**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**FORM 10-K**





**ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**





**For
      the fiscal year ended December 31, 2005**





**Commission
      file number 1-32669**





**TRONOX
      INCORPORATED**


(Exact
      Name of Registrant as Specified in its Charter)





**Delaware**
            
            **20-2868245**(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            
            (I.R.S.
                Employer
              Identification
                Number)





**123 Robert S.
      Kerr Avenue, Oklahoma City, Oklahoma 73102**


(Address
      of principal executive offices)





**Registrant’s
      telephone number, including area code: (405) 775-5000**





**Securities
      Registered Pursuant to Section 12(b) of the Act:**


**Title
                of Each Class**
            
            **Name
                of Each Exchange on Which Registered**Class
                A Common Stock, $0.01 par value
              Class
                B Common Stock, $0.01 par value
            
            New
                York Stock Exchange
              New
                York Stock Exchange





**No
      Securities are Registered Pursuant to Section 12(g) of the
      Act.**





Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act.
 Yes o No þ
 
 Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Act.
 Yes o No þ
 
 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 (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirement
        for
        the past 90 days.
 Yes þ No o
 
 Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K is not contained herein, and will not be contained, to the
        best
        of registrant’s knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-K or any amendment
        to this
        Form 10-K.
  ̈
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer (see definition of “accelerated
        filer” in Rule 12b-2 under the Exchange Act). (Check one):
 Large
        accelerated filer o Accelerated filer o Non-accelerated filer þ
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes o No þ


The
      aggregate market value of the registrant’s voting and non-voting common stock
      held by non-affiliates of the registrant (without admitting that any person
      whose shares are not included in such calculation is an affiliate) computed
      by
      reference to the price at which the Class A common stock was last sold on the
      New York Stock Exchange on February 28, 2006, was $269.4 million. The registrant
      has provided this information as of February 28, 2006, because its common equity
      was not publicly traded as of the last business day of its most recently
      completed second fiscal quarter.





As
      of
      February 28, 2006, 17,801,790 shares of the company’s Class A common stock and
      22,889,431 shares of the company’s Class B common stock were
      outstanding.





**Documents
      Incorporated by Reference**


The
      definitive Proxy Statement for the 2006 Annual Meeting of Stockholders, which
      will be filed with the Securities and Exchange Commission within 120 days after
      December 31, 2005, is incorporated by reference in Part III of this Form
      10-K.











**Tronox
      Incorporated**


**Form 10-K**





**Table
      of Contents**





**PART
                I****Page**Items
                1. and 2.
            
            Business
                and Properties
            
            1Item
                1A.
            
            Risk
                Factors
            
            17Item
                1B.
            
            Unresolved
                Staff Comments
            
            25Item
                3.
            
            Legal
                Proceedings
            
            26Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            27**PART
                II**Item
                5.
            
            Market
                for Registrant’s Common Equity and Related Stockholder
                Matters
            
            27Item
                6.
            
            Selected
                Financial Data
            
            29Item
                7.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            33Item
                7A.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            55Item
                8.
            
            Financial
                Statements and Supplementary Data
            
            58Item
                9.
            
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            
            107Item
                9A.
            
            Controls
                and Procedures
            
            107**PART
                III**Item
                10.
            
            Directors
                and Executive Officers of the Registrant
            
            107Item
                11.
            
            Executive
                Compensation
            
            109Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            109Item
                13.
            
            Certain
                Relationships and Related Transactions
            
            110Item
                14.
            
            Principal
                Accountant Fees and Services
            
            110**PART
                IV**Item
                15.
            
            Exhibits
                and Financial Statement Schedules
            
            110










**TRONOX
      INCORPORATED**


**PART
      I**





**Items
      1. and 2.  Business and
      Properties**





Tronox
      Incorporated, a Delaware corporation, was formed on May 17, 2005, in preparation
      for the contribution and transfer by Kerr-McGee Corporation (“Kerr-McGee”) of
      certain entities, including those comprising substantially all of its chemical
      business (the “Contribution”). The Contribution was completed in November 2005
      along with the recapitalization of Tronox, whereby common stock held by
      Kerr-McGee converted into approximately 22.9 million shares of Class B common
      stock. An initial public offering (“IPO”) of Class A common stock was
      subsequently completed on November 28, 2005. Prior to the IPO, Tronox was a
      wholly-owned subsidiary of Kerr-McGee. Pursuant to the IPO registration
      statement on Form S-1 (File No. 333-125574), Tronox sold approximately 17.5
      million shares of its Class A common stock at a price of $14.00 per share.
      Pursuant to the terms of the Master Separation Agreement dated November 28,
      2005, among Kerr-McGee, Kerr-McGee Worldwide Corporation and the company (the
      “MSA”), the net proceeds from the IPO of approximately $224.7 million were
      distributed to Kerr-McGee.





