nl-10q_20190331.htm

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, $.01 par value per share, outstanding on May 1, 2019: 48,727,884.

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

	December 31,		March 31,
	2018		2019
			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	116,259	$	111,361
Restricted cash and cash equivalents		3,727		3,818
Accrued insurance recovery related to litigation settlement		15,000		15,000
Accounts and other receivables, net		12,440		15,681
Inventories, net		17,102		18,510
Receivable from affiliate		792		233
Prepaid expenses and other		1,324		1,143

Total current assets		166,644		165,746

Other assets:
Notes receivable from affiliate		34,000		40,000
Marketable securities		27,740		33,202
Investment in Kronos Worldwide, Inc.		255,565		259,061
Goodwill		27,156		27,156
Other assets, net		4,111		4,216

Total other assets		348,572		363,635

Property and equipment:
Land		5,151		5,151
Buildings		22,842		22,842
Equipment		67,446		67,526
Construction in progress		603		621

		96,042		96,140
Less accumulated depreciation		64,016		64,724

Net property and equipment		32,026		31,416

Total assets	$	547,242	$	560,797

	December 31,			March 31,
	2018			2019
				(unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	4,831		$	4,497
Accrued litigation settlement		60,000			60,000
Accrued and other current liabilities		10,854			7,178
Accrued environmental remediation and related costs		5,027			4,746
Payable to affiliates		567			567
Income taxes		44			55

Total current liabilities		81,323			77,043

Noncurrent liabilities:
Long-term debt from affiliate		500			500
Accrued pension costs		10,389			10,122
Accrued environmental remediation and related costs		93,184			92,270
Long-term litigation settlement		17,000			17,000
Deferred income taxes		31,373			34,112
Other		9,915			9,850

Total noncurrent liabilities		162,361			163,854

Equity:
NL stockholders' equity:
Common stock		6,090			6,090
Additional paid-in capital		301,139			301,139
Retained earnings		225,156			240,360
Accumulated other comprehensive loss		(248,270	)		(247,537	)

Total NL stockholders' equity		284,115			300,052

Noncontrolling interest in subsidiary		19,443			19,848

Total equity		303,558			319,900

Total liabilities and equity	$	547,242		$	560,797

	Three months ended
	March 31,
	2018			2019
	(unaudited)
Net sales	$	28,413		$	31,176
Cost of sales		18,910			21,552

Gross margin		9,503			9,624

Selling, general and administrative expense		5,130			5,334
Other operating income (expense):
Insurance recoveries		163			283
Other income, net		619			-
Corporate expense		(7,953	)		(2,055	)

Income (loss) from operations		(2,798	)		2,518

Equity in earnings of Kronos Worldwide, Inc.		21,479			9,225

Other income (expense):
Marketable equity securities		(1,581	)		5,462
Other components of net periodic pension and OPEB cost		(99	)		(428	)
Interest and dividend income		1,072			1,519
Interest expense		(8	)		(9	)

Income before income taxes		18,065			18,287

Income tax expense		3,330			2,561

Net income		14,735			15,726
Noncontrolling interest in net income of subsidiary		487			522

Net income attributable to NL stockholders	$	14,248		$	15,204

Amounts attributable to NL stockholders:

Basic and diluted net income per share	$	.29		$	.31

Weighted average shares used in the calculation of net income per share		48,715			48,727

	Three months ended
	March 31,
	2018			2019
	(unaudited)
Net income	$	14,735		$	15,726

Other comprehensive income (loss), net of tax:
Currency translation		2,591			(25	)
Defined benefit pension plans		983			828
Other		(73	)		(70	)

Total other comprehensive income, net		3,501			733

Comprehensive income		18,236			16,459
Comprehensive income attributable to noncontrolling interest		487			522

Comprehensive income attributable to NL stockholders	$	17,749		$	15,937

							Accumulated
			Additional				other			Noncontrolling
	Common		paid-in		Retained		comprehensive			interest in			Total
	stock		capital		earnings		income (loss)			subsidiary			equity
Balance at December 31, 2017	$	6,089	$	300,866	$	220,104	$	(191,737	)	$	17,756		$	353,078

Change in accounting principle- ASU 2016-01		—		—	$	46,069	$	(46,069	)		—			-
Balance at January 1, 2018, as adjusted		6,089		300,866	$	266,173	$	(237,806	)		17,756			353,078
Net income		—		—		14,248		—			487			14,735
Other comprehensive income, net of tax		—		—		—		3,501			—			3,501
Dividends paid to noncontrolling interest		—		—		—		—			(83	)		(83	)

Balance at March 31, 2018	$	6,089	$	300,866	$	280,421	$	(234,305	)	$	18,160		$	371,231

Balance at December 31, 2018	$	6,090	$	301,139	$	225,156	$	(248,270	)	$	19,443		$	303,558
Net income		—		—		15,204		—			522			15,726
Other comprehensive income, net of tax		—		—		—		733			—			733
Dividends paid to noncontrolling interest		—		—		—		—			(117	)		(117	)

