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 ~~May 1,~~July 31, 2020: ~~48,755,734.~~48,788,984.

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

	December 31,		March 31,		December 31,		June 30,
	2019		2020		2019		2020
			(unaudited)				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	129,730	$	133,406	$	129,730	$	134,301
Restricted cash and cash equivalents		2,695		2,697		2,695		2,718
Accounts and other receivables, net		11,929		15,294		11,929		11,756
Inventories, net		18,348		18,962		18,348		21,818
Receivables from affiliates		581		438		581		7
Prepaid expenses and other		1,401		1,272		1,401		1,044

Total current assets		164,684		172,069		164,684		171,644

Other assets:
Restricted cash and cash equivalents		25,445		25,475		25,445		25,462
Note receivable from affiliate		28,100		25,500		28,100		30,500
Marketable securities		26,877		14,804		26,877		12,552
Investment in Kronos Worldwide, Inc.		248,355		238,067		248,355		243,840
Goodwill		27,156		27,156		27,156		27,156
Other assets, net		5,860		5,672		5,860		5,386

Total other assets		361,793		336,674		361,793		344,896

Property and equipment:
Land		4,940		4,940		4,940		4,940
Buildings		23,047		23,047		23,047		23,054
Equipment		67,718		68,443		67,718		68,739
Construction in progress		1,002		463		1,002		557
		96,707		96,893		96,707		97,290
Less accumulated depreciation		65,692		66,531		65,692		67,364

Net property and equipment		31,015		30,362		31,015		29,926

Total assets	$	557,492	$	539,105	$	557,492	$	546,466

	December 31,			March 31,			December 31,			June 30,
	2019			2020			2019			2020
				(unaudited)						(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	3,438		$	3,300		$	3,438		$	2,868
Accrued litigation settlement		11,830			11,887			11,830			11,943
Accrued and other current liabilities		10,601			7,483			10,601			7,544
Accrued environmental remediation and related costs		3,065			3,357			3,065			3,132
Payables to affiliates		801			757			801			757
Income taxes		73			84			73			103

Total current liabilities		29,808			26,868			29,808			26,347

Noncurrent liabilities:
Long-term debt from affiliate		500			500			500			500
Accrued environmental remediation and related costs		91,443			90,882			91,443			90,701
Long-term litigation settlement		60,081			60,367			60,081			60,654
Deferred income taxes		33,957			28,196			33,957			28,092
Accrued pension costs		8,230			7,894			8,230			7,485
Other		6,260			6,193			6,260			6,158

Total noncurrent liabilities		200,471			194,032			200,471			193,590

Equity:
NL stockholders' equity:
Common stock		6,094			6,094			6,094			6,098
Additional paid-in capital		299,102			298,865			299,102			299,093
Retained earnings		251,000			250,960			251,000			253,597
Accumulated other comprehensive loss		(251,690	)		(260,845	)		(251,690	)		(255,521	)

Total NL stockholders' equity		304,506			295,074			304,506			303,267

Noncontrolling interest in subsidiary		22,707			23,131			22,707			23,262

Total equity		327,213			318,205			327,213			326,529

Total liabilities and equity	$	557,492		$	539,105		$	557,492		$	546,466

	Three months ended						Three months ended						Six months ended
	March 31,						June 30,						June 30,
	2019			2020			2019			2020			2019			2020
	(unaudited)						(unaudited)
Net sales	$	31,176		$	32,311		$	33,730		$	23,800		$	64,907		$	56,111
Cost of sales		21,552			21,880			22,791			16,434			44,344			38,314

Gross margin		9,624			10,431			10,939			7,366			20,563			17,797

Selling, general and administrative expense		5,334			5,411			5,317			4,997			10,650			10,408
Other operating income (expense):
Insurance recoveries		283			22			4,714			86			4,997			108
Litigation settlement expense, net								(19,571	)		-			(19,571	)		-
Corporate expense		(2,055	)		(2,508	)		(3,654	)		(2,441	)		(5,710	)		(4,949	)

Income from operations		2,518			2,534
Income (loss) from operations								(12,889	)		14			(10,371	)		2,548

Equity in earnings of Kronos Worldwide, Inc.		9,225			8,207			8,944			5,651			18,169			13,858

Other income (expense):
Interest and dividend income		1,519			1,131			2,123			501			3,642			1,632
Marketable equity securities		5,462			(12,073	)		9,486			(2,252	)		14,948			(14,325	)
Other components of net periodic pension and OPEB cost		(428	)		(208	)		(428	)		(208	)		(856	)		(416	)
Interest expense		(9	)		(352	)		(9	)		(350	)		(18	)		(702	)

Income (loss) before income taxes		18,287			(761	)
Income before income taxes								7,227			3,356			25,514			2,595

Income tax expense (benefit)		2,561			(3,263	)		667			(1,516	)		3,228			(4,779	)

Net income		15,726			2,502			6,560			4,872			22,286			7,374
Noncontrolling interest in net income of subsidiary		522	��		592			682			283			1,204			875

Net income attributable to NL stockholders	$	15,204		$	1,910		$	5,878		$	4,589		$	21,082		$	6,499

Amounts attributable to NL stockholders:
Basic and diluted net income per share	$	.31		$	.04		$	.12		$	.09		$	.43		$	.13

Weighted average shares used in the calculation of net income per share		48,727			48,756			48,740			48,771			48,734			48,763

	Three months ended						Three months ended						Six months ended
	March 31,						June 30,						June 30,
	2019			2020			2019			2020			2019			2020
	(unaudited)						(unaudited)
Net income	$	15,726		$	2,502		$	6,560		$	4,872		$	22,286		$	7,374

Other comprehensive income (loss), net of tax:
Currency translation		(25	)		(10,118	)		1,720			4,364			1,695			(5,754	)
Defined benefit pension plans		828			1,043			817			1,031			1,645			2,074
Other postretirement benefit plans		(70	)		(80	)		(65	)		(71	)		(135	)		(151	)

Total other comprehensive income (loss), net		733			(9,155	)		2,472			5,324			3,205			(3,831	)

Comprehensive income (loss)		16,459			(6,653	)
Comprehensive income								9,032			10,196			25,491			3,543
Comprehensive income attributable to noncontrolling interest		522			592			682			283			1,204			875

Comprehensive income (loss) attributable to NL stockholders	$	15,937		$	(7,245	)
Comprehensive income attributable to NL stockholders							$	8,350		$	9,913		$	24,287		$	2,668

	Three months ended June 30, 2019 and 2020 (unaudited)
									Accumulated
			Additional						other			Noncontrolling
	Common		paid-in			Retained			comprehensive			interest in			Total
	stock		capital			earnings			income (loss)			subsidiary			equity
	(unaudited)
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 controlling 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

Balance at March 31, 2020	$	6,094	$	298,865		$	250,960		$	(260,845	)	$	23,131		$	318,205
Net income		-		-			4,589			-			283			4,872
Other comprehensive income, net of tax		-		-			-			5,324			-			5,324
Issuance of NL common stock		4		96			-			-			-			100
Dividends paid - $.04 per share		-		-			(1,952	)		-			-			(1,952	)
Dividends paid to noncontrolling interest		-		-			-			-			(170	)		(170	)
Other, net		-		132			-			-			18			150

Balance at June 30, 2020	$	6,098	$	299,093		$	253,597		$	(255,521	)	$	23,262		$	326,529

																		Six months ended June 30, 2019 and 2020 (unaudited)
	Three months ended March 31, 2019 (unaudited)																									Accumulated
									Accumulated											Additional						other			Noncontrolling
			Additional						other			Noncontrolling						Common		paid-in			Retained			comprehensive			interest in			Total
	Common		paid-in			Retained			comprehensive			interest in			Total			stock		capital			earnings			income (loss)			subsidiary			equity
	stock		capital			earnings			income (loss)			subsidiary			equity
Balance at December 31, 2018	$	6,090	$	301,139		$	225,156		$	(248,270	)	$	19,443		$	303,558		$	6,090	$	301,139		$	225,156		$	(248,270	)	$	19,443		$	303,558

Net income		-		-			15,204			-			522			15,726			-		-			21,082			-			1,204			22,286
Other comprehensive income, net of tax		-		-			-			733			-			733			-		-			-			3,205			-			3,205
Issuance of NL common stock																			4		96			-			-			-			100
Dividends paid to noncontrolling interest		-		-			-			-			(117	)		(117	)		-		-			-			-			(235	)		(235	)
Equity transactions with controlling interest, net and other																			-		(1,831	)		-			-			1,543			(288	)

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
Balance at June 30, 2019																		$	6,094	$	299,404		$	246,238		$	(245,065	)	$	21,955		$	328,626
	stock		capital			earnings			loss			subsidiary			equity
Balance at December 31, 2019	$	6,094	$	299,102		$	251,000		$	(251,690	)	$	22,707		$	327,213		$	6,094	$	299,102		$	251,000		$	(251,690	)	$	22,707		$	327,213