Concurrent
      with the IPO, the company, through its wholly-owned subsidiaries, issued $350.0
      million in aggregate principal amount of 9.5% senior unsecured notes due 2012
      and borrowed $200.0 million under a six-year senior secured credit facility.
      Pursuant to the terms of the MSA, the company distributed to Kerr-McGee the
      net
      proceeds from the borrowings of approximately $537.1 million.





Following
      the IPO, approximately 43.3% of the total outstanding common stock of Tronox
      was
      held by the general public and 56.7% was held by Kerr-McGee. The holders of
      Class A common stock and Class B common stock have identical rights, except
      that
      holders of Class A common stock are entitled to one vote per share while holders
      of Class B common stock are entitled to six votes per share on all matters
      to be
      voted on by stockholders. As of December 31, 2005, Kerr-McGee owned all of
      the
      company’s outstanding Class B common stock, which represented approximately
      88.7% of the company’s total voting power.





On
      March 8, 2006, Kerr-McGee’s Board of Directors declared a dividend of Tronox’s
      Class B common stock owned by Kerr-McGee to its stockholders (the
“Distribution”). The Distribution is expected to be completed on March 30, 2006.
      Upon completion of the Distribution, Kerr-McGee will have no ownership or voting
      interest in us.





The
      terms “Tronox,” “the company,” “we,” “our” and similar terms are used
      interchangeably in this annual report to refer to the consolidated group or
      to
      one or more of the companies that are part of the consolidated group. The
      company is primarily engaged in the global production and marketing of titanium
      dioxide, a white pigment used in a wide range of products. The company has
      in
      the past operated or held businesses or properties, or currently holds
      properties, that do not relate to the current chemical business, including
      businesses involving the treatment of forest products, the production of
      ammonium perchlorate, the refining and marketing of petroleum products, offshore
      contract drilling, coal mining and the mining, milling and processing of nuclear
      materials.





**Overview**





Tronox
      is one of the leading global producers and marketers of titanium dioxide
      pigment. We market titanium dioxide pigment under the brand name TRONOX®, and
      our pigment segment represented more than 90% of our net sales in 2005. We
      are
      the world’s third-largest producer and marketer of titanium dioxide based on
      reported industry capacity by the leading titanium dioxide producers, and we
      have an estimated 13% market share of the $9 billion global market in 2005
      based on reported industry sales. Our world-class, high-performance pigment
      products are critical components of everyday consumer applications, such as
      coatings, plastics and paper, as well as specialty products, such as inks,
      foods
      and cosmetics. In addition to titanium dioxide, we produce electrolytic
      manganese dioxide, sodium chlorate, boron-based and other specialty chemicals.
      In 2005, we had net sales of $1.4 billion and net income of $18.8 million.
      Based on the country of production, the geographic distribution of our net
      sales
      was as follows during the last three years:











**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)**United
                States
            
            $
            755.9
            
            $
            716.8
            
            $
            646.7International
            
            
            608.1
            
            
            585.0
            
            
            511.0$
            1,364.0
            
            $
            1,301.8
            
            $
            1,157.7








The
      chart below summarizes our 2005 net sales by business segment:





**2005
      Net Sales by Business Segment**










We
        have
        maintained strong relationships with our customers since our current chemical
        operations began in 1964. We focus on providing our customers with world-class
        products, end-use market expertise and strong technical service and support.
        With more than 2,100 employees worldwide, strategically located manufacturing
        facilities and direct sales and technical service organizations in the United
        States, Europe and the Asia-Pacific region, we are able to serve our diverse
        base of more than 1,100 customers in over 100 countries.


Globally,
      including all of the production capacity of the facility operated under our
      Tiwest Joint Venture (see " *Manufacturing,
      Operations and Properties - The Tiwest Joint Venture* "),
      we
      have 517,000 and 107,000 tonnes of aggregate annual chloride and sulfate
      titanium dioxide production capacity, respectively. We hold over 200 patents
      worldwide, as well as other intellectual property. We have a highly skilled
      and
      technologically sophisticated workforce.