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

	Three months ended
	March 31,
	2018			2019
	(unaudited)
Cash flows from operating activities:
Net income	$	14,735		$	15,726
Depreciation and amortization		889			901
Deferred income taxes		3,420			2,552
Equity in earnings of Kronos Worldwide, Inc.		(21,479	)		(9,225	)
Marketable equity securities		1,581			(5,462	)
Dividends received from Kronos Worldwide, Inc.		5,987			6,339
Cash funding of benefit plans in excess of net benefit plan expense		(120	)		9
Other, net		56			39
Change in assets and liabilities:
Accounts and other receivables, net		(2,226	)		(3,244	)
Inventories, net		(980	)		(1,475	)
Prepaid expenses and other		(819	)		181
Accounts payable and accrued liabilities		(2,867	)		(3,949	)
Income taxes		16			9
Accounts with affiliates		(132	)		559
Accrued environmental remediation and related costs		3,848			(1,194	)
Other noncurrent assets and liabilities, net		(66	)		(16	)

Net cash provided by operating activities		1,843			1,750

Cash flows from investing activities:
Capital expenditures		(644	)		(439	)
Promissory notes receivable from affiliate:
Loans		(12,400	)		(17,400	)
Collections		12,600			11,400
Other, net		224			-

Net cash used in investing activities		(220	)		(6,439	)

Cash flows from financing activities -
Distributions to noncontrolling interests in subsidiary		(83	)		(117	)

Cash and cash equivalents and restricted cash and cash equivalents - net change from:
Operating, investing and financing activities		1,540			(4,806	)
Balance at beginning of period		102,941			120,989

Balance at end of period	$	104,481		$	116,183

Supplemental disclosure - cash paid (received) for:
Interest	$	8		$	9
Income taxes, net		25			(16	)

Organization – At March 31, 2019, 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. All of Contran’s outstanding voting stock is held by a family trust established for the benefit of Lisa K. Simmons and Serena Simmons Connelly and their children for which Ms. Simmons and Ms. Connelly are co-trustees, or is held directly by Ms. Simmons and Ms. Connelly or entities related to them. Consequently, Ms. Simmons and Ms. Connelly may be deemed to control Contran, Valhi and us.

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

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

Unless otherwise indicated, references in this report to “NL,” “we,” “us” or “our” refer to NL Industries, Inc. and its subsidiaries and affiliate, Kronos, taken as a whole.

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

At December 31, 2018 and March 31, 2019, we held approximately 14.4 million shares of common stock of Valhi. See Note 1. Our shares of Valhi common stock are carried at fair value based on quoted market prices, representing a Level 1 input within the fair value hierarchy. At December 31, 2018 and March 31, 2019, the quoted per share market price of Valhi common stock was $1.93 and $2.31, respectively.

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

In March 2019, Valhi filed a Form S-3 registration statement with the SEC, registering our shares of Valhi common stock for resale. The registration statement has been declared effective by the SEC. We may sell all or a portion of such shares from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares are sold through underwriters or broker-dealers, we would be responsible for underwriting discounts or commissions or agents’ commissions. The shares may be sold in one or more transactions at fixed prices, prevailing market prices determined at the time of the sale, varying prices determined at the time of sale or negotiated prices (in each case we may determine). We have agreed to reimburse Valhi for its expenses incurred in connection with such registration statement (which expenses are not material). Through May 9, 2019, we have not sold any of our shares of Valhi common stock under the registration statement.

At December 31, 2018 and March 31, 2019, we owned approximately 35.2 million shares of Kronos common stock. At March 31, 2019, the quoted market price of Kronos’ common stock was $14.02 per share, or an aggregate market value of $493.8 million. At December 31, 2018, the quoted market price was $11.52 per share, or an aggregate market value of $405.7 million.

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

	December 31,		March 31,
	2018		2019
	(In millions)
Current assets	$	1,201.4	$	1,203.1
Property and equipment, net		486.4		482.4
Investment in TiO₂ joint venture		81.3		82.1
Other noncurrent assets		129.0		159.5

Total assets	$	1,898.1	$	1,927.1

Current liabilities	$	233.4	$	241.3
Long-term debt		455.1		445.8
Accrued pension and postretirement benefits		262.9		256.3
Other noncurrent liabilities		106.9		132.4
Stockholders' equity		839.8		851.3

Total liabilities and stockholders' equity	$	1,898.1	$	1,927.1

During the first three months of 2019, 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, 2019, we had outstanding borrowings of $0.5 million under such facility, and the remaining $49.5 million was available for future borrowing under this facility. Outstanding borrowings under such credit facility bear interest at the prime rate plus 1.875% per annum, and the average interest rate as of and for the three months ended March 31, 2019 was 7.375%. We are in compliance with all of the covenants contained in such facility at March 31, 2019.

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.

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

We currently expect our 2019 contributions to our defined benefit pension plans to be approximately $1.5 million.

