses		2.9			2.9			(2	)
Operating income	$	5.1		$	5.7			13

Gross margin		32	%		34	%
Operating income margin		21			22

Security Products – Security Products net sales ~~decreased 5%~~increased 3% in the ~~third~~first quarter of ~~2019~~2020 compared to the same period in 2018 due to lower sales across a variety of markets including a $.5 million decrease in each of the transportation and government security markets. Security Products net sales for the first nine months of 2019 was comparable to the same period last year. Gross margin and operating income as a percentage of net sales for the third quarter and for the first nine months of 2019 declined as compared to the same periods last year primarily due to increased labor rates and associated payroll costs resulting from regional pressure on wages for certain skilled labor positions as well as reduced leverage of fixed costs on decreased production volumes.

~~Marine Components~~ – ~~Marine Components net sales increased 15% and 31% in the third quarter and first nine months of 2019, respectively, as compared to the same periods~~ last year. The increase in sales is primarily due to ~~increased~~higher sales to ~~the towboat market, primarily wake enhancement systems~~existing government security customers, partially offset by lower sales to transportation and ~~surf pipes to an original equipment boat manufacturer. As a percentage of net sales, gross~~distribution customers. Gross margin and operating income as a percentage of sales increased in ~~the third quarter of 2019~~2020 compared to the same period in ~~2018~~2019 due to ~~improved fixed cost leverage facilitated~~favorable customer and product mix on higher sales, partially offset by ~~higher production volumes. Gross margin percentage for~~increased medical costs.

Marine Components–Marine Components net sales increased 6% in the first ~~nine months~~quarter of ~~2019 is comparable~~2020 compared to the same period last

year ~~as improved cost leverage on higher production volumes was~~primarily due to increased sales to the towboat and center console boat markets, partially offset by ~~less~~lower sales to distribution customers. Gross margin and operating income as a percentage of sales increased in the first quarter of 2020 compared to the same period last year due to a favorable customer and product mix ~~predominantly in the first half of the year. Operating income as a percentage of net~~on higher sales, ~~increased in the third quarter and first nine months of 2019 compared to the same periods in the prior year due to improved fixed cost leverage facilitated by higher production volumes somewhat~~partially offset ~~in both periods~~ by increased ~~administrative costs to support higher sustained sales volumes.~~medical costs.

Outlook – ~~As reflected~~We experienced minimal disruptions to our supply chain or customer base from COVID-19 during the first quarter of 2020. First quarter sales reflect continued strong demand for our products, including high-security applications for our existing government customers as well as our marine products. We have been identified as an essential business in the ~~operating results,~~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 ~~segment encountered generally weakening economic conditions among its customers~~ and ~~markets~~Marine Components segments 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 ~~latter half~~second quarter, in part due to the anticipated decline in demand during the same period.

The advance of the ~~third quarter.~~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 ~~expected,~~a result, we expect U.S. and worldwide gross domestic product to be significantly impacted for an indeterminate period.

Based on current conditions, we expect to report reduced revenue and operating income during the ~~rate~~second quarter of ~~sales growth for Marine Components began to moderate in the third quarter relative~~2020 compared to the ~~same period~~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 ~~2018,~~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 ~~quarter in which we significantly increased~~health and safety of our ~~deliveries~~employees before the COVID-19 crisis is over. CompX has significant cash balances of ~~wake enhancement systems. Nevertheless, absent further economic slowdown,~~approximately $63.2 million at March 31, 2020, and we believe ~~full year sales will exceed 2018. Operating income and operating margin for~~we are well positioned to navigate the Security Products segment decreased for the first nine months of 2019 relative to prior year due to higher labor rates and associated payroll costs, the effect of which we were not able to offset through higher selling prices. Although we have experienced minimal direct impact from recently enacted tariffs, we believe that tariffs and related global trade concerns may be impacting our significant original equipment manufacturer customers. 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 discretionary spending as well as 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 demand as well as broaden our sales base.uncertainty ahead.

Insurance recoveries – We have agreements with certain insurance carriers pursuant to which the carriers reimburse us for a portion of our past lead pigment and asbestos litigation defense costs. Insurance recoveries include amounts we received from these insurance carriers. We recognized $5.2 million in insurance recoveries in the first nine months of 2019 related primarily to a settlement we reached with one of our insurance carriers in which they agreed to reimburse us for a portion of our past and future litigation defense costs.

The agreements with certain of our insurance carriers also include reimbursement for a portion of our future litigation defense costs. We are not able to determine how much we will ultimately recover from these carriers for defense costs incurred by us because of certain issues that arise regarding which defense costs qualify for reimbursement. Accordingly, these insurance recoveries are recognized when the receipt is probable and the amount is determinable. See Note 14 to our Condensed Consolidated Financial Statements.

~~Litigation settlement expense~~ –We recognized a pre-tax $62.0 million and $19.3 million litigation settlement expense in the first nine months of 2018 and 2019, respectively, related to the lead pigment litigation in California. See Note 14 to our Condensed Consolidated Financial Statements.