Net income		-		-			1,910			-			592			2,502			-		-			6,499			-			875			7,374
Other comprehensive loss, net of tax		-		-			-			(9,155	)		-			(9,155	)		-		-			-			(3,831	)		-			(3,831	)
Dividends paid - $.04 per share		-		-			(1,950	)		-			-			(1,950	)
Issuance of NL common stock																			4		96												100
Dividends paid - $.08 per share																			-		-			(3,902	)		-			-			(3,902	)
Dividends paid to noncontrolling interest		-		-			-			-			(168	)		(168	)		-		-			-			-			(338	)		(338	)
Other, net		-		(237	)		-			-			-			(237	)		-		(105	)		-			-			18			(87	)

Balance at March 31, 2020	$	6,094	$	298,865		$	250,960		$	(260,845	)	$	23,131		$	318,205
Balance at June 30, 2020																		$	6,098	$	299,093		$	253,597		$	(255,521	)	$	23,262		$	326,529

	Three months ended						Six months ended
	March 31,						June 30,
	2019			2020			2019			2020
	(unaudited)						(unaudited)
Cash flows from operating activities:
Net income	$	15,726		$	2,502		$	22,286		$	7,374
Depreciation and amortization		901			950			1,808			1,912
Deferred income taxes		2,552			(3,278	)		3,215			(4,805	)
Equity in earnings of Kronos Worldwide, Inc.		(9,225	)		(8,207	)		(18,169	)		(13,858	)
Dividends received from Kronos Worldwide, Inc.		6,339			6,339			12,678			12,678
Marketable equity securities		(5,462	)		12,073			(14,948	)		14,325
Cash funding of benefit plans in excess of net benefit plan expense		9			244
Benefit plan expense greater (less) than cash funding								(224	)		202
Other, net		39			225			577			728
Change in assets and liabilities:
Accounts and other receivables, net		(3,244	)		(3,364	)		(3,319	)		496
Inventories, net		(1,475	)		(673	)		(839	)		(3,555	)
Prepaid expenses and other		181			129			235			358
Accounts payable and accrued liabilities		(3,949	)		(3,196	)		(2,995	)		(3,592	)
Income taxes		9			15			3			27
Accounts with affiliates		559			99			784			530
Accrued environmental remediation and related costs		(1,194	)		(269	)		(1,410	)		(675	)
Other noncurrent assets and liabilities, net		(16	)		(3	)		19,530			(33	)

Net cash provided by operating activities		1,750			3,586			19,212			12,112

Cash flows from investing activities:
Capital expenditures		(439	)		(360	)		(1,811	)		(861	)
Note receivable from affiliate:
Collections		11,400			18,228			22,100			20,628
Loans		(17,400	)		(15,628	)		(28,100	)		(23,028	)
Other, net								128			-

Net cash provided by (used in) investing activities		(6,439	)		2,240
Net cash used in investing activities								(7,683	)		(3,261	)

Cash flows from financing activities:
Dividends paid		-			(1,950	)		-			(3,902	)
Distributions to noncontrolling interests in subsidiary		(117	)		(168	)		(235	)		(338	)

Net cash used in financing activities		(117	)		(2,118	)		(235	)		(4,240	)

Cash and cash equivalents and restricted cash and cash equivalents - net change from:
Operating, investing and financing activities		(4,806	)		3,708			11,294			4,611
Balance at beginning of period		120,989			157,870			120,989			157,870

Balance at end of period	$	116,183		$	161,578		$	132,283		$	162,481

Supplemental disclosures - cash paid (received) for:
Interest	$	9		$	8		$	18		$	14
Income taxes, net		(16	)		(9	)		(232	)		(9	)

Organization – At ~~March 31,~~June 30, 2020, Valhi, Inc. (NYSE: VHI) held approximately 83% of our outstanding common stock and a wholly-owned subsidiary of Contran Corporation held approximately 92% of Valhi’s outstanding common stock. ~~At March 31, 2020, a~~A majority of ~~Contran’s~~Contran's outstanding voting stock ~~was~~is held directly by Lisa K. Simmons ~~and Serena Simmons Connelly~~ and various family trusts established for the benefit of Ms. Simmons, ~~and~~Thomas C. Connelly (the husband of Ms. ~~Connelly~~Simmons’ late sister) and their children and for which Ms. Simmons or ~~Ms.~~Mr. Connelly, as applicable, ~~served~~serve as trustee (collectively, the “Other Trusts”). ~~In addition, each~~With respect to the Other Trusts for which Mr. Connelly serves as trustee, he is required to vote the shares of Contran voting stock held by such trusts in the same manner as Ms. Simmons. Such voting rights of Ms. Simmons last through April 22, 2030 and are personal to Ms. ~~Connelly served as co-chair of the Contran board of directors.~~Simmons. The remainder of Contran’s outstanding voting stock ~~was~~is held by another trust (the “Family Trust”), which was established for the benefit of Ms. Simmons and ~~Ms. Connelly~~her late sister and their children and for which a third-party financial institution serves as trustee. Consequently, at 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,~~June 30, 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 approximately 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, 2019 that we filed with the SEC on March 11, 2020 (the 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, 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, 2019) normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Our results of operations for the interim ~~period~~periods ended ~~March 31,~~June 30, 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 2019 Consolidated Financial Statements contained in our 2019 Annual Report.

Our results of operations for the second quarter of 2020 were significantly impacted by the COVID-19 pandemic, specifically through reduced demand for many of CompX and Kronos’ products resulting from the rapid contraction of vast areas of the global economy. The extent of the COVID-19 impact on our future operations will depend on the time period and degree to which the COVID-19 pandemic persists in the global economy thereby reducing customer demand for certain of CompX and Kronos’ products, including the timing and extent to which CompX and Kronos’ customers’ operations continue to be impacted, their customers’ perception as to when consumer demand for their products will return to pre-pandemic levels and on any future disruptions in their operations or their suppliers’ operations, all of which are difficult to predict.

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,			March 31,			December 31,			June 30,
	2019			2020			2019			2020
	(In thousands)						(In thousands)
Trade receivables - CompX	$	11,940		$	15,302		$	11,940		$	11,410
Other receivables		59			62			59			416
Allowance for doubtful accounts		(70	)		(70	)		(70	)		(70	)
Total	$	11,929		$	15,294		$	11,929		$	11,756

	December 31,		March 31,		December 31,		June 30,
	2019		2020		2019		2020
	(In thousands)				(In thousands)
Raw materials	$	2,941	$	3,104	$	2,941	$	3,361
Work in process		11,771		12,237		11,771		13,649
Finished products		3,636		3,621		3,636		4,808
Total	$	18,348	$	18,962	$	18,348	$	21,818

Our marketable securities consist of investments in the publicly-traded shares of our immediate parent company Valhi, Inc. Our shares of Valhi common stock are accounted for as available-for-sale securities, which are carried at fair value using quoted market prices in active markets 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 Income.

At December 31, 2019 and ~~March 31,~~June 30, 2020, we held approximately ~~14.4~~1.2 million shares of common stock of our immediate parent company, Valhi, Inc. At December 31, 2019 and ~~March 31,~~June 30, 2020, the quoted per share market price of Valhi common stock was ~~$1.87~~$22.44 and ~~$1.03,~~$10.48, respectively. Valhi implemented a reverse split of its common stock at a ratio of 1-for-12 effective on June 1, 2020. We have adjusted all share and per-share disclosures related to our investment in Valhi stock for all periods prior to June 2020 to give effect to the reverse stock split. The reverse stock split had no financial statement impact to us, and our ownership interest in Valhi did not change as a result of the split.

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.

At December 31, 2019 and ~~March 31,~~June 30, 2020, we owned approximately 35.2 million shares of Kronos common stock. At ~~March 31,~~June 30, 2020, the quoted market price of Kronos’ common stock was ~~$8.44~~$10.41 per share, or an aggregate

market value of ~~$297.3~~$366.6 million. At December 31, 2019, the quoted market price was $13.40 per share, or an aggregate market value of $471.9 million.