	Three months ended
	March 31,
	2018			2019
	(In millions)
Expected tax expense, at U.S. federal statutory income tax rate of 21%	$	3.8		$	3.8
Rate differences on equity in earnings of Kronos		(1.2	)		(1.4	)
U.S. state income taxes and other, net		.7			.2

Income tax expense	$	3.3		$	2.6

Comprehensive provision for income taxes allocable to:
Net income	$	3.3		$	2.6
Other comprehensive income:
Currency translation		.7			-
Pension plans		.3			.2

Total	$	4.3		$	2.8

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 $6.0 million in the first three months of 2018 and $6.3 million in the first three months of 2019. The amounts shown in the above table of our income tax rate reconciliation for rate differences on equity in earnings of Kronos represents the net tax (benefit) associated with such non-taxability of the 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 and the result determined by multiplying the pre-tax earnings or losses of each of our non-U.S. subsidiaries by the difference between the applicable statutory income tax rate for each non-U.S. jurisdiction.

Kronos records global intangible low-tax income (GILTI) tax as a current-period expense when incurred under the period cost method. Kronos has evaluated the tax impact of GILTI and base erosion anti abuse tax (BEAT) provisions and related U.S. tax credit provisions applicable to tax years beginning in 2018 based on the relevant statutes and guidance provided under the proposed regulations. Given the complexity of the international provisions, it is possible that final regulations could differ from the proposed regulations and materially impact its determinations with respect to such items. Any material change will be recognized in the period in which the final regulations are published.

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

Changes in accumulated other comprehensive income (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
	March 31,
	2018			2019
	(In thousands)
Accumulated other comprehensive loss, net of tax:
Marketable securities:
Balance at beginning of period	$	46,069		$	-
Change in accounting principle		(46,069	)		-

Balance at end of period	$	-		$	-

Currency translation:
Balance at beginning of period	$	(164,467	)	$	(172,434	)
Other comprehensive income (loss)		2,591			(25	)

Balance at end of period	$	(161,876	)	$	(172,459	)

Defined benefit pension plans:
Balance at beginning of period	$	(72,951	)	$	(75,286	)
Other comprehensive income - amortization of net losses included in net periodic pension cost		983			828

Balance at end of period	$	(71,968	)	$	(74,458	)

OPEB plans:
Balance at beginning of period	$	(388	)	$	(550	)
Other comprehensive loss - amortization of net gains included in net periodic OPEB cost		(73	)		(70	)

Balance at end of period	$	(461	)	$	(620	)

Total accumulated other comprehensive loss:
Balance at beginning of period	$	(191,737	)	$	(248,270	)
Change in accounting principle		(46,069	)		-
Balance at beginning of period, as adjusted		(237,806	)		(248,270	)
Other comprehensive income		3,501			733

Balance at end of period	$	(234,305	)	$	(247,537	)

We are involved in various environmental, contractual, product liability, patent (or intellectual property), employment and other claims and disputes incidental to our current and former businesses. At least quarterly our management discusses and evaluates the status of any pending litigation or claim to which we are a party or which has been asserted against us. The factors considered in such evaluation include, among other things, the nature of such pending cases and claims, the status of such pending cases and claims, the advice of legal counsel and our experience in similar cases and claims (if any). Based on such evaluation, we make a determination as to whether we believe (i) it is probable a loss has been incurred, and if so if the amount of such loss (or a range of loss) is reasonably estimable, or (ii) it is reasonably possible but not probable a loss has been incurred, and if so if the amount of such loss (or a range of loss) is reasonably estimable, or (iii) the probability a loss has been incurred is remote.

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

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

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

Accordingly, other than with respect to the Santa Clara case discussed below, we have not accrued any amounts for any of the pending lead pigment and lead-based paint litigation cases filed by or on behalf of states, counties, cities or their public housing authorities and school districts, or those asserted as class actions other than the Santa Clara case noted below. 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 one of these lead pigment cases, in April 2000 we were served with a complaint in County of Santa Clara v. Atlantic Richfield Company, et al. (Superior Court of the State of California, County of Santa Clara, Case No. 1-00-CV-788657) brought by a number of California government entities against the former pigment manufacturers, the LIA and certain paint manufacturers. The County of Santa Clara sought to recover compensatory damages for funds the plaintiffs have expended or would in the future expend for medical treatment, educational expenses, abatement or other costs due to exposure to, or potential exposure to, lead paint, disgorgement of profit, and punitive damages. In July 2003, the trial judge granted defendants’ motion to dismiss all remaining claims. Plaintiffs appealed and the intermediate appellate court reinstated public nuisance, negligence, strict liability, and fraud claims in March 2006. A fourth amended complaint was filed in March 2011 on behalf of The People of California by the County Attorneys

of Alameda, Ventura, Solano, San Mateo, Los Angeles and Santa Clara, and the City Attorneys of San Francisco, San Diego and Oakland. That complaint alleged that the presence of lead paint created a public nuisance in each of the prosecuting jurisdictions and sought its abatement. In July and August 2013, the case was tried. In January 2014, the trial court judge issued a judgment finding us, The Sherwin Williams Company and ConAgra Grocery Products Company jointly and severally liable for the abatement of lead paint in pre-1980 homes, and ordered the defendants to pay an aggregate $1.15 billion to the people of the State of California to fund such abatement. The trial court’s judgment also found that to the extent any abatement funds remained unspent after four years, such funds were to be returned to the defendants. In February 2014, we filed a motion for a new trial, and in March 2014 the trial court denied the motion. Subsequently in March 2014, we filed a notice of appeal with the Sixth District Court of Appeal for the State of California. On November 14, 2017, the Sixth District Court of Appeal issued its opinion, upholding the trial court’s judgment, except that it reversed the portion of the judgment requiring abatement of homes built between 1951 and 1980 which significantly reduced the number of homes subject to the abatement order. In addition, the appellate court ordered the case be remanded to the trial court to recalculate the amount of the abatement fund, to limit it to the amount necessary to cover the cost of investigating and remediating pre-1951 homes, and to hold an evidentiary hearing to appoint a suitable receiver. In addition, the appellate court found that we and the other defendants had the right to seek recovery from liable parties that contributed to a hazardous condition at a particular property. Subsequently, we and the other defendants filed a Petition with the California Supreme Court seeking its review of a number of issues. On February 14, 2018, the California Supreme Court denied such petition.