Corporate expense – Corporate expenses were ~~$3.4~~$2.5 million in the ~~third~~first quarter of ~~2019, $1.8~~2020, $.4 million higher than in the ~~third~~first quarter of ~~2018~~2019 primarily due to higher environmental remediation and related costs partially offset by lower litigation fees and related costs in ~~2019.~~2020. Included in corporate expense in the ~~third quarter~~first quarters of ~~2018~~2019 and ~~2019~~2020 are:

Corporate expenses were $9.1 million in the first nine months of 2019, $5.3 million lower than in the first nine months of 2018 primarily due to lower litigation fees and related costs and lower environmental remediation and related costs in 2019. Included in corporate expense in the first nine months of 2018 and 2019 are:

The level of our litigation fees and related costs 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 14 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 costs are difficult to assess and estimate and it is possible that actual costs for environmental remediation will exceed accrued amounts or that costs will be incurred in the future for sites in which we cannot currently estimate our liability. If these events were to occur in ~~2019,~~2020, our corporate expenses would be higher than we currently estimate. In addition, we adjust our environmental accruals as further information becomes available to us or as circumstances change. Such further information or changed circumstances could result in an increase in our accrued environmental costs. See Note 14 to our Condensed Consolidated Financial Statements.

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

Interest and dividend income – Interest and dividend income ~~increased $.3 million in the third quarter and $1.6~~decreased $.4 million in the first ~~nine months~~quarter of ~~2019~~2020 compared to the prior year ~~periods~~period primarily due to ~~higher~~lower average outstanding balances under CompX’s revolving promissory note receivable from Valhi and lower average interest ~~earned on~~rates partially offset by higher cash and cash equivalents and restricted cash and cash equivalents and CompX’s revolving promissory note receivable from Valhi. Interest income on such note receivable from Valhi was $.5 million and $.6 million in the third quarters of 2018 and 2019, respectively, and $1.6 million and $1.8 million in the first nine months of 2018 and 2019, respectively. We also recognized $.6 million of accrued interest income on the insurance recovery receivable in the second quarter of 2019.balances available for investment.

Marketable equity securities – ~~Our~~We recognized a loss of $12.1 million on the change in value of our marketable equity securities ~~was $35.6 million and $15.3 million~~ in the ~~third quarters~~first quarter of ~~2018 and 2019, respectively, and $55.9 million and $.4~~2020 compared to a gain of $5.5 million in the first ~~nine months~~quarter of ~~2018 and 2019, respectively.~~2019.

Income tax expense (benefit) – We recognized an income tax benefit of ~~$2.3~~$3.3 million in the ~~third~~first quarter of ~~2019~~2020 compared to ~~an income tax benefit of $6.2 million in the third quarter of 2018 and an~~ income tax expense of ~~$.9~~$2.6 million in the first ~~nine months~~quarter of ~~2019 compared to an income tax benefit of $15.4 million in the first nine months of 2018.~~2019. In accordance with GAAP, we recognize deferred income taxes on our undistributed equity in earnings (losses) of Kronos. Because we and Kronos are part of the same U.S. federal income tax group, any dividends we receive from Kronos are nontaxable to us.

Accordingly, we do not recognize and we are not required to pay income taxes on dividends from Kronos. Therefore, our full-year effective income tax rate will generally be lower than the U.S. federal statutory income tax rate in years during which we receive dividends from Kronos and recognize equity in earnings of Kronos. Conversely, our effective income tax rate will generally be higher than the U.S. federal statutory income tax rate in years during which we receive dividends from Kronos and recognize equity in losses of Kronos. During interim periods, our effective income tax rate may not necessarily correspond to the foregoing due to the application of accounting for income taxes in interim periods which requires us to base our effective rate on full year projections. We received dividends from Kronos of ~~$18.0~~$6.3 million in the first ~~nine~~three months of ~~2018~~2019 and ~~$19.0 million in the first nine months of 2019.~~2020.

Our effective tax rate attributable to our equity in earnings of Kronos, including the effect of the ~~non-taxable~~nontaxable dividends we received from Kronos was ~~4.2%~~a 17.5% benefit in the first ~~nine~~three months of ~~2019~~2020 and ~~13.3%~~6.3% expense in the first ~~nine~~three months of ~~2018. Such~~2019. The decrease is primarily attributable to the net effects of Kronos’ lower earnings in the first ~~nine~~three months of ~~2019~~2020 as compared to the first ~~nine~~three months of ~~2018~~2019 and the impact of the income tax benefit related to the ~~non-taxable~~nontaxable dividends received from Kronos. See Note 12 to our Condensed Consolidated Financial Statements for more information about our ~~2019~~2020 income tax items, including a tabular reconciliation of our statutory tax expense (benefit) to our actual expense (benefit).

Noncontrolling interest – Noncontrolling interest in net income of CompX is consistent in the first ~~nine~~three months of ~~2018~~2019 and ~~2019.~~2020. The noncontrolling interest we recognize in each period is directly related to the level of earnings at CompX for the period.