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

	Amount			Amount
	(In millions)			(In millions)
Balance at the beginning of the period	$	248.4		$	248.4
Equity in earnings of Kronos		8.2			13.9
Dividends received from Kronos		(6.3	)		(12.7	)
Equity in Kronos' other comprehensive income:
Equity in Kronos' other comprehensive income (loss):
Currency translation		(12.8	)		(7.3	)
Defined benefit pension plans		.9			1.8
Other		(.3	)		(.3	)
Balance at the end of the period	$	238.1		$	243.8

	December 31,		March 31,		December 31,		June 30,
	2019		2020		2019		2020
	(In millions)				(In millions)
Current assets	$	1,219.7	$	1,163.4	$	1,219.7	$	1,171.0
Property and equipment, net		490.6		459.0		490.6		467.7
Investment in TiO₂ joint venture		90.2		92.4		90.2		96.5
Other noncurrent assets		165.3		160.0		165.3		168.5
Total assets	$	1,965.8	$	1,874.8	$	1,965.8	$	1,903.7

Current liabilities	$	270.6	$	231.2	$	270.6	$	230.0
Long-term debt		444.0		436.3		444.0		445.0
Accrued pension costs		307.4		301.4		307.4		307.7
Other noncurrent liabilities		127.7		123.6		127.7		119.7
Stockholders' equity		816.1		782.3		816.1		801.3
Total liabilities and stockholders' equity	$	1,965.8	$	1,874.8	$	1,965.8	$	1,903.7

					Three months ended				Six months ended
	Three months ended March 31,				June 30,				June 30,
	2019		2020		2019		2020		2019		2020
	(In millions)				(In millions)
Net sales	$	436.5	$	421.0	$	484.5	$	386.0	$	921.0	$	807.0
Cost of sales		327.2		332.9		375.0		290.2		702.2		623.1
Income from operations		49.0		43.5		46.5		33.0		95.5		76.5
Income tax expense		12.8		8.4		11.4		5.1		24.2		13.5
Net income		30.3		27.0		29.5		18.6		59.8		45.6

	December 31,		March 31,		December 31,		June 30,
	2019		2020		2019		2020
	(In thousands)				(In thousands)
Pension asset	$	4,294	$	4,106	$	4,294		4,130
Other		1,566		1,566		1,566		1,256
Total	$	5,860	$	5,672	$	5,860	$	5,386

	December 31,		March 31,		December 31,		June 30,
	2019		2020		2019		2020
	(In thousands)				(In thousands)
Employee benefits	$	8,917	$	5,138	$	8,917	$	6,193
Other		1,684		2,345		1,684		1,351
Total	$	10,601	$	7,483	$	10,601	$	7,544

During the first ~~three~~six months of 2020, our wholly owned subsidiary, NLKW Holding, LLC had no borrowings or repayments under its $50 million secured revolving credit facility with Valhi. At ~~March 31,~~June 30, 2020, $.5 million was outstanding and $49.5 million was available for future borrowing under this facility. Outstanding borrowings bear interest at the prime rate plus 1.875% per annum, and the average interest rate for the ~~three~~six months ended ~~March 31,~~June 30, 2020 was ~~6.31%~~5.72%. The interest rate was 5.13% at ~~March 31,~~June 30, 2020. We are in compliance with all covenants at ~~March 31,~~June 30, 2020.

	December 31,		March 31,		December 31,		June 30,
	2019		2020		2019		2020
	(In thousands)				(In thousands)
Reserve for uncertain tax positions	$	4,053	$	4,053	$	4,053	$	4,053
OPEB		1,129		1,068		1,129		1,049
Insurance claims and expenses		665		686		665		611
Other		413		386		413		445
Total	$	6,260	$	6,193	$	6,260	$	6,158

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				Three months ended				Six months ended
	March 31,				June 30,				June 30,
	2019		2020		2019		2020		2019		2020
	(In thousands)				(In thousands)
Net sales:
Security Products	$	24,704	$	25,469	$	26,927	$	18,573	$	51,631	$	44,042
Marine Components		6,472		6,842		6,803		5,227		13,276		12,069
Total	$	31,176	$	32,311	$	33,730	$	23,800	$	64,907	$	56,111

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

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

	Three months ended						Three months ended						Six months ended
	March 31,						June 30,						June 30,
	2019			2020			2019			2020			2019			2020
	(In millions)						(In millions)
Expected tax expense (benefit), at U.S. federal statutory income tax rate of 21%	$	3.8		$	(.2	)
Expected tax expense, at U.S. federal statutory income tax rate of 21%							$	1.6		$	.7		$	5.4		$	.5
Rate differences on equity in earnings of Kronos		(1.4	)		(3.2	)		(1.1	)		(2.2	)		(2.5	)		(5.4	)
U.S. state income taxes and other, net		.2			.1			.1			-			.3			.1
Income tax expense (benefit)	$	2.6		$	(3.3	)	$	.6		$	(1.5	)	$	3.2		$	(4.8	)

Comprehensive provision (benefit) for income taxes allocable to:
Net income (loss)	$	2.6		$	(3.3	)	$	.6		$	(1.5	)	$	3.2		$	(4.8	)
Additional paid-in capital		-			(.1	)		-			-			-			(.1	)
Other comprehensive income (loss):
Currency translation		-			(2.7	)		.5			1.2			.5			(1.5	)
Pension plans		.2			.3			.2			.3			.4			.6
Total	$	2.8		$	(5.8	)	$	1.3		$	-		$	4.1		$	(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 ~~$6.3~~$12.7 million in each of the first ~~three~~six months of 2019 and 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 attributable to the net effects of Kronos’ earnings and the income tax benefit 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 to 50% of adjusted taxable income which increases Kronos’ allowable interest expense deduction for 2019 and 2020. Consequently, in the first quarter of 2020 Kronos recognized a cash tax benefit of $.5 million related to 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~~2019 and ~~accordingly, Kronos~~ has considered such modifications in its estimate of the effective tax rate. Kronos has determined other provisions of the CARES Act will not have a material impact on its 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						Three months ended						Six months ended
	March 31,						June 30,						June 30,
	2019			2020			2019			2020			2019			2020
	(In thousands)						(In thousands)
Accumulated other comprehensive loss, net of tax:
Currency translation:
Balance at beginning of period	$	(172,434	)	$	(172,843	)	$	(172,459	)	$	(182,961	)	$	(172,434	)	$	(172,843	)
Other comprehensive loss		(25	)		(10,118	)
Other comprehensive income (loss)								1,720			4,364			1,695			(5,754	)
Balance at end of period	$	(172,459	)	$	(182,961	)	$	(170,739	)	$	(178,597	)	$	(170,739	)	$	(178,597	)

Defined benefit pension plans:
Balance at beginning of period	$	(75,286	)	$	(78,257	)	$	(74,458	)	$	(77,214	)	$	(75,286	)	$	(78,257	)
Other comprehensive income - amortization of net losses included in net periodic pension cost		828			1,043			817			1,031			1,645			2,074
Balance at end of period	$	(74,458	)	$	(77,214	)	$	(73,641	)	$	(76,183	)	$	(73,641	)	$	(76,183	)

OPEB plans:
Balance at beginning of period	$	(550	)	$	(590	)	$	(620	)	$	(670	)	$	(550	)	$	(590	)
Other comprehensive loss - amortization of net gains included in net periodic OPEB cost		(70	)		(80	)		(65	)		(71	)		(135	)		(151	)
Balance at end of period	$	(620	)	$	(670	)	$	(685	)	$	(741	)	$	(685	)	$	(741	)

Total accumulated other comprehensive loss:
Balance at beginning of period	$	(248,270	)	$	(251,690	)	$	(247,537	)	$	(260,845	)	$	(248,270	)	$	(251,690	)
Other comprehensive income (loss)		733			(9,155	)		2,472			5,324			3,205			(3,831	)
Balance at end of period	$	(247,537	)	$	(260,845	)	$	(245,065	)	$	(255,521	)	$	(245,065	)	$	(255,521	)

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 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). For financial reporting purposes we used a discount rate of

1.9% per annum to discount the settlement to the estimated net present value. We recognized additional litigation settlement expense during 2019 of $19.3 million (primarily in the second quarter).

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. It is possible that actual costs will exceed accrued amounts or the upper end of the range for sites for which estimates have been made, and it is possible costs will 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.

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;~~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 ~~three~~six months of 2020 are as follows:

	Amount			Amount
	(In thousands)			(In thousands)
Balance at the beginning of the period	$	94,508		$	94,508
Additions charged to expense		20			21
Payments, net		(289	)		(696	)
Balance at the end of the period	$	94,239		$	93,833

Amounts recognized in the Condensed Consolidated
Balance Sheet at the end of the period:
Current liability	$	3,357		$	3,132
Noncurrent liability		90,882			90,701
Balance at the end of the period	$	94,239		$	93,833

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 ~~March 31,~~June 30, 2020, we had accrued approximately $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 ~~March 31,~~June 30, 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 $4.7 million in insurance recoveries in the second quarter 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 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:

~~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. See Notes 2 and 7.

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

determining how to apply the income tax guidance to franchise taxes that are partially based on income. We adopted this ASU as of January 1, 2020. The adoption of this ASU ~~in the first quarter of 2020~~ did not have a material effect on our Condensed Consolidated Financial Statements.