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

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

In May 2018, we and the plaintiffs entered into a settlement agreement pursuant to which, as supplemented, the plaintiffs would be paid an aggregate of $80 million, in return for which we would be dismissed from the case with prejudice and all pending and future claims, causes of action, cross-complaints, actions or proceedings against us and our affiliates for indemnity, contribution, reimbursement or declaratory relief in respect to the case would be barred, discharged and enjoined as a matter of applicable law. Of such $80 million, $65 million would be paid by us and $15 million would be provided by one of our former insurance carriers that has previously placed such amount on deposit with the trial court in satisfaction of potential liability such former carrier might have with respect to the case under certain insurance policies we had with such former carrier. Of such $65 million which would be paid by us, $45 million would be paid upon approval of the terms of the settlement, and the remaining $20 million would be paid in five annual installments beginning four years from such approval ($6 million for the first installment, $5 million for the second installment and $3 million for each of the third, fourth and fifth installments). The settlement agreement is subject to a number of conditions including the trial court’s approval of the terms of the settlement (which trial court approval includes a determination that such settlement agreement meets the standards for a “good faith” settlement under applicable California law). The other defendants filed motions with the trial court objecting to the terms of the settlement.

With all of the uncertainties that exist with respect to the new decisions to be made by the trial court from the remand of the case, as noted above, we had previously concluded that the amount of such loss could not be reasonably estimated (nor could a range of loss be reasonably estimated). However, the terms of the settlement agreement entered into by us and the plaintiffs in May 2018, as supplemented, provides evidence that the amount of the loss to us could be reasonably estimated (and provides evidence of the low end of a range of loss to us). For financial reporting purposes, we discounted the five payments aggregating $20 million to be paid in installments to their estimated net present value, using a discount rate of 3.0% per annum. Such net present value is $17 million, and we would begin to accrete such present value amount upon approval of the settlement agreement. Accordingly, in the second quarter of 2018 we recognized a net $62 million pre-tax charge with respect to this matter ($45 million for the amount to be paid by us upon approval of the terms of the settlement and $17 million for the net present value of the five payments aggregating $20 million to be paid by us in installments beginning four years from such approval), representing the net amount we would pay in full settlement of our liability under the terms of the proposed settlement agreement. For purposes of our Consolidated Balance Sheet, we have presented the aggregate $45 million that would be paid to the plaintiffs upon approval of the terms of the settlement and the $15 million that would be paid to the plaintiffs from the amount placed on deposit with the trial court by one of our former insurance carriers (for a total of $60 million) as a current liability, $17 million for the net present value of the five payments aggregating $20 million to be paid by us in installments beginning four years from such approval as a noncurrent liability and the $15 million portion of such aggregate $80 million undiscounted amount which would be funded from the amount placed on deposit with the trial court by one of our former insurance carriers as a current insurance recovery receivable.

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

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

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

rule in favor of us and approve the settlement agreement. We continue to believe the settlement agreement satisfies the standards for a “good faith” settlement under applicable California law.

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

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

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

New cases may continue to be filed against us. We cannot assure you that we will not incur liability in the future in respect of any of the pending or possible litigation in view of the inherent uncertainties involved in court and jury rulings. In the future, if new information regarding such matters becomes available to us (such as a final, non-appealable adverse verdict against us or otherwise ultimately being found liable with respect to such matters), at that time we would consider such information in evaluating any remaining cases then-pending against us as to whether it might then have become probable we have incurred liability with respect to these matters, and whether such liability, if any, could have become reasonably estimable. The resolution of any of these cases could result in the recognition of a loss contingency accrual that could have a material adverse impact on our net income for the interim or annual period during which such liability is recognized and a material adverse impact on our consolidated financial condition and liquidity.

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

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

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

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

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

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

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

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, 2019, we had accrued approximately $97 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 $117 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, 2019, there were approximately 5 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.

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

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

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

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

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

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

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

Our net income attributable to NL stockholders was $15.2 million, or $.31 per share, in the first quarter of 2019 compared to net income attributable to NL stockholders of $14.2 million, or $.29 per share, in the first quarter of 2018. As more fully described below, the increase in our earnings per share from 2018 to 2019 is primarily due to the net effects of:

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 before income taxes exclusive of our income (loss) from operations.