	Three months ended September 30,								%				Nine months ended September 30,								%				Three months ended March 31,								%
	2018				2019				Change				2018				2019				Change				2019				2020				Change
	(In millions)												(In millions)												(in millions)
Net sales	$	410.3			$	437.4				7		%	$	1,312.5			$	1,358.4				3		%	$	436.5			$	421.0				(4	)	%
Cost of sales		291.2				349.7				20				846.8				1,051.9				24				327.2				332.9				2
Gross margin	$	119.1			$	87.7							$	465.7			$	306.5							$	109.3			$	88.1

Income from operations	$	58.1			$	33.1				(43	)		$	285.5			$	128.6				(55	)		$	49.0			$	43.5				(11	)
Interest and dividend income		1.5				1.4								3.7				5.2								2.1				1.2
Insurance settlement gain																										-				1.5
Marketable equity securities		(4.3	)			(1.9	)							(6.7	)			(.1	)							.6				(1.5	)
Other components of net periodic pension and OPEB cost		(3.7	)			(3.8	)							(11.3	)			(11.4	)							(3.8	)			(4.7	)
Interest expense		(4.9	)			(4.6	)							(14.7	)			(14.1	)							(4.8	)			(4.6	)
Income before income taxes		46.7				24.2								256.5				108.2								43.1				35.4
Income tax expense		14.1				6.3								75.5				30.5								12.8				8.4
Net income	$	32.6			$	17.9							$	181.0			$	77.7							$	30.3			$	27.0

Percentage of net sales:
Cost of sales		71		%		80		%						65		%		77		%						75		%		79		%
Income from operations		14				8								22				9								11				10

Equity in earnings of Kronos Worldwide, Inc.	$	9.9			$	5.4							$	55.0			$	23.6							$	9.2			$	8.2

TiO₂ operating statistics:
Sales volumes*		123				144				17		%		385				445				16		%		143				136				(5	)	%
Production volumes*		131				136				4				400				406				1				134				132				(1	)

Change in TiO₂ net sales:
TiO₂ sales volumes																																		(5	)	%
TiO₂ product pricing										(5	)	%										(7	)	%										-
TiO₂ sales volumes										17												16
TiO₂ product mix/other										(3	)											(3	)											3
Changes in currency exchange rates										(2	)											(3	)											(2	)
Total										7		%										3		%										(4	)	%

* Thousands of metric tons

Kronos’ key performance indicators are its TiO₂ average selling prices, its level of TiO₂ sales and production volumes and the cost of its third-party feedstock. TiO₂selling prices generally follow industry trends and prices will increase or decrease generally as a result of competitive market pressures.

~~Kronos started 2019 with average TiO~~₂~~selling prices 3% lower than at~~At the beginning of ~~2018.~~2020, Kronos’ average TiO₂selling prices ~~declined in~~were 1% lower than at the ~~first quarter~~beginning of 2019, ~~compared to the fourth quarter of 2018 before beginning to rise in the second~~ and ~~third quarters of 2019. Kronos’~~its average TiO₂selling prices at the end of the ~~third~~first quarter of ~~2019~~2020 were 2% ~~higher~~lower than at the end of ~~the second quarter of 2019 and were comparable to the end of 2018.~~2019. Kronos experienced 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 the first ~~nine~~three months of ~~2019~~2020 as compared to the same period of ~~2018.~~2019.

Kronos operated its production facilities at overall average capacity utilization rates of 95% in the first quarter of 2020 compared to 97% in the first ~~nine months~~quarter of ~~2019 compared to 95% in the first nine months of 2018. The table below lists Kronos’ comparative quarterly production capacity utilization rates.~~2019.

Primarily due to a moderate rise in the cost of third-party feedstock Kronos procured in ~~2018 and~~ 2019, its cost of sales per metric ton of TiO₂ sold in the first ~~nine~~three months of ~~2019~~2020 was higher as compared to the first ~~nine~~three months of ~~2018~~2019 (excluding the effect of changes in currency exchange rates).

Net sales – Kronos’ net sales in the ~~third~~first quarter of ~~2019 increased 7%~~2020 decreased 4%, or ~~$27.1~~$15.5 million, compared to the ~~third~~first quarter of ~~2018~~2019 primarily due to ~~the net effect of~~ a 5% decrease in ~~average TiO~~₂ ~~selling prices~~sales volumes (which decreased net sales by approximately ~~$21~~$22 million) ~~and a 17% increase~~. Kronos’ average TiO₂selling prices in ~~sales volumes (which increased net sales by approximately $70 million).~~the first quarter of 2020 were comparable to its average TiO₂selling 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.

Kronos’ sales volumes ~~increased 17%~~decreased 5% in the ~~third~~first quarter of ~~2019~~2020 as compared to the ~~third~~first quarter 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, Kronos estimates that changes in currency exchange rates (primarily the euro) decreased its net sales by approximately $9$7 million in the ~~third~~first quarter of ~~2019 as compared to the third quarter of 2018.~~

~~Kronos’ net sales in the first nine months of 2019 increased 3%, or $45.9 million, compared to the first nine months of 2018 primarily due to the net effect of a 7% decrease in average TiO~~₂ ~~selling prices (which decreased net sales by approximately $92 million) and a 16% increase in sales volumes (which increased net sales by approximately $210 million). TiO~~₂ 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.

~~Kronos’ sales volumes increased 16% in the first nine months of 2019~~2020 as compared to the first ~~nine months~~quarter of ~~2018 primarily due to higher sales in all major markets. In addition to the impact of changes in average TiO~~₂ ~~selling prices and sales volumes, Kronos estimates that changes in currency exchange rates decreased its net sales by approximately $41 million as compared to the first nine months of 2018.~~ 2019.