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 approximate 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:

The impact of pricing and production decisions

•

~~The impact of pricing and production decisions~~

Competitive technology positions

Our ability to protect or defend intellectual property rights

Potential difficulties in integrating future acquisitions

Potential difficulties in upgrading or implementing accounting and manufacturing software systems

The introduction of trade barriers or trade disputes

The impact of current or future government regulations (including employee healthcare benefit related regulations)

Fluctuations in currency exchange rates (such as changes in the exchange rate between the U.S. dollar and each of the euro, the Norwegian krone and the Canadian dollar), or possible disruptions to our business resulting from uncertainties associated with the euro or other currencies

Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime, transportation interruptions, cyber-attacks and public health crises such as COVID-19)

Decisions to sell operating assets other than in the ordinary course of business

Kronos’ ability to renew or refinance credit facilities

Our ability to maintain sufficient liquidity

The timing and amounts of insurance recoveries

The ability of our subsidiaries or affiliates to pay us dividends

Uncertainties associated with CompX’s development of new products and product features

The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters, including future tax reform

Our ability to utilize income tax attributes or changes in income tax rates related to such attributes, the benefits of which may or may not have been recognized under the more-likely-than-not recognition criteria

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

•

Government laws and regulations and possible changes therein (such as changes in government regulations which might impose various obligations on former manufacturers of lead pigment and lead-based paint, including us, with respect to asserted health concerns associated with the use of such products), including new environmental health and safety regulations such as those seeking to limit or classify TiO₂ or its use

The ultimate resolution of pending litigation (such as our lead pigment and environmental matters)

Possible future litigation.

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.

Results of operations

Net income overview

Quarter ended ~~March 31,~~June 30, 2020 compared to the quarter ended ~~March 31,~~June 30, 2019

Our net income attributable to NL stockholders was ~~$1.9~~$4.6 million, or ~~$.04~~$.09 per share, in the ~~first~~second quarter of 2020 compared to net income attributable to NL stockholders of ~~$15.2~~$5.9 million, or ~~$.31~~$.12 per share, in the ~~first~~second quarter of 2019. As more fully described below, the decrease in our earnings per share from 2019 to 2020 is primarily due to the net effects of:

a pre-tax litigation settlement expense in 2019 of $19.6 million compared to nil in 2020;

unfavorable relative changes in the value of marketable equity securities of ~~$17.6~~$11.6 million;

equity in earnings of Kronos in 2020 of ~~$8.2~~$5.7 million compared to ~~$9.2~~$9.0 million in 2019;

higher insurance recoveries in 2019 of $4.6 million related primarily to a single insurance recovery settlement for certain past and future litigation defense costs; and

lower income from operations attributable to CompX of ~~$.7~~$3.2 million in ~~2020; and~~2020.

~~environmental remediation and related costs of nil in 2020 compared to environmental remediation and related benefit of $.7 million in 2019.~~

Our ~~2020~~2019 net income per share attributable to NL stockholders ~~includes~~ includes:

a loss of $.32 per share, net of income tax benefit, related to the litigation settlement expense; and

income of ~~$.01~~$.08 per share, net of income tax expense, related to ~~Kronos’~~insurance recoveries recognized.

Six months ended June 30, 2020 compared to six months ended June 30, 2019

We had net income attributable to NL stockholders of $6.5 million, or $.13 per share, in the first six months of 2020 compared to net income attributable to NL stockholders of $21.1 million, or $.43 per share, in the first six months of 2019. As more fully described below, the decrease in our earnings per share from 2019 to 2020 is primarily due to the net effects of:

a pre-tax litigation settlement expense in the second quarter ~~recognition~~ of an2019 of $19.6 million compared to nil recognized in 2020;

equity in earnings of Kronos in 2020 of $13.9 million compared to $18.2 million in 2019;

unfavorable relative changes in the value of marketable equity securities of $29.2 million;

higher insurance recoveries in 2019 of $4.9 million related primarily to a single insurance recovery settlement ~~gain.~~for certain past and future litigation defense costs; and

~~Income~~lower income from operations attributable to CompX of $2.5 million in 2020.

Our 2019 net income per share attributable to NL stockholders includes:

a loss of $.32 per share, net of income tax benefit, related to the litigation settlement expense recognized in the second quarter; and

income of $.08 per share, net of income tax expense, related to insurance recoveries recognized, mainly in the second quarter.

Income (loss) from operations

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

	Three months ended March 31,						%				Three months ended June 30,						%				Six months ended June 30,						%
	2019			2020			Change				2019			2020			Change				2019			2020			Change
	(in millions)										(In millions)										(In millions)
CompX	$	4.3		$	5.0			17		%	$	5.6		$	2.4			(58	)	%	$	9.9		$	7.4			(25	)	%
Insurance recoveries		.3			-			(92	)			4.7			.1			(98	)			5.0			.1			(98	)
Litigation settlement expense												(19.6	)		-		n/m					(19.6	)		-		n/m
Corporate expense		(2.1	)		(2.5	)		22				(3.6	)		(2.5	)		(33	)			(5.7	)		(5.0	)		(13	)
Income from operations	$	2.5		$	2.5			-
Income (loss) from operations											$	(12.9	)	$	-		n/m				$	(10.4	)	$	2.5			125

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 March 31,						%				Three months ended June 30,						%				Six months ended June 30,						%
	2019			2020			Change				2019			2020			Change				2019			2020			Change
	(in millions)										(In millions)										(In millions)
Equity in earnings of Kronos	$	9.2		$	8.2			(11	)	%	$	9.0		$	5.7			(37	)	%	$	18.2		$	13.9			(24	)	%
Marketable equity securities		5.5			(12.1	)		(321	)			9.4			(2.2	)		(124	)			14.9			(14.3	)		(196	)
Other components of net periodic pension and OPEB cost		(.4	)		(.2	)		(51	)			(.4	)		(.2	)		(51	)			(.8	)		(.4	)		(51	)
Interest and dividend income		1.5			1.1			(26	)			2.1			.5			(76	)			3.6			1.6			(55	)
Interest expense		-			(.3	)	n.m.					-			(.4	)	n/m					-			(.7	)	n/m

CompX experienced normal sales volumes and operations during the first quarter of 2020. Beginning in late March 2020 as a result of the COVID-19 pandemic, CompX began receiving requests from certain customers of both its Security Products and Marine Components reporting units to postpone shipments, in some cases because customers’ production facilities were temporarily closed. CompX operates 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 CompX enhanced cleaning and sanitization procedures, mandated social distancing and implemented other health and safety protocols. In late April, CompX closed its Chicago area location for one week due to COVID-19 activity in the area. The temporary closure of the Illinois facility had a minimal negative impact on CompX’s ability to manufacture and ship during the second quarter due to the decline in demand during the same period.

Second quarter 2020 net sales and operating income were significantly impacted by reduced demand for CompX’s products as a result of orders postponed at the request of original equipment manufacturing customers and distributors.

	Three months ended June 30,						%				Six months ended June 30,						%
	2019			2020			Change				2019			2020			Change
	(In millions)										(In millions)
Net sales	$	33.7		$	23.8			(29	)	%	$	64.9		$	56.1			(14	)	%
Cost of sales		22.7			16.4			(28	)			44.3			38.3			(14	)
Gross margin		11.0			7.4			(33	)			20.6			17.8			(13	)
Operating costs and expenses		5.4			5.0			(6	)			10.7			10.4			(2	)
Income from operations	$	5.6		$	2.4			(58	)		$	9.9		$	7.4			(25	)

Percentage of net sales:
Cost of sales		67	%		69	%						68	%		68	%
Gross margin		32			31							32			32
Operating costs and expenses		15			21							17			19
Income from operations		17			10							15			13

Net sales – Net sales ~~increased $1.1~~decreased $9.9 million and $8.8 million in the second quarter and for the first ~~quarter~~six months of 2020, respectively, compared to the same ~~period~~periods in ~~2019 primarily~~2019. The significant decrease in sales is due to ~~higher Security Products~~lower sales ~~and~~volumes at both of CompX’s reporting units in the second quarter of 2020 as many of its customers were temporarily closed or reduced production during the quarter due to ~~a lesser extent higher Marine Components sales.~~government ordered closures or reduced demand resulting from the COVID-19 pandemic. Relative changes in selling prices did not have a material impact on net sales comparisons.

Cost of sales and gross margin – Cost of sales as a percentage of sales ~~decreased 1.4% in~~for the ~~first~~second quarter of 2020 ~~compared to~~was 1.5% higher than the same period in ~~2019 due to the favorable effects of customer and product mix, partially offset by increased medical costs for both Security Products and Marine Components.~~2019. As a result, gross margin as a percentage of sales ~~increased~~decreased over the same period. ~~Gross~~The decrease in gross margin ~~dollars increased due to higher~~percentage is the result of the decline in both Security Products and Marine Components gross margin percentage for the second quarter. See reporting unit discussion below. Cost of sales and gross margin as a percentage of sales for ~~both business segments.~~the first six months of 2020 are comparable to the same period in 2019.

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 second quarter and first ~~quarter~~six months of 2020 were ~~comparable~~lower than the same periods last year, particularly travel and advertising costs which declined by $.2 million for the second quarter compared to the same ~~period~~prior year period. Operating costs and expenses as a percentage of net sales increased in ~~2019.~~both periods due to the lower sales. See reporting unit discussion below.

Income from operations – As a percentage of net sales, income from operations for the second quarter and first ~~quarter~~six months of 2020 ~~increased~~decreased compared to the same ~~period~~periods of 2019 and was primarily impacted by the factors impacting cost of ~~sales,~~goods sold, gross margin and operating ~~costs discussed above.~~costs. See reporting unit discussion below.