	Three months ended March 31,						%
	2018			2019			Change
	(in millions)
Net sales	$	28.4		$	31.2			10		%
Cost of sales		18.9			21.6			14
Gross margin		9.5			9.6			1
Operating costs and expenses		5.1			5.3			4
Income from operations	$	4.4		$	4.3			(2	)

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

Net sales – Net sales increased $2.8 million in the first quarter of 2019 compared to the same period in 2018 due to higher Marine Component sales, primarily surf pipes and wake enhancement systems to an original equipment boat manufacturer. Security Products also contributed higher sales for the quarter, primarily to existing government security customers. Relative changes in selling prices did not have a material impact on net sales comparisons.

Cost of sales and gross margin – Cost of goods sold as a percentage of sales increased 2.5% in the first quarter of 2019 compared to the same period in 2018. As a result, gross margin as a percentage of sales decreased over the same period. The decrease in gross margin percentage is primarily the result of increased labor rates and medical costs at Security Products as well as a less favorable customer and product mix at Marine Components. Gross margin dollars increased due to higher sales for both business operations.

Operating costs and expenses – Operating costs and expenses consist primarily of sales and administrative-related personnel costs, sales commissions and advertising expenses, as wells as gains and losses on plant, property and equipment. Operating costs and expenses for the first quarter of 2019 were comparable to the same period of 2018.

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

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

	Three months ended March 31,								%
	2018				2019				Change
	(in millions)
Net sales:
Security Products	$	24.1			$	24.7				3		%
Marine Components		4.3				6.5				49
Total net sales	$	28.4			$	31.2				10

Gross margin:
Security Products	$	8.3			$	8.0				(4	)
Marine Components		1.2				1.6				38
Total gross margin	$	9.5			$	9.6				1

Income from operations:
Security Products	$	5.6			$	5.1				(10	)
Marine Components		.6				.9				54
Corporate operating expenses		(1.8	)			(1.7	)			8
Total income from operations	$	4.4			$	4.3				(2	)

Gross margin:
Security Products		35		%		32		%
Marine Components		28				26
Total gross margin		33				31
Income from operations margin:
Security Products		23		%		21		%
Marine Components		13				14
Total income from operations margin		15				14

Security Products — Security Products net sales increased 3% in the first quarter of 2019 compared to the same period last year. The increase in sales is primarily due to approximately $0.8 million in higher sales to existing government security customers. Gross profit margin and operating income as a percentage of sales in 2019 decreased

compared to the same period in 2018 due to increased labor rates, particularly at our Grayslake facility, and higher medical costs.

Marine Components – Marine Components net sales increased 49% in the first quarter of 2019 compared to the same period last year primarily due to increased sales of wake enhancement systems and surf pipes to an original equipment boat manufacturer. Gross profit margin decreased in the first quarter of 2019 compared to the same period last year due to a less favorable customer and product mix; however, operating income as a percentage of net sales increased over the same comparative period due to improved fixed cost leverage facilitated by higher production volumes.

Outlook – First quarter sales exceeded prior year largely due to continued high demand for our marine products where we continue to benefit from innovation and diversification in our product offerings to the recreational boat markets. Operating income for the quarter was comparable to prior year, as operating margin for the Security Products segment decreased relative to prior year due to higher labor rates and medical costs, the effect of which we were not able to offset through higher selling prices. At present we expect this pattern to continue, with full year sales for 2019 tracking above 2018 and full year profitability comparable to prior year. We will continue to monitor economic conditions and sales order rates and respond to fluctuations in customer demand through continuous evaluation of staffing levels and consistent execution of our lean manufacturing and cost improvement initiatives. Additionally, we continue to seek opportunities to gain market share in markets we currently serve, to expand into new markets and to develop new product features in order to mitigate the impact of changes in demand as well as broaden our sales base.

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.

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.

Corporate expense – Corporate expenses were $2.1 million in the first quarter of 2019, $5.9 million lower than in the first quarter of 2018 primarily due to lower litigation fees and related costs and lower environmental remediation and related costs in 2019. Included in corporate expense in the first quarter of 2018 and 2019 are:

The level of our litigation fees and related costs varies from period to period depending upon, among other things, the number of cases in which we are currently involved, the nature of such cases and the current stage of such cases (e.g. discovery, pre-trial motions, trial or appeal, if applicable). See Note 14 to our Condensed Consolidated Financial Statements. If our current expectations regarding the number of cases in which we expect to be involved during 2019 or the nature of such cases were to change, our corporate expenses could be higher than we currently estimate.

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

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

Interest and dividend income – Interest and dividend income increased $.4 million in the first quarter of 2019 compared to the prior year period primarily due to interest income earned on CompX’s revolving promissory note receivable from Valhi. Interest income on such note receivable from Valhi was $.5 million in the first quarter of 2018 and $.6 million in the first quarter of 2019.

Marketable equity securities – Unrealized gains on our marketable equity securities was $5.5 million in 2019 compared to unrealized loss of $1.6 million in 2018. See Note 4 to our Consolidated Financial Statements.

Income tax expense (benefit) – We recognized an income tax expense of $2.6 million in the first quarter of 2019 compared to income tax expense of $3.3 million in the first quarter of 2018. 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 $6.0 million in the first three months of 2018 and $6.3 million in the first three months of 2019.