Cost of sales and gross margin – Kronos’ cost of sales increased ~~$58.5~~$5.7 million, or ~~20%~~2%, in the ~~third~~first quarter of ~~2019~~2020 compared to the ~~third~~first quarter of ~~2018~~2019 due to the net effect of ~~a 17% increase in sales volumes,~~ higher raw materials and other production costs of approximately ~~$24~~$23 million ~~(primarily caused by~~(including higher cost for third-party feedstock, ~~costs)~~energy and other raw materials), favorable effects from currency fluctuations (primarily the euro). and a 5% decrease in sales volumes. Kronos’ cost of sales as a percentage of net sales increased to ~~80%~~79% in the third quarter of ~~2019~~2020 compared to ~~71%~~75% in the same period of ~~2018~~2019 primarily due to the unfavorable effects of ~~lower average selling prices and~~ higher raw materials and other production costs, as discussed above.

Gross margin as a percentage of net sales decreased to ~~20%~~21% in the ~~third~~first quarter of ~~2019~~2020 compared to ~~29%~~25% in the ~~third~~first quarter of ~~2018.~~2019. As discussed and quantified above, Kronos’ gross margin decreased primarily due to the ~~net effect~~effects of lower ~~average selling prices, higher~~ sales volumes and higher raw materials and other production costs.

Kronos’ cost of sales increased $205.1 million, or 24%, in the first nine months of 2019 compared to the same period in 2018 primarily due to the net impact of a 16% increase in sales volumes, higher raw materialsSelling, general and other production costs of approximately $101 million (including higher costs for third-party feedstock, energy and other raw materials) and currency fluctuations (primarily the euro). Kronos’ cost of sales as a percentage of net sales increased to 77% in the first nine months of 2019 compared to 65% in the same period of 2018 primarily due to the unfavorable effects of lower average selling prices and higher raw materials and other production costs, as discussed above.

Gross margin as a percentage of net sales decreased to 23% in the first nine months of 2019 compared to 35% in the first nine months of 2018. As discussed and quantified above, Kronos’ gross margin decreased primarily due to the net effect of lower average selling prices, higher sales volumes and higher raw materials and other production costs.

~~Other operating income and~~administrative expense ~~net~~ – Kronos’ selling, general and administrative expense was approximately 13% of net sales in the ~~third quarter and~~ first ~~nine months~~quarters of 2019 ~~was comparable to the same prior year periods.~~and 2020.

Income from operations – Kronos’ income from operations decreased by ~~$25.0~~$5.5 million, or ~~43%~~11%, in the ~~third~~first quarter of ~~2019~~2020 compared to the ~~third~~first quarter of ~~2018.~~2019. Income from operations as a percentage of net sales decreased to 8%10% in the ~~third~~first quarter of ~~2019~~2020 from ~~14%~~11% in the same period of ~~2018.~~2019. This decrease was driven by the lower gross margin discussed above. Kronos estimates that changes in currency exchange rates increased income from operations by approximately $6$11 million in the ~~third~~first quarter of ~~2019~~2020 as compared to the same period in ~~2018,~~2019, as discussed below.

Kronos income from operations decreased by $156.9 million, or 55%, in the first nine months of 2019 compared to the first nine months of 2018. Income from operations as a percentage of net sales decreased to 9% in the first nine months of 2019 from 22% in the same period of 2018. This decrease was driven by the decrease in gross margin discussed above. Kronos estimates that changes in currency exchange rates increased income from operations by approximately $5 million in the first nine months of 2019 as compared to the same period in 2018.

Other non-operating income (expense) – ~~Kronos’ loss~~Kronos recognized a gain of $.6 million on the change in value of its marketable equity securities ~~was $4.3 million~~in the first quarter of 2019 and ~~$1.9~~a loss of $1.5 million in the ~~third quarters of September 30, 2018 and 2019, respectively. Other components of net periodic pension and OPEB cost in the third~~first quarter of 2019 was comparable to the third quarter of 2018 and Kronos expects this comparability of pension and OPEB cost to continue throughout 2019. Kronos’ interest expense in the third quarter of 2019 was also comparable to the third quarter of 2018 and Kronos currently expects its interest expense for all of 2019 to be comparable to 2018.

~~Kronos’ loss on marketable equity securities was $6.7 million and $.1 million for the first nine months of 2018 and 2019, respectively.~~2020. Other components of net periodic pension and OPEB cost in the first ~~nine months~~quarter of 2020 increased $.9 million compared to the first quarter of 2019 primarily due to increased amortization costs from previously unrecognized actuarial losses as a result of lower discount rates and lower expected returns on plan assets. Kronos’ interest expense in the first quarter of 2020 was comparable to the first ~~nine months of 2018. Interest expense in the first nine months~~quarter of 2019 ~~was~~and Kronos currently expects its interest expense for all of 2020 to be comparable to ~~the first nine months of 2018.~~ 2019.