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

	Three months ended
	March 31,						%			Three months ended										Six months ended
	2019			2020			Change			June 30,						%				June 30,						%
	(in millions)									2019			2020			Change				2019			2020			Change
										(in millions)										(in millions)
Security Products:
Net sales	$	24.7		$	25.5			3	%	$	26.9		$	18.5			(31	)	%	$	51.6		$	44.0			(15	)	%
Cost of sales		16.7			16.9			1			18.0			12.6			(30	)			34.7			29.5			(15	)
Gross margin		8.0			8.6			7			8.9			5.9			(34	)			16.9			14.5			(14	)
Operating costs and expenses		2.9			2.9			(2	)		2.9			2.5			(12	)			5.8			5.4			(7	)
Operating income	$	5.1		$	5.7			13		$	6.0		$	3.4			(44	)		$	11.1		$	9.1			(18	)

Gross margin		32	%		34	%				33		%		32	%					33		%		33	%
Operating income margin		21			22					23				18						22				21

Security Products – Security Products net sales ~~increased 3%~~ in the ~~first~~second quarter of 2020 compared to the same period last year. The increase in sales is primarily due to higher sales to existing government security customers, partially offset by lower sales to transportation and distribution customers. Gross margin and operating income as a percentage of sales increased in 2020decreased 31% compared to the same period in 2019 due to ~~favorable customer and product mix on higher sales, partially offset by increased medical costs.~~

~~Marine Components~~–~~Marine~~ ~~Components net sales increased 6% in the first quarter of 2020 compared~~reduced demand attributed to ~~the same period last~~COVID-19 as discussed above. Relative to prior year, ~~primarily due to increased~~Security Products experienced $2.5 million lower sales to the ~~towboat~~government security market, $2.4 million in lower sales to the transportation market, and ~~center console boat markets, partially offset by~~$1.4 million in lower sales to distribution ~~customers. Gross margin and operating income as a percentage of~~customers during the quarter. Security Products net sales ~~increased~~decreased 15% in the first ~~quarter~~six months of 2020 compared to the same period last year due to the lower second quarter 2020 sales. Gross margin as a percentage of net sales for the second quarter declined as compared to the same period last year due to less favorable customer and product mix and reduced fixed cost coverage from lower production and sales volumes. Gross margin as a percentage of net sales for the first six months of 2020 is comparable to the same period last year. Operating costs and expenses decreased in the second quarter and the first six months of 2020 compared to the same periods last year predominantly due to decreased second quarter expenses related to travel, certain employee benefits expenses, and cancelled or postponed advertising expenses which were $.3 million lower in aggregate for the second quarter of 2020 compared to the same period in 2019. Operating income as a percentage of net sales for the second quarter and first six months of 2020 decreased compared to the same periods of 2019 as a result of the factors impacting gross margin for the second quarter as well as reduced coverage of operating costs and expenses from lower sales for both comparative periods.

	Three months ended										Six months ended
	June 30,						%				June 30,						%
	2019			2020			Change				2019			2020			Change
	(in millions)										(in millions)
Marine Components:
Net sales	$	6.8		$	5.3			(23	)	%	$	13.3		$	12.1			(9	)	%
Cost of sales		4.7			3.8			(22	)			9.6			8.8			(9	)
Gross margin		2.1			1.5			(27	)			3.7			3.3			(9	)
Operating costs and expenses		.8			.7			(8	)			1.5			1.4			(1	)
Operating income	$	1.3		$	.8			(38	)		$	2.2		$	1.9			(14	)

Gross margin		30	%		28	%						28	%		28	%
Operating income margin		19			15							16			16

Marine Components–Marine Components net sales in the second quarter of 2020 decreased 23% compared to the same period in 2019 due to COVID-19 related reduced demand as discussed above. During the quarter, Marine Components experienced $.8 million lower sales to the towboat market, $.4 million in lower sales to the engine manufacturing market, and $.3 million in lower sales to the industrial market as compared to 2019. Marine

Components net sales decreased 9% in the first six months of 2020 compared to the same period last year due to the lower second quarter 2020 sales. As a percentage of net sales, gross margin and operating income decreased in the second quarter of 2020 compared to the same period in 2019 due to reduced overhead coverage from lower production and sales volumes. Gross margin percentage for the first six months of 2020 is comparable to the same period last year. Operating income as a percentage of net sales decreased in the first six months of 2020 compared to the same periods in the prior year due to reduced coverage of operating cost and expenses on ~~higher sales, partially offset by increased medical costs.~~lower sales.

Outlook – WeIn the second quarter of 2020, the COVID-19 pandemic created multiple challenges, both in CompX’s operations and from the reduced demand for its products. Both global and domestic supply chains remain intact and CompX has experienced minimal ~~disruptions to our~~ supply chain ~~or customer base from~~disruptions. CompX continues to work closely with all of its customers and monitor their progress as they continue to adjust their operations. While some customers expect to recover quickly, others expect to take longer to recover, including transportation, office furniture and cabinetry manufacturers.

Considerable effort continues at all of CompX’s locations to manage current COVID-19 ~~during the first quarter of 2020. First quarter sales reflect continued strong demand for our products,~~conditions 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 states where we operate, and we are considered critical in supplying components to many essential and mandatory markets. Beginning in late March 2020, we began receiving requests from certain customers of both our Security Products and Marine Components 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 otherenhanced health and safety ~~protocols. In~~protocols and additional cleaning and disinfecting efforts. After the temporary closure in late April 2020 ~~we temporarily closed our~~at CompX’s manufacturing facility ~~that is located~~ outside of Chicago, Illinois, ~~which~~CompX has been ~~considered a COVID-19 “hotspot,” due~~able to ~~an increase of COVID-19 cases in the community. During the closure we completed a deep clean and sanitization within~~operate the facility at normal operating rates. Throughout the course of the COVID-19 pandemic, CompX has focused its efforts on maintaining efficient operations, while closely managing its expenses and ~~we successfully reopened the plant~~capital projects. In this regard CompX is constantly evaluating its staffing levels and ~~resumed~~has recently reduced production ~~after a one week pause. We believe the temporary closure~~staffing levels to adjust to anticipated levels of ~~our Illinois facility will have minimal negative impact on our ability to manufacture and ship during~~demand for the second ~~quarter, in part due to the anticipated decline in demand during the same period.~~half of 2020.

The advance of the COVID-19 pandemic and the global efforts to mitigate its spread have ~~already~~ resulted in sharp contractions of vast areas of the global economy and are expected to continue to challenge workers, businesses and governments for the foreseeable future. Government actions in various regions ~~to gradually permit~~have generally permitted the gradual resumption of ~~limited~~ commercial activities following various regional shutdowns, ~~are currently~~but further government action restricting economic activity is possible in ~~progress, but it is believed that the~~an effort to mitigate increases in COVID-19 cases in certain regions. The success and timing of these mitigating actions will depend in part on deployment of effective tools to fight COVID-19, including increased testing, enhanced monitoring, data analysis, ~~and~~ effective treatments and a safe vaccine, before economic growth ~~returns~~is likely to return to pre-pandemic ~~levels, particularly in service related sectors of the economy.~~levels. Even as these measures are implemented and become effective, they will not directly address the business and employment losses already experienced. As a result, we expect U.S. and worldwide gross domestic product to be significantly impacted for an indeterminate period.

Based on current conditions, we expect to report reduced revenue and ~~operating~~ income ~~during~~from operations from CompX in 2020 compared to 2019. We believe the second quarter of 2020 ~~compared to~~will be the ~~first quarter of 2020,~~period most impacted by COVID-19 but the severity of the ~~decline~~impact on the remainder of the year will depend on customer demand for ~~our~~CompX’s products, including the timing and extent to which ~~our customers restart their~~customers’ operations continue to be impacted, on ~~our~~ customers’ perception as to when consumer demand for their products will return to pre-pandemic levels and on any future disruptions in ~~our~~CompX’s operations or ~~our~~ suppliers’ operations, all of which are difficult to predict. ~~Our~~CompX’s operations teams meet daily to ensure ~~we are maintaining~~that they take appropriate actions to maintain a safe working environment for all of ~~our~~its employees, ~~minimizing~~minimize operational disruptions

and ~~managing~~manage inventory levels. Inventory increased at both reporting units during the second quarter of 2020 to keep the workforce productive by focusing on high-demand products and components. CompX expects inventory balances will decline over the remainder of the year as it aligns its production to current demand levels. It is possible weCompX may temporarily close one or more of ~~our~~its facilities again for the health and safety of ~~our~~its employees before the COVID-19 crisis is over. CompX has significant cash balances of approximately ~~$63.2~~$62.5 million at ~~March 31,~~June 30, 2020, and ~~we believe we are~~believes it is well positioned to navigate the 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. Substantially all of the $4.7 million insurance recoveries we recognized in the second quarter of 2019 relates 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 $19.6 million litigation settlement expense in the second quarter of 2019 related to the lead pigment litigation in California. See Note 14 to our Condensed Consolidated Financial Statements.