**Competitive
      Strengths**





We
      benefit from a number of competitive strengths, including the
      following:





***Leading
      Market Positions***





We
      are
      the world’s third-largest producer and marketer of titanium dioxide products
      based on reported industry capacity by the leading titanium dioxide producers
      and the world’s second-largest producer and supplier of titanium dioxide
      manufactured via proprietary chloride technology, which we believe is preferred
      for many of the largest end-use applications. We estimate that we have a 15%
      share of the $5.2 billion global market for the use of titanium dioxide in
      coatings, which industry sources consider the largest end-use market. We believe
      our leading market positions provide us with a competitive advantage in
      retaining existing customers and obtaining new business.





***Global
      Presence***





We
      are
      one of the few titanium dioxide manufacturers with global operations. We have
      production facilities and a sales and marketing presence in the Americas, Europe
      and the Asia-Pacific region. In 2005, sales into the Americas accounted for
      approximately 48% of our total titanium dioxide net sales, followed by
      approximately 31% into Europe and approximately 21% into the Asia-Pacific
      region. Our global presence enables us to provide customers in over 100
      countries with a reliable source of multiple grades of titanium dioxide. The
      diversity of the geographic markets we serve also mitigates our exposure to
      regional economic downturns.








***Well-Established
      Relationships with a Diverse Customer Base***





We
      sell
      our products to a diverse portfolio of customers with whom we have
      well-established relationships. Our customer base consists of more than 1,100
      customers in over 100 countries and includes market leaders in each of the
      major
      end-use markets for titanium dioxide. We have supplied each of our top ten
      customers with titanium dioxide pigment for over ten years. We work closely
      with
      our customers to optimize their formulations, thereby enhancing the use of
      titanium dioxide in their production processes. This has enabled us to develop
      and maintain strong relationships with our customers, resulting in a high
      customer retention rate.





***Innovative,
      High-Performance Products***





We
      offer innovative, high-performance products for nearly every major titanium
      dioxide end-use application, including seven grades of titanium dioxide
      (“TiO 2 ”)
      for
      specialty applications such as inks, catalysts and electro-ceramics. We are
      dedicated to continually developing our titanium dioxide products to better
      serve our customers and responding to the increasingly stringent demands of
      their end-use markets. Our recently introduced products, CR-826 and CR-880,
      offer a combination of optical properties, opacity, ease of dispersion and
      durability that is valued by customers for a variety of applications. Sales
      volume of these high-performance products increased at a compounded annual
      growth rate of 29% from 2001 to 2005.





***Proprietary
      Production Technology***


We
        are
        one of a limited number of producers in the titanium dioxide industry to
        hold
        the rights to a proprietary chloride process for the production of titanium
        dioxide. Approximately 83% of our gross production capacity uses this process
        technology, which is the subject of numerous patents worldwide and is utilized
        by our highly skilled and technologically sophisticated work force. Titanium
        dioxide produced using chloride process technology is preferred for many
        of the
        largest end-use applications. The chloride production process generates less
        waste, uses less energy and is less labor intensive than the sulfate process.
        The complexity of developing and operating the chloride process technology
        makes
        it difficult for others to enter and successfully compete in the chloride
        process titanium dioxide industry.




***Experienced
      Management Team***





Our
      management team has an average of 23 years of business experience. The diversity
      of their business experience provides a broad array of skills that contributes
      to the successful execution of our business strategy. Our operations team and
      plant managers, who have an average of 27 years of manufacturing experience,
      participate in the development and execution of strategies that have resulted
      in
      production volume growth, production efficiency improvements and cost
      reductions. The experience, stability and leadership of our sales organization
      have been instrumental in growing sales, developing and maintaining customer
      relationships and increasing our market share.





**Business
      Strategy**





We
      use
      specific and individualized operating measures throughout our organization
      to
      track and evaluate key metrics. This approach serves as a scorecard to ensure
      alignment with, and accountability for, the execution of our strategy, which
      includes the following components:





***Strong
      Customer Focus***





We
      target our key markets with innovative, high-performance products that provide
      enhanced value to our customers at competitive prices. A key component of our
      business strategy is to continually enhance our product portfolio with
      high-quality, market-driven product development. We design our titanium dioxide
      products to satisfy our customers’ specific requirements for their end-use
      applications and align our business to respond quickly and efficiently to
      changes in market demands. In this regard, and in order to continue meeting
      our
      customers’ needs, we commercialized a new pigment grade for paper coatings and
      developed a new grade for architectural paints in close cooperation with our
      customer base. New and enhanced grades for coatings, plastic, paper laminate
      and
      specialty applications are in the pipeline for introduction in 2006 and
      2007.