Income tax expense – Kronos recognized income tax expense of ~~$6.3~~$8.4 million in the ~~third~~first quarter of ~~2019~~2020 compared to income tax expense of ~~$14.1 million in the third quarter of 2018. Kronos recognized income tax expense of $30.5~~$12.8 million in the first ~~nine months~~quarter of ~~2019 compared to income tax expense of $75.5 million in the first nine months of 2018.~~2019. The difference is primarily due to lower earnings in ~~2019.~~2020. Kronos’ earnings are subject to income tax in various U.S. and non-U.S. jurisdictions, and the income tax rates applicable to the pre-tax earnings (losses) of its non-U.S. operations are generally higher than the income tax rates applicable to its U.S. operations. Kronos generally expects its overall effective tax rate to be higher than the U.S. federal statutory tax rate of 21% primarily because of its sizeable non-U.S. operations.

Kronos has substantial operations and assets located outside the United States (primarily in Germany, Belgium, Norway and Canada). The majority of Kronos’ 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 Kronos’ sales generated from its non-U.S. operations is denominated in the U.S. dollar (and

consequently its non-U.S. operations will generally hold U.S. dollars from time to time). Certain raw materials used in all Kronos’ production facilities, primarily titanium-containing feedstocks, are purchased in U.S. dollars, while

labor and other production and administrative costs are incurred primarily in local currencies. Consequently, the translated U.S. dollar value of Kronos’ 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, Kronos’ 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 its 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. Kronos periodically uses currency forward contracts to manage a portion of its currency exchange risk, and relative changes in the aggregate fair value of any currency forward contracts it holds from time to time serve in part to mitigate the currency transaction gains or losses Kronos would otherwise recognize from the first two items described above.

Overall, Kronos estimates that fluctuations in currency exchange rates had the following effects on the reported amounts of its sales and income from operations for the periods indicated.

Impact of changes in currency exchange rates Three months ended September 30, 2019 vs September 30, 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

	Transaction gains/(losses) recognized							Translation losses - impact of rate changes		Total currency impact 2019 vs 2018			Tramsactions gains recognized						Translation loss - impact of rate changes			Total currency impact 2020 vs 2019
	2018			2019		Change		Translation losses - impact of rate changes		Total currency impact 2019 vs 2018			2019		2020		Change		Translation loss - impact of rate changes			Total currency impact 2020 vs 2019
	(In millions)												(In millions)
Impact on:
Net sales	$	-		$	-	$	-	$	(9)	$	(9	)	$	-	$	-	$	-	$	(7	)	$	(7	)
Income from operations		(1	)		6		7		(1)		6			1		12		11		-			11

The $9$7 million decrease in net sales (translation loss) was caused primarily by a strengthening of the U.S. dollar relative to the euro, as Kronos’ euro-denominated sales were translated into 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 Kronos’ net sales, as a substantial portion of the sales generated by its Canadian and Norwegian operations are denominated in the U.S. dollar.

The $6$11 million increase in income from operations ~~was comprised of the following:~~

The $41 million decrease in net sales (translation loss) was caused primarily by a strengthening of the U.S. dollar relative to the euro, as Kronos’ euro-denominated sales were translated into fewer U.S. dollars in 2019 as compared to 2018. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2019 did not have a significant effectCOVID-19 on the ~~reported amount of Kronos’ net sales, as a substantial portion of the sales generated by its Canadian and Norwegian operations are denominated in the U.S. dollar.~~

~~The $5 million increase in income from operations was comprised of the following:~~

global economy, Kronos expects its 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 global demand occur, we would expect a reduction in our sales volumes and potentially, average sales prices, which in turn would cause Kronos to reduce its production volumes, resulting in ~~2019~~an increase to per unit costs of production. If this occurs, spending for raw materials and other production costs would be ~~slightly higher as compared~~reduced, but not enough to ~~2018~~offset the negative impacts of reduced sales. Depending on the length and severity of the impact of COVID-19 on the global economy, Kronos may decide to curtail production ~~volumes. Assuming global economic conditions remain stable and based on anticipated production levels, Kronos also expects its 2019 sales volumes~~or temporarily close manufacturing facilities, or it may be required to ~~be higher as compared to 2018 sales volumes.~~temporarily close certain facilities if outbreaks escalate in a particular region. Kronos will continue to monitor current and anticipated near-term customer demand ~~levels~~throughout the year and align its production and ~~inventories~~inventory levels accordingly.

~~The cost of third-party feedstock Kronos purchased in~~Though it is not possible to predict the last half of 2018 and first nine months of 2019 was higher as compared to the first half of 2018 and such higher cost feedstock was reflected in Kronos’ results of operations in 2019. Consequently, Kronos’ cost of sales per metric ton of TiO₂ sold in the first nine months of 2019 was higher than its per-metric ton cost in the first nine months of 2018 (excluding the effect of changes in currency exchange rates). Kronos expects its cost of sales per metric ton of TiO₂ ~~sold in 2019 to be higher than its per-metric ton cost in 2018 primarily due to higher feedstock costs.~~

~~Kronos started 2019 with average TiO~~₂~~selling prices 3% lower than the beginning of 2018, and average selling prices at the end~~impact of the ~~third quarter~~COVID-19 pandemic on future demand for Kronos’ products or those of ~~2019 were comparable~~its customers, Kronos believes that it has sufficient cash on-hand and available borrowing capacity under its revolving credit facilities to ~~the end~~meet its obligations, and Kronos is prepared to implement multiple cash-saving strategies if necessary, including reduction of ~~2018. Average TiO~~₂~~selling prices declined by 4%~~inventories, delays in ~~the first quarter of 2019, then improved by 2% in each of the second and third quarters of 2019. Supplies of certain grades of TiO~~₂ remain tight, while inventories of certain other grades are adequate. Considering all of the foregoing factors, including rising raw material costs, and anticipating seasonal demand fluctuations as we enter the fourth calendar quarter, we expect selling prices to remain stable during the remainder of 2019.