Our effective tax rate attributable to our equity in earnings of Kronos, including the effect of the non-taxable dividends we received from Kronos was 6.3% in the first three months of 2019 and 15.5% in the first three months of 2018. See Note 12 to our Condensed Consolidated Financial Statements for more information about our 2019 income tax items, including a tabular reconciliation of our statutory tax expense (benefit) to our actual expense (benefit).

Noncontrolling interest – Noncontrolling interest in net income of CompX is consistent in the first quarter of 2018 and 2019. 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,								%
	2018				2019				Change
	(in millions)
Net sales	$	430.4			$	436.5				1		%
Cost of sales		255.6				327.2				28		%
Gross margin	$	174.8			$	109.3

Income from operations	$	107.5			$	49.0				(54	)	%
Interest and dividend income		1.0				2.1
Marketable equity securities		(.2	)			.6
Other components of net periodic pension and OPEB cost		(3.8	)			(3.8	)
Interest expense		(4.8	)			(4.8	)
Income before income taxes		99.7				43.1
Income tax expense (benefit)		29.0				12.8
Net income	$	70.7			$	30.3

Percentage of net sales:
Cost of sales		59		%		75		%
Income from operations		25		%		11		%

Equity in earnings of Kronos Worldwide, Inc.	$	21.5			$	9.2

TiO₂ operating statistics:
Sales volumes*		125				143				15		%
Production volumes*		133				134				1		%

Change in TiO₂ net sales:
TiO₂ product pricing										(8	)	%
TiO₂ sales volumes										15		%
TiO₂ product mix/other										(3	)	%
Changes in currency exchange rates										(3	)	%
Total										1		%

* 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 ore. TiO₂selling prices generally follow industry trends and prices will increase or decrease generally as a result of competitive market pressures.

Due to the successful implementation of previously-announced price increases, average selling prices rose during the first six months of 2018, however such average selling prices began to decline in the last six months of 2018 and continued to decline into the first three months of 2019. Kronos started 2019 with average selling prices 3% lower than at the beginning of 2018 and its average selling prices at the end of the first quarter of 2019 were 4% lower than at the end of 2018. Lower prices in the European, North American and Latin American markets were partially offset by higher prices in the export market at the end of the first quarter of 2019 compared to the end of 2018. Kronos experienced higher sales volumes in all major markets in the first three months of 2019 as compared to the same period of 2018.

Kronos operated its production facilities at average practical capacity utilization rates of 95% and 97% in the first quarter of 2018 and 2019, respectively.

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

Net sales – Kronos’ net sales in the first quarter of 2019 increased 1%, or $6.1 million, compared to the first quarter of 2018 primarily due to the net effect of a 8% decrease in average TiO₂ selling prices (which decreased net sales by approximately $34 million) and a 15% increase in sales volumes (which increased net sales by approximately $65 million). TiO₂ selling prices will increase or decrease generally as a result of competitive market pressures, changes in the relative level of supply and demand as well as changes in raw material and other manufacturing costs.

Kronos’ sales volumes increased 15% in the first quarter of 2019 as compared to the first quarter of 2018 primarily due to higher sales in all major markets. In addition to the impact of changes in average TiO₂ selling prices and sales volumes, Kronos estimates that changes in currency exchange rates (primarily the euro) decreased its net sales by approximately $15 million as compared to the first quarter of 2018.

Cost of sales and gross margin – Kronos’ cost of sales increased $71.6 million or 28% in the first quarter of 2019 compared to the first quarter of 2018 due to the net effect of a 15% increase in sales volumes, higher raw materials and other production costs of approximately $46 million, a 1% increase in TiO₂ production volumes and favorable effects from currency fluctuations (primarily the euro). Kronos’ cost of sales as a percentage of net sales increased to 75% in the first quarter of 2019 compared to 59% in the same period of 2018 as the unfavorable effect of lower average selling prices and higher raw materials and other production costs (primarily third-party feedstock ore) more than offset the favorable impact of higher sales and production volumes, as discussed above.

Gross margin as a percentage of net sales decreased to 25% in the first quarter of 2019 compared to 41% in the first quarter of 2018. As discussed and quantified above, Kronos’ gross margin decreased primarily due to the net effect of lower average selling prices, higher sales and production volumes and higher raw materials and other production costs.

Other operating income and expense, net – Kronos’ selling, general and administrative expense in the first quarter of 2019 was comparable to the first quarter of 2018.

Income from operations – Kronos’ income from operations decreased by $58.5 million, or 54%, in the first quarter of 2019 compared to the first quarter of 2018. Income from operations as a percentage of net sales decreased to 11% in the first quarter of 2019 from 25% in the same period of 2018. This decrease was driven by the decrease in gross margin, discussed above. Kronos estimates that changes in currency exchange rates increased income from operations by approximately $8 million in the first quarter of 2019 as compared to the same period in 2018, as discussed below.

Other non-operating income (expense) – Marketable equity securities unrealized gain (loss) was $(.2) million and $.7 million for the three months ended March 31, 2018 and 2019, respectively. Other components of net periodic pension and OPEB cost in the first quarter of 2019 was comparable to the first quarter of 2018 and we expect this comparability of pension and OPEB cost to continue throughout 2019. Kronos’ interest expense in the first quarter of 2019 was also comparable to the first quarter of 2018. Kronos currently expects its interest expense for all of 2019 will be comparable to 2018.