***Technological
      Innovation***





We
      employ customer and end-use market feedback, technological expertise and
      fundamental research to create next-generation products and processes. Our
      technology development efforts include building value-added properties into
      our
      titanium dioxide to enhance its performance in our customers’ end-use
      applications. Our research and development teams support our future business
      strategies, and we manage those teams using disciplined project management
      tools
      and a team approach to technological development.





***Operational
      Excellence***





We
      achieved record production in 2005 through our currently operating facilities,
      with fourth- quarter production rates higher than any previous
      quarter. This is an exceptional achievement because it occurred while our
      Kwinana plant was shut down approximately two weeks due to force majeure
      declared by a third-party process gas supplier. This newly demonstrated
      capability positions us to meet market growth over the short term
      without investing capital for capacity expansion. While we were not able to
      offset the rapid increase in energy pricing in 2005 with cost reductions, we
      continued to improve our energy consumption across plants through Six
      Sigma projects and other continuous improvement activities. We used a
      broader spectrum of TiO 2 ore
      than ever before, while improving the TiO 2 yield
      through more tightly controlled plant operations.





***Maximize
      Asset Efficiency***





We
      optimize our production plan through strategic use of our global facilities
      to
      save on both transportation and warehousing costs. Our production process is
      designed with multiple production lines. As a result, we can remedy issues
      with
      an individual line without shutting down other lines and idling an entire
      facility. We also actively manage production capability across all facilities.
      For instance, if one plant’s finishing lines are already at full capacity, that
      plant’s unfinished titanium dioxide can be transferred to another plant for
      finishing.





***Supply
      Chain Optimization***





We
      improve our supply chain efficiency by focusing on reducing both operating
      costs
      and working capital needs. Our supply chain efforts to lower operating costs
      consist of reducing procurement spending, lowering transportation and warehouse
      costs and optimizing production scheduling. We actively manage our working
      capital by increasing inventory turnover and reducing finished goods and raw
      materials inventory without affecting our ability to deliver titanium dioxide
      to
      our customers.





***Organizational
      Alignment***





Aligning
      the efforts of our employees with our business strategies is critical to our
      success. To achieve that alignment, we evaluate the performance of our employees
      using a balanced scorecard approach. We also invest in training initiatives
      that
      are directly linked to our business strategies. For instance, approximately
      120
      of our employees have completed the well-regarded supply chain management
      training program at Michigan State University’s Broad Executive School of
      Management. We also train our employees in Six Sigma methodology to support
      our
      operational excellence and asset efficiency strategic objectives.






**INDUSTRY
      BACKGROUND**





We
      are
      one of the leading global producers and marketers of titanium dioxide pigments.
      We also produce a variety of electrolytic and other specialty chemical
      products.








**Titanium
      Dioxide**





Titanium
      dioxide, or TiO 2 ,
      is a
      white pigment used in a wide range of products for its exceptional ability
      to
      impart whiteness, brightness and opacity. TiO 2 is a
      critical component of everyday applications, such as coatings, plastics and
      paper, as well as many specialty products such as inks, foods and cosmetics.
      Titanium dioxide is widely considered to be superior to alternative white
      pigments in large part due to its hiding power, which is the ability to cover
      or
      mask other materials effectively and efficiently. For example, titanium
      dioxide’s hiding power helps prevent show-through on printed paper materials
      (making the materials easier to read) and a high concentration of titanium
      dioxide within paints reduces the number of coats needed to cover a surface
      effectively. Titanium dioxide is designed, marketed and sold based on specific
      end-use applications.





The
      global titanium dioxide market is characterized by a small number of large
      global producers. In addition to our company, there are four other major
      producers: E.I. du Pont de Nemours and Company, Millennium
      Chemicals Inc., Huntsman Corporation and Kronos Worldwide, Inc. These
      five major producers accounted for approximately 70% of the global market in
      2005, according to reports by these producers.





Based
      on reported industry sales by the leading titanium dioxide producers, we
      estimate that global sales of titanium dioxide in 2005 exceeded 4.3 million
      tonnes, generating approximately $9 billion in industry-wide revenues.
      Because titanium dioxide is a “quality of life” product, its consumption growth
      is closely tied to a given region’s economic health and correlates over time to
      the growth in its average gross domestic product. According to industry
      estimates, titanium dioxide consumption has been growing at a compounded annual
      growth rate of approximately 2.8% over the past decade.