Overall, Kronos expects its sales in 2019 will be higher as compared to 2018, principally as a result of the favorable impact of higher expected sales volumes partially offset by the unfavorable impact of lower expected average selling prices (primarily during the first half of the year). In addition, Kronos expects its income from

operations 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 materialcapital expenditures and other ~~operating costs 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, Kronos believes increased and sustained profit margins will be necessary to financially justify major expansions of TiO~~₂ ~~production capacity required to meet expected future growth in demand. Substantial expansions of TiO~~₂ ~~production capacity generally take several years before such production becomes available to meet demand growth.~~

Kronos’ expectations for its future operating results are based upon a number of factors beyond its control, including worldwide growth of gross domestic product, competition in the marketplace, continued operation of competitors, unexpected or earlier-than-expected capacity additions or reductions and technological advances. If actual developments differ from Kronos’ expectations, its results of operations could be unfavorably affected.cost saving initiatives.

Trends in cash flows from operating activities, excluding the impact of deferred taxes and relative changes in assets and liabilities, are generally similar to trends in our income from operations.

Net cash provided by operating activities was ~~$17.4~~$3.6 million in the first ~~nine~~three months of ~~2019~~2020 compared to ~~$22.3~~$1.7 million in the first ~~nine~~three months of ~~2018.~~2019. The ~~$4.9~~$1.9 million net ~~decrease~~increase in cash provided by operating activities includes the net effects of:

We do not have complete access to CompX’s cash flows in part because we do not own 100% of CompX. A detail of our consolidated cash flows from operating activities is presented in the table below. Intercompany

dividends have been eliminated. The reference to NL Parent in the table below is a reference to NL Industries, Inc., as the parent company of CompX and our wholly-owned subsidiaries.

	Nine months ended September 30,						Three months ended March 31,
	2018			2019			2019			2020
	(In millions)						(In millions)
Net cash provided by operating activities:
CompX	$	12.8		$	12.5		$	(2.0	)	$	(1.0	)
NL Parent and wholly-owned subsidiaries		11.1			7.2			4.5			5.7
Eliminations		(1.6	)		(2.3	)		(.8	)		(1.1	)
Total	$	22.3		$	17.4		$	1.7		$	3.6

Relative changes in working capital can have a significant effect on cash flows from operating activities. As shown below, our average days sales outstanding increased from December 31, ~~2018~~2019 to ~~September 30, 2019 were comparable and~~March 31, 2020 primarily as a result of relative changes in ~~line with our expectations.~~the timing of collections. Our total average number of days in inventory ~~increased from~~at March 31, 2020 was comparable to December 31, 2018 to September 30, 2019 due to increased inventory at Security Products primarily due to the timing of raw material purchases and an intentional raw material inventory build related to product lines in which certain components require long lead-times.2019. For comparative purposes, we have provided December 31, ~~2017~~2018 and ~~September 30, 2018~~March 31, 2019 numbers below.

December 31,

September 30,

December 31,

September 30,

December 31,

March 31,

December 31,

March 31,

2017

2018

2019

2018

2019

2020

Days sales outstanding

38 days

40 days

41 days

40 days

45 days

36 days

43 days

Days in inventory

79 days

76 days

80 days

85 days

80 days

78 days

81 days

79 days

Our capital expenditures were ~~$2.5~~$.4 million in each of the first ~~nine~~three months of ~~2019 compared to $2.0 million in the first nine months of 2018.~~2020 and 2019. During the first ~~nine~~three months of 2020, Valhi repaid a net $2.6 million under the promissory note ($15.6 million of gross borrowings and $18.2 million of gross repayments). During the first three months of 2019, Valhi borrowed a net ~~$2.7~~$6.0 million under the promissory note ($~~28.1~~17.4 million of gross borrowings and ~~$25.4 million of gross repayments). During the first nine months of 2018, Valhi repaid a net $5.2 million under the promissory note ($39.0 million of gross borrowings and $44.2~~$11.4 million of gross repayments).

On February 19, 2020 our board of directors declared a first quarter 2020 dividend of $.04 per share, aggregating $2.0 million, paid on March 17, 2020 to NL stockholders of record as of March 3, 2020. The declaration and payment of future dividends, and the amount thereof, is discretionary and is dependent upon these and other factors deemed relevant by our board of 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.

Cash flows from financing activities in the first ~~nine~~three months of each of ~~2018~~2019 and ~~2019 consist of~~2020 also include CompX dividends paid to its stockholders other than us.