Income tax expense – Kronos recognized income tax expense of $12.8 million in the first quarter of 2019 compared to income tax expense of $29.0 million in the first quarter of 2018. The difference is primarily due to lower earnings in 2019. Kronos’ earnings are subject to income tax in various U.S. and non-U.S. jurisdictions, and the income tax rates applicable to its 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, our non-U.S. operations also generate currency transaction gains and losses which primarily relate to (i) the difference between the currency exchange rates in effect when non-local currency sales or operating costs (primarily U.S. dollar denominated) are initially accrued and when such amounts are settled with the non-local currency, (ii) changes in currency exchange rates during time periods when our non-U.S. operations are holding non-local currency (primarily U.S. dollars), and (iii) relative changes in the aggregate fair value of currency forward contracts held from time to time. As discussed in Note 14 to Kronos’ Condensed Consolidated Financial Statements, Kronos periodically use currency forward contracts to manage a portion of our currency exchange risk, and relative changes in the aggregate fair value of any currency forward contracts it holds from time to time serves in part to mitigate the currency transaction gains or losses we 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 our sales and income from operations for the periods indicated.

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

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

The $15 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 less U.S. dollars in 2019 as compared to 2018. The strengthening of the U.S. dollar relative to the Canadian dollar and the Norwegian krone in 2019 did not have a significant effect on the reported amount of our net sales, as a substantial portion of the sales generated by its Canadian and Norwegian operations are denominated in the U.S. dollar.

The $8 million increase in income from operations was comprised of the following:

Kronos expects its production volumes in 2019 to be slightly higher as compared to 2018 production volumes. Assuming current global economic conditions remain stable and based on anticipated production levels, Kronos also expect its 2019 sales volumes to be higher as compared to 2018 sales volumes. Kronos will continue to monitor current and anticipated near-term customer demand levels and align its production and inventories accordingly.

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

Kronos started 2019 with average selling prices 3% lower than the beginning of 2018. Average selling prices decreased by an additional 4% in the first three months of 2019. Industry data indicates that overall TiO₂ inventory held by producers stood at adequate-to-low levels in the last half of 2018 and into the first quarter of 2019. Kronos expects customer inventory levels to continue to decline through the second quarter of 2019 which could result in stabilization or minor increases in TiO₂selling prices during the remainder of 2019.

Overall, Kronos expects its sales in 2019 will be higher as compared to 2018, principally as a result of the favorable impact of higher expected sales volumes partially offset by the unfavorable impact of lower expected average selling prices. In addition, Kronos expects its income from operations in 2019 will be lower as compared to 2018, as the favorable impact of higher expected sales volumes would be more than offset by the unfavorable impact of lower expected average selling prices and higher raw material costs (principally feedstock ore) in 2019.

Due to the constraints of high capital costs and extended lead time associated with adding significant new TiO₂ production capacity, especially for premium grades of TiO₂ products produced from the chloride process, Kronos believes increased and sustained profit margins will be necessary to financially justify major expansions of TiO₂ production capacity required to meet expected future growth in demand. Any major expansion of TiO₂ production capacity, if announced, would take several years before such production would become available to meet future growth in demand.

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

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 $1.7 million in the first three months of 2019 compared to $1.8 million in the first three months of 2018. The $.1 million net 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.

Relative changes in working capital can have a significant effect on cash flows from operating activities. As shown below, the change in our average days sales outstanding from December 31, 2018 to March 31, 2019 increased primarily as a result of relative changes in the timing of collections and the grant of extended terms to certain key customers. Our total average number of days in inventory decreased from December 31, 2018 to March 31, 2019 primarily as a result of the rapid sales growth for Marine Components operations, which has temporarily limited opportunities to strategically restock. For comparative purposes, we have provided December 31, 2017 and March 31, 2018 numbers below.

Our capital expenditures were $0.4 million in the first three months of 2019 compared to $0.6 million in the first three months of 2018. During the first three months of 2019, Valhi borrowed a net $6.0 million under the promissory note ($17.4 million of gross borrowings and $11.4 million of gross repayments). During the first three months of 2018, Valhi repaid a net $0.2 million under the promissory note ($12.4 million of gross borrowings and $12.6 million of gross repayments).

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

At March 31, 2019, 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, 2018. See Note 8 to our Condensed Consolidated Financial Statements.

Kronos’ North American and European revolvers and its senior secured notes contain a number of covenants and restrictions which, among other things, restrict its ability to incur additional debt, incur liens, pay dividends or make other restricted payments, or merge or consolidate with, or sell or transfer substantially all of our 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, 2018. 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, 2019, we had aggregate cash, cash equivalents and restricted cash of $116.2 million, substantially all of which was held in the U.S. A detail by entity is presented in the table below.

In addition, at March 31, 2019 we owned 14.4 million shares of Valhi common stock with an aggregate market value of $33.2 million. See Note 4 to our Condensed Consolidated Financial Statements. We also owned 35.2 million shares of Kronos common stock at March 31, 2019 with an aggregate market value of $493.8 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, 2020) including any amounts CompX might loan from time to time under the terms of its new 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, 2019, 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, 2019 totaled $0.9 million. CompX’s 2019 capital investments are limited to those expenditures required to meet our expected customer demand and those required to properly maintain our facilities and technology infrastructure.