Corporate expense – Corporate expenses were $2.5 million in the ~~first~~second quarter of 2020, ~~$.4~~$1.1 million ~~higher~~lower than in the ~~first~~second quarter of 2019 primarily due to ~~higher environmental remediation and related costs partially offset by~~ lower litigation fees and related costs in 2020. Included in corporate expense are litigation fees and related costs of $.5 million in the second quarter of 2020 compared to $1.0 million in the second quarter of 2019.

Corporate expenses were $5.0 million in the first ~~quarters~~six months of 2020, $.7 million lower than in the first six months of 2019 primarily due to lower litigation fees and related costs partially offset by higher environmental remediation and related costs. Included in corporate expense in the first six months of 2019 and 2020 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 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 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 2020 will be ~~higher than in 2019 primarily due~~comparable to ~~higher expected litigation fees and related costs and higher environmental remediation and related costs.~~2019.

Interest and dividend income – Interest and dividend income decreased ~~$.4~~$1.6 million in the second quarter and $2.0 million in the first ~~quarter~~six months of 2020 compared to the prior year ~~period~~periods primarily due to lower average outstanding balances under CompX’s revolving promissory note receivable from Valhi and lower average interest rates partially offset by higher cash and cash equivalents and restricted cash and cash equivalents balances available for investment.

Marketable equity securities – We recognized a loss of ~~$12.1~~$2.2 million on the change in value of our marketable equity securities in the second quarter of 2020 compared to a gain of $9.4 million in the second quarter of 2019. We recognized a loss of $14.3 million on the change in value of our marketable equity securities in the first ~~quarter~~six months of 2020 compared to a gain of ~~$5.5~~$14.9 million in the first ~~quarter~~six months of 2019.

Income tax expense (benefit) – We recognized an income tax benefit of ~~$3.3~~$1.5 million in the ~~first~~second quarter of 2020 compared to income tax expense of ~~$2.6~~$.6 million in the second quarter of 2019 and an income tax benefit of $4.8 million in the first ~~quarter~~half of 2020 compared to an income tax expense of $3.2 million in the first half of 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 ~~$6.3~~$12.7 million in the first ~~three~~six months of 2019 and 2020.

Our effective tax rate attributable to our equity in earnings of Kronos, including the effect of the nontaxable dividends we received from Kronos was ~~a 17.5%~~an 18.0% benefit in the first ~~three~~six months of 2020 and ~~6.3%~~7.1% expense in the first ~~three~~six months of 2019. The decrease is primarily attributable to the net effects of Kronos’ lower earnings in the first ~~three~~six months of 2020 as compared to the first ~~three~~six months of 2019 and the impact of the income tax benefit related to the nontaxable dividends received from Kronos. See Note 12 to our Condensed Consolidated Financial Statements for more information about our 2020 income tax items, including a tabular reconciliation of our statutory tax expense (benefit) to our actual expense (benefit).

We record a valuation allowance to reduce our deferred income tax assets to the amount that is believed to be realized under the more-likely-than-not recognition criteria. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, it is possible that we may change our estimate of the amount of the deferred income tax assets that would more-likely-than-not be realized in the future, resulting in an adjustment to the deferred income tax asset valuation allowance that would either increase or decrease, as applicable, reported net income in the period such change in estimate was made. At December 31, 2019, we had approximately $31.7 million of deferred tax assets primarily related to our litigation and environmental accruals. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize these deferred tax assets.

Noncontrolling interest – Noncontrolling interest in net income of CompX is consistent in the first ~~three~~six months of 2019 and 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 March 31,								%				Three months ended June 30,						%				Six months ended June 30,						%
	2019				2020				Change				2019			2020			Change				2019			2020			Change
	(in millions)												(In millions)										(In millions)
Net sales	$	436.5			$	421.0				(4	)	%	$	484.5		$	386.0			(20	)	%	$	921.0		$	807.0			(12	)	%
Cost of sales		327.2				332.9				2				375.0			290.2			(23	)	%		702.2			623.1			(11	)	%
Gross margin	$	109.3			$	88.1							$	109.5		$	95.8						$	218.8		$	183.9

Income from operations	$	49.0			$	43.5				(11	)		$	46.5		$	33.0			(29	)	%	$	95.5		$	76.5			(20	)	%
Interest and dividend income		2.1				1.2								1.7			.2							3.8			1.4
Insurance settlement gain		-				1.5								-			-							-			1.5
Marketable equity securities		.6				(1.5	)							1.2			(.2	)						1.8			(1.7	)
Other components of net periodic pension and OPEB cost		(3.8	)			(4.7	)							(3.8	)		(4.7	)						(7.6	)		(9.4	)
Interest expense		(4.8	)			(4.6	)							(4.7	)		(4.6	)						(9.5	)		(9.2	)
Income before income taxes		43.1				35.4								40.9			23.7							84.0			59.1
Income tax expense		12.8				8.4								11.4			5.1							24.2			13.5
Net income	$	30.3			$	27.0							$	29.5		$	18.6						$	59.8		$	45.6

Percentage of net sales:
Cost of sales		75		%		79		%						77	%		75	%						76	%		77	%
Income from operations		11				10								10	%		9	%						10	%		9	%

Equity in earnings of Kronos Worldwide, Inc.	$	9.2			$	8.2							$	9.0		$	5.7						$	18.2		$	13.9

TiO₂ operating statistics:
Sales volumes*		143				136				(5	)	%		158			124			(22	)	%		301			260			(14	)	%
Production volumes*		134				132				(1	)			136			133			(2	)	%		270			265			(2	)	%

Change in TiO₂ net sales:
TiO₂ sales volumes										(5	)	%								(22	)	%								(14	)	%
TiO₂ product pricing										-										(1	)									(1	)
TiO₂ product mix/other										3										4										4
Changes in currency exchange rates										(2	)									(1	)									(1	)
Total										(4	)	%								(20	)	%								(12	)	%

* 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.

At the beginning of 2020, Kronos’ average TiO₂selling prices were 1% lower than at the beginning of 2019 and 3% higher than at the end of the second quarter of 2020. Kronos’ average TiO₂selling prices at the end of the second quarter of 2020 were comparable to its average TiO₂selling prices at the end of the first quarter of ~~2020 were 2% lower than at the end of 2019.~~2020. Kronos experienced lower sales volumes in ~~the North American, Latin American and export~~all major markets ~~partially offset by higher sales volumes in the European market~~ in the first ~~three~~six months of 2020 as compared to the same period of ~~2019.~~2019 due primarily to demand contraction related to the COVID-19 pandemic, the primary impact of which was sustained in the second quarter. See further discussion below under Outlook.

Kronos operated its production facilities at overall average capacity utilization rates of 95% infor the ~~first quarter of~~year-to-date period ended June 30, 2020 compared to 97% infor the ~~first quarter~~comparable period of 2019. Kronos has adjusted planned production levels as a result of softening demand and its market expectations for the near term as a result of the COVID-19 pandemic. The table below lists Kronos’ comparative quarterly production capacity utilization rates.

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

Net sales – Kronos’ net sales in the ~~first~~second quarter of 2020 decreased 4%20%, or ~~$15.5~~$98.5 million, compared to the ~~first~~second quarter of 2019 primarily due to a 5%22% decrease in sales volumes (which decreased net sales by approximately ~~$22~~$107 million)~~. Kronos’~~ and a 1% decrease in average TiO₂selling prices ~~in the first quarter of 2020 were comparable to its average TiO~~₂~~selling prices in the first quarter of 2019.~~(which decreased net sales by approximately $5 million). 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 decreased 5%22% in the ~~first~~second quarter of 2020 as compared to the ~~first~~second quarter of 2019 primarily due to lower ~~sales volumes in~~demand resulting from the ~~North American, Latin American~~COVID-19 pandemic which impacted all major markets, particularly its European and export ~~markets partially offset by higher sales volumes in the European market.~~markets. In addition to the impact of lower sales volumes and lower average selling prices, Kronos estimates that changes in currency exchange rates (primarily the euro) decreased its net sales by approximately $7$4 million in the ~~first~~second quarter of 2020 as compared to the ~~first~~second quarter of 2019.

Kronos’ net sales in the first six months of 2020 decreased 12%, or $114.0 million, compared to the first six months of 2019 primarily due to a 14% decrease in sales volumes (which decreased net sales by approximately $129 million) and a 1% decrease in average TiO₂selling prices (which decreased net sales by approximately $9 million). 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 decreased 14% in the first six months of 2020 as compared to the first six months of 2019 primarily due to lower sales volumes in all major markets, with a significant portion of the decrease occurring in the second quarter as discussed above. In addition to the impact of lower sales volumes and lower average selling prices, Kronos estimates that changes in currency exchange rates (primarily the euro) decreased its net sales by approximately $11 million in the first six months of 2020 as compared to the first six months of 2019.