At ~~September 30, 2019,~~March 31, 2020, NLKW had outstanding debt obligations of $.5 million under its secured revolving credit facility with Valhi, and CompX did not have any outstanding debt obligations. We are in compliance with all of the covenants contained in our secured revolving credit facility with Valhi at ~~September 30, 2019.~~March 31, 2020. See Note 8 to our Condensed Consolidated Financial Statements.

Kronos’ North American and European revolvers and its senior ~~secured~~ notes contain a number of covenants and restrictions which, among other things, restrict its ability to incur or guarantee additional debt, incur liens, pay dividends or make other restricted payments, or merge or consolidate with, or sell or transfer substantially all of its assets to, another entity, and contains other provisions and restrictive covenants customary in lending transactions of this type. Certain of Kronos’ 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’ 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. Kronos is in compliance with all of its debt covenants at ~~September 30, 2019.~~March 31, 2020. Kronos believes that it will be able to continue to comply with the financial covenants contained in its credit facilities through their maturity.

Our primary source of liquidity on an ongoing basis is our cash flow from operating activities and credit facilities with affiliates as further discussed below. We generally use these amounts to fund capital expenditures (substantially all of which relate to CompX), pay ongoing environmental remediation and litigation costs and provide for the payment of dividends (if declared).

At ~~September 30, 2019,~~March 31, 2020, we had aggregate cash, cash equivalents and restricted cash of ~~$137.6~~$161.6 million, substantially all of which was held in the U.S. A detail by entity is presented in the table below.

	Amount		Amount
	(In millions)		(In millions)
CompX	$	50.2	$	63.2
NL Parent and wholly-owned subsidiaries		87.4		98.4
Total	$	137.6	$	161.6

In addition, at ~~September 30, 2019~~March 31, 2020 we owned 14.4 million shares of Valhi common stock with an aggregate market value of ~~$27.3~~$14.8 million. See Note 4 to our Condensed Consolidated Financial Statements. We also owned 35.2 million shares of Kronos common stock at ~~September 30, 2019~~March 31, 2020 with an aggregate market value of ~~$435.7~~$297.3 million. See Note 5 to our Condensed Consolidated Financial Statements.

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 affiliates. As a result of this process, we have in the past and may in the future seek to raise additional capital, incur debt, repurchase indebtedness in the market or otherwise, modify our dividend policies, consider the sale of our interests in our subsidiaries, affiliates, business, 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.

We periodically evaluate acquisitions of interests in or combinations with companies (including related companies) perceived by management to be undervalued in the marketplace. These companies may or may not be engaged in businesses related to 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.

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 obligations (defined as the twelve-month period ending ~~September 30, 2020)~~March 31, 2021) including any amounts CompX might loan from time to time under the terms of its revolving loan to Valhi (which loans would be solely at CompX’s discretion). If actual developments differ materially from our expectations, our liquidity could be adversely affected. In this regard, Valhi has agreed to loan us up to $50 million on a revolving basis. At ~~September 30, 2019,~~March 31, 2020, we had $.5 million in outstanding borrowings under this facility, and we had $49.5 million available for future borrowing. See Note 8 to our Condensed Consolidated Financial Statements.

Firm purchase commitments for capital projects in process at ~~September 30, 2019~~March 31, 2020 totaled ~~$.6~~$.5 million. CompX’s ~~2019~~2020 capital investments are limited to those expenditures required to meet our expected customer demand and those required to properly maintain our facilities and technology infrastructure.

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. A detail of annual dividends we expect to receive from our subsidiaries and affiliates in ~~2019,~~2020, based on the number of shares of common stock of these affiliates we own as of ~~September 30, 2019~~March 31, 2020 and their current regular quarterly dividend rate, is presented in the table below.

	Shares held		Quarterly dividend rate		Annual expected dividend		Shares held		Quarterly dividend rate		Annual expected dividend
	(In millions)				(In millions)		(In millions)				(In millions)
Kronos		35.2	$	.18	$	25.4		35.2	$	.18	$	25.4
CompX		10.8		.07		3.0		10.8		.10		4.3
Valhi		14.4		.02		1.1		14.4		.02		1.1
Total expected annual dividends					$	29.5					$	30.8

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 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.

There have been no material changes in our contractual obligations ~~with the exception of the Santa Clara global settlement agreement discussed in Note 14 to our Condensed Consolidated Financial Statements,~~ 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 our ~~2018~~2019 Annual Report, or in Note 14 to our Condensed Consolidated Financial Statements or in Part II, Item 1 of this report, including certain legal proceedings. 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 us) with respect to asserted health concerns associated with the use of such products and (ii) effectively overturn court decisions in which we 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.

For a discussion of our critical accounting policies, refer to Part I, — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2018~~2019 Annual Report. There have been no changes in our critical accounting policies during the first ~~nine~~three months of ~~2019.~~2020.

We are exposed to market risk, including currency exchange rates, interest rates and security prices. There have been no material changes in these market risks since we filed our ~~2018~~2019 Annual Report, and we refer you to Part I, Item 7A. –“Quantitative and Qualitative Disclosure about Market Risk” in our ~~2018~~2019 Annual Report. See also Note 15 to our Condensed Consolidated Financial Statements.