Because our operations are conducted primarily through subsidiaries and affiliates, our long-term ability to meet parent company-level corporate obligations is largely dependent on the receipt of dividends or other distributions from our subsidiaries and affiliates. A detail of annual dividends we expect to receive from our subsidiaries and affiliates in 2019, based on the number of shares of common stock of these affiliates we own as of March 31, 2019 and their current regular quarterly dividend rate, is presented in the table below.

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 2018 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 2018Annual Report, or in Note 14 to our Condensed Consolidated Financial Statements or in Part II, Item 1 of this report, including certain legal proceedings. In addition to such legal proceedings, various legislation and administrative regulations have, from time to time, been proposed that seek to (i) impose various obligations on present and former manufacturers of lead pigment and lead-based paint (including us) with respect to asserted health concerns associated with the use of such products and (ii) effectively overturn court decisions in which we and other pigment manufacturers have been successful. Examples of such proposed legislation include bills which would permit civil liability for damages on the basis of market share, rather than requiring plaintiffs to prove that the defendant’s product caused the alleged damage and bills which would revive actions barred by the statute of limitations. While no legislation or regulations have

been enacted to date that are expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity, enactment of such legislation could have such an effect.

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

We are exposed to market risk, including currency exchange rates, interest rates and security prices. There have been no material changes in these market risks since we filed our 2018 Annual Report, and we refer you to Part I, Item 7A. –“Quantitative and Qualitative Disclosure about Market Risk” in our 2018 Annual Report. See also Note 14 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 Gregory M. Swalwell, our Executive Vice President and Chief Financial Officer, have evaluated the design and effectiveness of our disclosure controls and procedures as of March 31, 2019. 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, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the matters discussed below, refer to Note 14 to our Condensed Consolidated Financial Statements and our 2018 Annual Report.

Gowanus Canal Superfund Site, Brooklyn, New York. In April 2019, EPA issued a second Unilateral Administrative Order (“UAO”) to NL and approximately 27 other PRPs for performance of certain work related to the Remedial Design at the site. NL continues to believe it has no liability at the site but intends to engage in further discussions regarding a de minimis settlement and to otherwise take actions necessary to respond to the UAO. If these discussions are unsuccessful, NL will continue to deny liability and will defend vigorously against all of the claims.

For a discussion of the risk factors related to our businesses, refer to Part I, Item 1A., “Risk Factors,” in our 2018 Annual Report.

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.


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

		Page number
Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

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

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

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

	Condensed Consolidated Statements of Equity (unaudited) – Three months ended March 31, 2018 and 2019	7

	Condensed Consolidated Statements of Cash Flows (unaudited) - Three months ended March 31, 2018 and 2019	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	36

Item 4.	Controls and Procedures	36


Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 6.	Exhibits	38

	December 31,		March 31,
	2018		2019
	(In thousands)
Raw materials	$	2,661	$	3,316
Work in process		11,130		11,849
Finished products		3,311		3,345

Total	$	17,102	$	18,510

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

March 31, 2019
Valhi common stock	1	$	33,202	$	24,347	$	8,855

	Three months ended
	March 31,
	2018			2019
	(In thousands)
Interest cost	$	372		$	474
Expected return on plan assets		(590	)		(477	)
Recognized actuarial losses		365			406

Total	$	147		$	403


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

	Amount
	(In millions)
Balance at the beginning of the period	$	255.5
Equity in earnings of Kronos		9.2
Dividends received from Kronos		(6.3	)
Equity in Kronos' other comprehensive income:
Defined benefit pension plans		.7

Balance at the end of the period	$	259.1


	Three months ended March 31,
	2018		2019
	(In millions)
Net sales	$	430.4	$	436.5
Cost of sales		255.6		327.2
Income from operations		107.5		49.0
Income tax expense		29.0		12.8
Net income		70.7		30.3

	December 31, 2018				March 31, 2019
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value
	(In thousands)
Cash, cash equivalents and restricted cash	$	120,989	$	120,989	$	116,183	$	116,183
Noncontrolling interest in CompX common stock		19,443		22,871		19,848		24,585

	Amount
	(In millions)
CompX	$	36.1
NL Parent and wholly-owned subsidiaries		80.1
Total	$	116.2

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

10.1	Registration Agreement dated March 11, 2019 between NL Industries, Inc. and Valhi, Inc.

31.1	Certification

31.2	Certification

32.1	Certification

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema

101.CAL	XBRL Taxonomy Extension Calculation Linkbase

101.DEF	XBRL Taxonomy Extension Definition Linkbase

101.LAB	XBRL Taxonomy Extension Label Linkbase

101.PRE	XBRL Taxonomy Extension Presentation Linkbase

Date: May 9, 2019	/s/ Gregory M. Swalwell
	Gregory M. Swalwell
	(Executive Vice President and Chief Financial Officer, Principal Financial Officer)
Date: May 9, 2019	/s/ Amy Allbach Samford
	Amy Allbach Samford
	(Vice President and Controller, Principal Accounting Officer)