Cost of sales and gross margin – Kronos’ cost of sales ~~increased $5.7~~decreased $84.8 million, or 2%23%, in the ~~first~~second quarter of 2020 compared to the ~~first~~second quarter of 2019 due to the net effect of a 22% decrease in sales volumes and higher raw materials and other production costs of approximately ~~$23~~$6 million (including higher cost for third-party feedstock ~~energy~~ and other raw materials). Kronos’ cost of sales as a percentage of net sales decreased to 75% in the second quarter of 2020 compared to 77% in the same period of 2019 as favorable product mix and improved sales and production volumes from its ilmenite mine operations offset the effects of lower average TiO₂ selling prices and higher raw materials and other production costs.

Gross margin as a percentage of net sales increased to 25% in the second quarter of 2020 compared to 23% in the second quarter of 2019. As discussed and quantified above, Kronos’ gross margin as a percentage of net sales increased primarily due to the net effects of improved product mix and ilmenite mine operations offset by lower sales volumes, lower average TiO₂ selling prices and higher raw materials and other production costs.

Kronos’ cost of sales decreased $79.1 million, or 11%, ~~favorable effects from~~in the first six months of 2020 compared to the first six months of 2019 due to the net effect of a 14% decrease in sales volumes, higher raw materials and other production costs of approximately $29 million (including higher cost for third-party feedstock and other raw materials) and currency fluctuations (primarily the euro) ~~and a 5% decrease in sales volumes.~~. Kronos’ cost of sales as a percentage of net sales increased to ~~79%~~77% in the ~~third quarter~~first six months of 2020 compared to ~~75%~~76% in the same period of 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 ~~21%~~23% in the first ~~quarter~~six months of 2020 compared to ~~25%~~24% in the first ~~quarter~~six months of 2019. As discussed and quantified above, Kronos’ gross margin as a percentage of net sales decreased primarily due to the effects of lower sales volumes, lower average TiO₂ selling prices and higher raw materials and other production costs.

Selling, general and administrative expense – Kronos’ selling, general and administrative expense ~~was approximately 13%~~decreased $5.2 million, or 9%, in the second quarter of ~~net~~2020 compared to the second quarter of 2019 primarily due to variable costs related to lower overall sales volumes.

Kronos’ selling, general and administrative expense decreased $9.4 million, or 8%, in the first ~~quarters~~six months of 2020 compared to the first six months of 2019 ~~and 2020.~~primarily due to variable costs related to lower overall sales volumes.

Income from operations – Kronos’ income from operations decreased by ~~$5.5~~$13.5 million, or ~~11%~~29%, in the ~~first~~second quarter of 2020 compared to the ~~first~~second quarter of 2019. Income from operations as a percentage of net sales decreased to ~~10%~~9% in the ~~first~~second quarter of 2020 from ~~11%~~10% in the same period of 2019. This decrease was driven by higher selling, general and administrative expenses relative to net sales partially offset by the higher gross margin discussed above. Kronos estimates that changes in currency exchange rates had a nominal effect on income from operations in the second quarter of 2020 as compared to the same period in 2019, as discussed in the Effects of Currency Exchange Rates section below.

Kronos’ income from operations decreased by $19.0 million, or 20%, in the first six months of 2020 compared to the first six months of 2019. Income from operations as a percentage of net sales decreased to 9% in the first six months of 2020 from 10% in the same period of 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 $11 million in the first ~~quarter~~six months of 2020 as compared to the same period in ~~2019, as discussed below.~~2019.

Other non-operating income (expense) – Kronos recognized a gain of ~~$.6~~$1.2 million on the change in value of its marketable equity securities in the ~~first~~second quarter of 2019 and a loss of ~~$1.5~~$.2 million in the ~~first~~second quarter of 2020. Other components of net periodic pension and OPEB cost in the ~~first~~second quarter of 2020 increased $.9 million compared to the ~~first~~second 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~~second quarter of 2020 was comparable to the ~~first~~second quarter of 2019 and Kronos currently expects its interest expense for all of 2020 to be comparable to 2019.

Kronos recognized a gain of $1.8 million on the change in value of its marketable equity securities for the first six months of 2019 and a loss of $1.7 million for the first six months of 2020. Other components of net periodic pension and OPEB cost in the first six months of 2020 increased $1.8 million compared to the first six months 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 recognized an insurance settlement gain of $1.5 million related to a property damage claim recognized in the first six months of 2020. Interest expense in the first six months of 2020 was comparable to the first six months of 2019.

Income tax expense – Kronos recognized income tax expense of ~~$8.4~~$5.1 million in the ~~first~~second quarter of 2020 compared to income tax expense of ~~$12.8~~$11.4 million in the second quarter of 2019. Kronos recognized income tax expense of $13.5 million in the first ~~quarter~~six months of 2020 compared to income tax expense of $24.2 million in the first six months of 2019. The difference is primarily due to lower earnings in 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 March 31, 2020 vs March 31, 2019

Impact of changes in currency exchange rates Three months ended June 30, 2020 vs June 30, 2019													Impact of changes in currency exchange rates Three months ended June 30, 2020 vs June 30, 2019

	Tramsactions gains recognized						Translation loss - impact of rate changes			Total currency impact 2020 vs 2019			Transaction losses recognized							Translation gains (losses) - impact of rate changes		Total currency impact 2020 vs 2019
	2019		2020		Change		Translation loss - impact of rate changes			Total currency impact 2020 vs 2019			2019			2020		Change		Translation gains (losses) - impact of rate changes		Total currency impact 2020 vs 2019
	(In millions)												(In millions)
Impact on:
Net sales	$	-	$	-	$	-	$	(7	)	$	(7	)	$	-		$	-	$	-	$	(4)	$	(4)
Income from operations		1		12		11		-			11			(1	)		(6)		(5)		5		-

The $7$4 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 2020 as compared to 2019. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 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 $11 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 2020 as compared to 2019. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 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 $11 million increase in income from operations was comprised of the following:

The COVID-19 pandemic, including the measures employed to mitigate its spread, has ~~had limited impact on~~primarily impacted Kronos’ operations through reduced demand for its products, resulting in lower sales and ~~financial performance.~~earnings than otherwise would have been expected, particularly during the second quarter of 2020. Kronos’ manufacturing facilities have ~~remained open, operating~~operated at near planned ~~capacities,~~production rates throughout the pandemic and the availability of raw materials has not been ~~materially~~adversely impacted. Kronos’ first quarter financial results, including sales and production volumes, have been within its expectations. At the end of the first quarter, Kronos had over $341 million in cash and cash equivalents, and over $200 million available for borrowing under its existing revolving credit facilities.

Kronos’ products are vital to the production of numerous critically needed end-user products, and therefore its facilities have been designated as essential businesses in each of the regions in which it operates. Kronos’ manufacturing and administrative facilities are generally located in densely populated regions of Europe and North America which have experienced substantial outbreaks of ~~COVID-19. Some~~COVID-19 and are in varying stages of ~~Kronos’ manufacturing~~outbreak and ~~distribution processes are labor-intensive, and it recognizes the elevated health risk that COVID-19 represents for its employees, contractors and partners.~~recovery. Kronos ~~is using~~continues to employ a variety of methods to protect the health and well-being of its workforce and its customers, including the implementation of ~~social distancing,~~ contact tracing, deep cleaning and disinfecting of facilities, work-from-home strategies and staggered shift deployment, among other health and safety protocols. ~~To-~~

~~date,~~To-date, Kronos has had limited cases of COVID-19 among its workforce and all of its facilities have remained ~~in operation.~~open and operational.

The advance of the COVID-19 pandemic and the global efforts to mitigate its spread have ~~already~~ resulted in sharp contractions of vast areas of the global economy and are expected to continue to challenge workers, businesses and governments for the foreseeable future. Government actions in various regions ~~to gradually permit~~have generally permitted the resumption of ~~limited~~ commercial activities following various regional shutdowns, ~~are currently~~but further government action restricting economic activity is possible in ~~progress, but it is believed that the success and timing of these actions will depend~~an effort to mitigate increases 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.~~certain regions. As a result, Kronos expects U.S. and worldwide gross domestic product to be significantly impacted for an indeterminate ~~period.~~period of time. While ~~Kronos believes that demand for its products and the products of its customers will be negatively impacted in the coming months,~~ many of Kronos’ products are used by its customers in end-products that ~~to date remain~~thus far have remained in demand

across the world ~~economy. The breadth~~economy, Kronos believes overall demand for its products and ~~depth of the negative impact COVID-19~~its customers’ products will ~~have on Kronos’ business remains unknown.~~continue to be negatively impacted by reduced economic activity.