Although
      there are other white pigments on the market, we believe that titanium dioxide
      has no effective substitute because no other white pigment has the physical
      properties for achieving comparable opacity and brightness or can be
      incorporated in as cost-effective a manner. In an effort to optimize titanium
      dioxide’s cost-to-performance ratio in certain applications, some customers also
      use pigment “extenders,” such as synthetic pigments, kaolin clays and calcium
      carbonate. We estimate that the impact on our total sales from the use of such
      extenders is minimal.





***Titanium
      Dioxide Outlook***





The
      global end-use market demand for titanium dioxide is cyclical, which closely
      affects its pricing. The period from late 2000 through 2003, for example, was
      a
      period of unusually weak business conditions attributable to various factors,
      including the global economic recession, exceptionally rainy weather conditions
      in Europe and the Americas that limited the painting season, and the outbreak
      of
      SARS in Asia. These factors reduced demand for titanium dioxide, which resulted
      in global over supply. The resulting decline in titanium dioxide prices during
      this period led several major titanium dioxide producers to reduce production
      and working capital levels and to engage in other capacity rationalization
      measures.





A
      general improvement in global economic conditions in late 2004 drove increased
      demand for titanium dioxide. Increased demand, coupled with reduced supply,
      led
      to price increases in the last half of 2004 and throughout 2005. We believe
      that
      current industry dynamics show a sustainable improving trend. With no major
      plant construction projects commenced, and considering that it typically takes
      two to four years to bring on significant new capacity, we expect the current
      high capacity utilization rates to continue in the near term. We believe limited
      expected capacity additions over the next several years, when combined with
      improving demand, will result in increasing margins.





***Manufacturing
      Titanium Dioxide***





*Production
      Process.* Titanium dioxide pigment is produced using a combination of processes involving
      the manufacture of base pigment particles followed by surface treatment, drying
      and milling (collectively known as finishing). There are two commercial
      production processes in use: the chloride process and the sulfate process.
      The
      chloride process is a newer technology and has several advantages over the
      sulfate process: it generates less waste, uses less energy, is less labor
      intensive and permits the direct recycle of a major process chemical, chlorine,
      back into the production process. In addition, as described below under
“ *Types
      of Titanium Dioxide* ,”
      titanium dioxide produced using the chloride process is preferred for many
      of
      the largest end-use applications. As a result, the chloride process currently
      accounts for substantially all of the titanium dioxide production capacity
      in
      North America and approximately 60% of worldwide capacity. Since the late 1980s,
      the vast majority of titanium dioxide production capacity that has been built
      uses the chloride process.








In
      the
      chloride process, feedstock ores (titanium slag, synthetic rutile, natural
      rutile or ilmenite ores) are reacted with chlorine (the chlorination step)
      and
      carbon to form titanium tetrachloride (“TiCl 4 ”)
      in a
      continuous fluid bed reactor. Purification of TiCl 4 to
      remove other chlorinated products is accomplished using a distillation process.
      The purified TiCl 4 is
      then oxidized in a vapor phase form to produce base pigment particles and
      chlorine gas. The latter is recycled back to the chlorination step for reuse.
      Base pigment is then typically slurried with water and dispersants prior to
      entering the finishing step.





In
      the
      sulfate process, batch digestion of ilmenite ore or titanium slag is carried
      out
      with concentrated sulfuric acid to form soluble titanyl sulfate. After treatment
      to remove soluble and insoluble impurities and concentration of the titanyl
      sulfate, hydrolysis of the liquor forms an insoluble hydrous titanium oxide.
      This precipitate is filtered, bleached, washed and calcined to produce a base
      pigment that is then forwarded to the finishing step.













The
      schematic diagram below illustrates the basic steps of the chloride and sulfate
      processes and a representation of a finishing process common to
      both.








**Titanium
      Dioxide Manufacturing Processes**











*Only
      required for ilmenite feedstock










*Types
      of Titanium Dioxide.* Commercial production of titanium dioxide results in one of two different
      crystal forms, either rutile or anatase. Rutile titanium dioxide is preferred
      over anatase titanium dioxide for many of the largest end-use applications,
      such
      as coatings and plastics, because its higher refractive index imparts better
      hiding power at lower quantities than the anatase crystal form. Although rutile
      titanium dioxide can be produced using either the chloride process or the
      sulfate process, customers often prefer rutile produced using the chloride
      process because it typically has a bluer undertone and greater
      durability.