Evaluation of disclosure controls and procedures – 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 that 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 and Chief Executive Officer and Amy Allbach Samford, our Vice President and Chief Financial Officer, have evaluated the design and effectiveness of our disclosure controls and procedures as of ~~September 30, 2019.~~March 31, 2020. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures are effective as of the date of this evaluation.

Internal control over financial reporting – 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:

Other – 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.

Changes in internal control over financial reporting – There have been no changes to our internal control over financial reporting during the quarter ended ~~September 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the matter discussed below, refer to Note 14 to our Condensed Consolidated Financial Statements ~~our 2018 Annual Report~~ and our ~~Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.~~2019 Annual Report.

Refined Metals Corporation v. NL Industries, ~~Inc.~~Inc. In ~~August 2019, the federal court of appeals affirmed both the trial court’s dismissal of all federal claims and its finding that the federal court lacked jurisdiction to rule on the~~March 2020, Refined Metals’ state law ~~claims. In October 2019, Refined Metals informed us that they had filed~~claims were dismissed with prejudice and the court entered a ~~new complaint~~final judgment in ~~Indiana state court asserting only state law claims. NL will continue to deny liability and will vigorously defend against all claims in the new complaint.~~favor of NL.

~~For~~Reference is made to the 2019 Annual Report for a discussion of ~~the~~additional risk factors related to our ~~businesses, refer~~businesses.

CompX - On March 11, 2020, the World Health Organization declared the coronavirus known as “COVID-19” a pandemic. CompX has approximately 550 employees and operates three facilities in the United States located in Illinois, Wisconsin and South Carolina. The facilities are geographically diverse, and certain areas of the U.S. are experiencing more significant viral outbreaks than other areas. CompX is designated an essential business in the states where it operates and is therefore permitted to ~~Part I, Item 1A., “Risk Factors,” in our 2018 Annual Report. There have been no material changes to such risk factors~~fully operate during the ~~nine months ended September 30, 2019.~~pandemic, but because the COVID-19 pandemic affected the health and safety of its employees, CompX temporarily closed its Illinois facility for one week beginning in late April. The rate of spread of COVID-19 in a geographic region can change rapidly, and it is possible CompX may have additional temporary closures at one or all of its facilities for the health and safety of its workforce if conditions warrant. In addition, the pandemic has caused the closure of some of its customers’ facilities, and it is possible that more customers will be similarly impacted. Furthermore, the economic effect of the pandemic has impacted the demand for CompX’s products. CompX is actively monitoring its suppliers, customers and facilities to rapidly respond to changing conditions. The extent of the impact of the coronavirus outbreak on CompX’s operational and financial performance will depend on future developments, including the severity, duration and spread of the outbreak and its overall impact to the industries and markets in which CompX operates, all of which are uncertain and cannot be predicted.

Kronos - Following the spread of the COVID-19 virus beyond China in late January 2020, various national, state and local governments began to implement a number of increasingly restrictive measures to contain the spread of the virus, including travel restrictions, gathering limitations, event cancellations, border closures and 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 resume commercial activities in most global markets, the impacts of COVID-19, including the efforts to mitigate its spread, are expected to continue to challenge workers, businesses and governments for the foreseeable future. Although the COVID-19 pandemic had limited impact on Kronos’ operations during the first quarter of 2020, Kronos believes U.S. and worldwide gross domestic product will be significantly impacted for an indeterminate period, including the demand for its products and those of its customers. The extent of the impact of COVID-19 on Kronos will depend on numerous factors, including future developments, and therefore is uncertain and cannot be predicted.

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.

		Page number
Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets - December 31, ~~2018; September 30, 2019~~2019; March 31, 2020 (unaudited)	3

	Condensed Consolidated Statements of ~~Operations~~Income (unaudited) – Three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2019~~2020	5

	Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~(Loss) (unaudited) – Three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2019~~2020	6

	Condensed Consolidated Statements of Equity (unaudited) – Three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2019~~2020	7

	Condensed Consolidated Statements of Cash Flows (unaudited) - ~~Nine~~Three months ended ~~September 30, 2018~~March 31, 2019 and ~~2019~~2020	98

	Notes to Condensed Consolidated Financial Statements (unaudited)	109

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2320

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	3934

Item 4.	Controls and Procedures	3934


Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	4035

Item 1A.	Risk Factors	4035

Item 6.	Exhibits	4035


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

Date: ~~November 7, 2019~~May 6, 2020	/s/ Amy Allbach Samford
	Amy Allbach Samford
	(Vice President and Chief Financial Officer, Principal Financial Officer)
Date: ~~November 7, 2019~~May 6, 2020	/s/ Patty S. Brinda
	Patty S. Brinda
	(Vice President and Controller, Principal Accounting Officer)


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


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

	Production Capacity Utilization Rates
	2018	2019
First quarter	95%	97%
Second quarter	97%	97%
Third quarter	92%	97%

Impact of changes in currency exchange rates Nine months ended September 30, 2019 vs September 30, 2018

								Translation gains (losses)- impact of rate changes			Total currency impact 2019 vs 2018
	Transaction gains recognized
	2018		2019		Change
	(In millions)
Impact on:
Net sales	$	-	$	-	$	-		$	(41	)	$	(41	)
Income from operations		4		6			2		3			5