Given the impact of COVID-19 on the global economy, Kronos expects its sales volumes and resulting earnings for the remainder of 2020 will continue to be lower than ~~originally planned for 2020. The~~prior periods. To-date Kronos has made modest adjustments to its production levels in response to near-term market expectations, but the full extent of the COVID-19 impact on Kronos’ operations will depend on numerous factors, including customer demand for its products, any future ~~developments,~~disruption in its operations or its suppliers’ operations and ~~therefore is~~the timing and effectiveness of measures deployed to fight COVID-19, all of which are 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 an increase to per unit costs of production. If this occurs, spending for raw materials and other production costs would be reduced, but not enough to 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 or temporarily close manufacturing facilities, or it may be required to temporarily close certain facilities if outbreaks escalate in a particular region. Kronos will continue to monitor current and anticipated near-term customer demand throughout the year and align its production and inventory levels accordingly.

Though it is not possible to predict the impact of the COVID-19 pandemic on future demand for Kronos’ products or those of its customers, Kronos believes that it has sufficient liquidity (including cash on-hand of approximately $341 million and ~~available~~ borrowing capacity under its revolving credit facilities of approximately $226 million at June 30, 2020) available to meet its obligations, and Kronos is prepared to implement multiple cash-saving strategies ifas necessary, including reduction of inventories, delays in certain capital expenditures and other cost saving initiatives. Kronos believes it is well positioned to navigate the uncertainty ahead and Kronos commends its employees for their continuing efforts and support in these challenging times as they work together to foster their physical and economic health as well as that of the company.

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 ~~$3.6~~$12.1 million in the first ~~three~~six months of 2020 compared to ~~$1.7~~$19.2 million in the first ~~three~~six months of 2019. Changes in working capital were not material. The ~~$1.9 million net increase~~decrease 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.

	Three months ended March 31,						Six months ended June 30,
	2019			2020			2019			2020
	(In millions)						(In millions)
Net cash provided by operating activities:
CompX	$	(2.0	)	$	(1.0	)	$	5.9		$	4.9
NL Parent and wholly-owned subsidiaries		4.5			5.7			14.8			9.3
Eliminations		(.8	)		(1.1	)		(1.5	)		(2.1	)
Total	$	1.7		$	3.6		$	19.2		$	12.1

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, 2019 to ~~March 31,~~June 30, 2020 primarily as a result of relative changes in the timing of collections. Our total average number of days in inventory ~~at March 31, 2020 was comparable to~~increased from December 31, ~~2019.~~2019 to June 30, 2020 as a result of an intentional inventory build to keep trained and tenured employees productive. For comparative purposes, we have provided December 31, 2018 and ~~March 31,~~June 30, 2019

December 31,

March 31,

December 31,

March 31,

December 31,

June 30,

December 31,

June 30,

2018

2019

2020

2018

2019

2020

Days sales outstanding

40 days

45 days

36 days

43 days

40 days

36 days

43 days

Days in inventory

80 days

78 days

81 days

79 days

80 days

71 days

81 days

121 days

Our capital expenditures were ~~$.4~~$.9 million in ~~each of~~ the first ~~three~~six months of 2020 compared to $1.8 million in the first six months of 2019 and ~~2019.~~primarily related to CompX. CompX has limited expenditures to those required to meet its expected customer demand and those required to properly maintain its facilities and technology infrastructure as a result of the COVID-19 pandemic. During the first ~~three~~six months of 2020, Valhi ~~repaid~~borrowed a net ~~$2.6~~$2.4 million under the promissory note ($~~15.6~~23.0 million of gross borrowings and ~~$18.2~~$20.6 million of gross repayments). During the first ~~three~~six months of 2019, Valhi borrowed a net $6.0 million under the promissory note ($~~17.4~~28.1 million of gross borrowings and ~~$11.4~~$22.1 million of gross repayments).

~~On February 19,~~During the first six months of 2020, our board of directors ~~declared a first quarter 2020 dividend~~approved and we paid quarterly dividends of $.04 per share to stockholders aggregating ~~$2.0 million, paid on March 17, 2020 to NL stockholders of record as of March 3, 2020.~~$3.9 million. 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 ~~three~~six months of each of 2019 and 2020 also include CompX dividends paid to its stockholders other than us.

At ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2020. See Note 8 to our Condensed Consolidated Financial Statements.

Kronos’ North American and European revolvers and its senior 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2020, we had aggregate cash, cash equivalents and restricted cash of ~~$161.6~~$162.5 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	$	63.2	$	62.5
NL Parent and wholly-owned subsidiaries		98.4		100.0
Total	$	161.6	$	162.5

In addition, at ~~March 31,~~June 30, 2020 we owned ~~14.4~~1.2 million shares of Valhi common stock with an aggregate market value of ~~$14.8~~$12.6 million. See Note 4 to our Condensed Consolidated Financial Statements. We also owned 35.2 million shares of Kronos common stock at ~~March 31,~~June 30, 2020 with an aggregate market value of ~~$297.3~~$366.6 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2020 totaled ~~$.5~~$.4 million. CompX’s 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. It is possible CompX will curtail or eliminate planned capital projects based on market conditions.

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. In May 2020, Valhi implemented a reverse split of its common stock at a ratio of 1-for-12 and declared a regular quarterly dividend of $.08 per share post reverse stock split. We have adjusted all share and per share disclosures related to our investment in Valhi stock for all periods prior to June 2020 to give effect to the reverse stock split. A detail of annual dividends we expect to receive from our subsidiaries and affiliates in 2020, based on the number of shares of common stock of these affiliates we own as of ~~March 31,~~June 30, 2020 and their current regular quarterly dividend rate, is presented in the table below.

Following Valhi’s May 2020 1-for-12 reverse stock split, Valhi decreased its regular quarterly dividend from $.24 per share to $.08 per share. The amount shown in the table below for Valhi reflects aggregate dividends we expect to receive from Valhi during 2020 (including actual receipts in the first and second quarters).

	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		.10		4.3		10.8		.10		4.3
Valhi		14.4		.02		1.1		1.2		.08		.6
Total expected annual dividends					$	30.8					$	30.3

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 since we filed our 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 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 2019 Annual Report. There have been no changes in our critical accounting policies during the first ~~three~~six months of 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 2019 Annual Report, and we refer you to Part I, Item 7A. –“Quantitative and Qualitative Disclosure about Market Risk” in our 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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, ~~and~~ our 2019 Annual ~~Report.~~Report and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Lewis v. NLLead Industries ~~Inc~~Association. In ~~March~~May 2020, ~~Refined Metals’ state law claims~~the Illinois Supreme Court ruled that the parents of children whose lead testing costs had been fully paid by Medicare had not suffered an economic injury and were ~~dismissed with prejudice and~~not within the certified class of plaintiffs. The matter has been remanded to the lower court ~~entered a final judgment in favor of NL.~~for further proceedings.

Reference is made to the 2019 Annual Report and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 for a discussion of ~~additional~~ risk factors related to our 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 fully operate during the 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, 2019; MJ~~arch~~une ~~31,~~30, 2020 (unaudited)	3

	Condensed Consolidated Statements of Income (unaudited) – - Three and six months ended ~~March 31,~~June 30, 2019 and 2020	5

	Condensed Consolidated Statements of Comprehensive Income (L(unaudited) - Three and~~oss)~~ ~~(unaudited) – Three~~six months ended ~~March 31,~~June 30, 2019 and 2020	6

	Condensed Consolidated Statements of Equity (unaudited) – - Three and six months ended ~~March 31,~~June 30, 2019 and 2020	7

	Condensed Consolidated Statements of Cash Flows (unaudited) - ~~Three~~ Six months ended ~~March 31,~~June 30, 2019 and 2020	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	3438

Item 4.	Controls and Procedures	3438


Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3539

Item 1A.	Risk Factors	3539

Item 6.	Exhibits	3539

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

June 30, 2020
Valhi common stock	1	$	12,552	$	24,347	$	(11,795	)

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

March 31, 2020
Valhi common stock	1	$	14,804	$	24,347	$	(9,543	)

	Three months ended
	March 31,
	2019			2020
	(In thousands)
Interest cost	$	474		$	355
Expected return on plan assets		(477	)		(461	)
Recognized actuarial losses		406			380
Total	$	403		$	274


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


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	☐

	December 31, 2019				March 31, 2020
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value
	(In thousands)
Cash, cash equivalents and restricted cash	$	157,870	$	157,870	$	161,578	$	161,578
Noncontrolling interest in CompX common stock		22,707		24,627		23,131		25,657

	Production Capacity Utilization Rates
	2019	2020
First quarter	97%	95%
Second quarter	97%	96%

Impact of changes in currency exchange rates Six months ended June 30, 2020 vs June 30 2019

							Translation gains (losses)- impact of rate changes			Total currency impact 2020 vs 2019
	Transaction gains recognized
	2019		2020		Change
	(In millions)
Impact on:
Net sales	$	-	$	-	$	-	$	(11	)	$	(11	)
Income from operations		-		6		6		5			11

Date: ~~May 6,~~August 5, 2020	/s/ Amy Allbach Samford
	Amy Allbach Samford
	(Vice President and Chief Financial Officer, Principal Financial Officer)
Date: ~~May 6,~~August 5, 2020	/s/ Patty S. Brinda
	Patty S. Brinda
	(Vice President and Controller, Principal Accounting Officer)