Anatase
      titanium dioxide can only be produced using the sulfate process and has
      applications in paper, rubber, fibers, ceramics, foods and cosmetics. It is
      not
      recommended for outdoor applications because it is less durable than rutile
      titanium dioxide.





**Electrolytic
      and Other Chemical Products**





***Battery
      Materials***





The
      battery industry uses electrolytic manganese dioxide (“EMD”) as the active
      cathode material for primary (non-rechargeable) batteries and lithium manganese
      oxide and lithium vanadium oxide in rechargeable lithium batteries. Battery
      applications account for nearly all of the consumption of these
      chemicals.





The
      primary battery market is composed of alkaline and zinc carbon battery
      technologies to address the various power delivery requirements of a multitude
      of consumer battery-powered devices. Approximately 85% of market demand in
      the
      United States is for alkaline batteries, which are higher performing and more
      costly than batteries using the older zinc carbon technology. Tronox is a key
      supplier of EMD for the alkaline battery market.





EMD
      quality requirements for alkaline technology are much more demanding than for
      zinc carbon technology and, as a result, alkaline-grade EMD commands a higher
      price than zinc carbon-grade EMD. The older zinc carbon technology remains
      dominant in developing countries such as China and India. As the economies
      of
      China and India continue to mature, and the need for more efficient energy
      sources develops, we anticipate that the demand for alkaline-grade EMD will
      increase.





The
      market application for rechargeable lithium batteries is consumer electronics,
      in particular cell phones, computers, camcorders and, most recently, power
      tools. A combination of improved power delivery performance and lighter weight
      has allowed rechargeable lithium technology to displace older lead acid and
      nickel cadmium technologies.





***Sodium
      Chlorate***





The
      pulp and paper industry accounts for more than 95% of the market demand for
      sodium chlorate, which uses it to bleach pulp. Although there are other methods
      for bleaching pulp, the chlorine dioxide process is preferred for environmental
      reasons. Approximately 60% of North American sodium chlorate production capacity
      is located in Canada due to the availability of lower cost hydroelectric power,
      which reduces manufacturing costs and ultimately, product prices. However,
      we
      believe that the proximity of domestic sodium chlorate producers to the major
      domestic pulp and paper producers helps offset the lower-cost power advantage
      enjoyed by Canadian sodium chlorate producers, through lower transportation
      costs.





***Boron***





Tronox
      produces two types of boron specialty chemicals: boron trichloride and elemental
      boron. Boron trichloride is a specialty chemical that is used in many products,
      including pharmaceuticals, semiconductors, high-performance fibers, specialty
      ceramics and epoxies. Elemental boron is a specialty chemical that is used
      in
      igniter formulations for the defense, pyrotechnic and automotive air bag
      industries.





**End-Use
      Markets and Applications**





***Titanium
      Dioxide***





The
      major end-use markets for titanium dioxide products, which we sell in the
      Americas, Europe and the Asia-Pacific region, are coatings, plastics and paper
      and specialty products. The charts below summarize our approximate 2005 net
      sales by geography and our approximate 2005 sales volume by end-use
      market:








**2005
                Net Sales by Geography**
            
            **2005
                Sales Volume by End-Use Market**







*Coatings
      End-Use Market.* The
      coatings end-use market represents the largest end-use market for titanium
      dioxide products and accounts for approximately 60% of overall industry demand,
      based on reported industry sales volumes, and 67% of our 2005 sales volume.
      Customers in the coatings end-use market demand exceptionally high quality
      standards for titanium dioxide, especially with regard to opacity, durability,
      tinting strength and brightness. We recognize four sub-markets within the
      coatings end-use market based on application, each of which requires different
      titanium dioxide formulations. The table below summarizes the sub-markets within
      coatings, as well as their applications and primary growth factors:





**Sub-Market**
            
            **Applications**
            
            **Growth
                Factors**Architectural
            
            Residential
                and commercial paints
            
            New
                and existing housing market and interest ratesIndustrial
            
            Appliances,
                coil coatings, furniture and maintenance
            
            Durable
                goods spending and environmental regulationsAutomotive
            
            Original
                equipment manufacture, refinish and electro-coating
            
            Interest
                rates and environmental regulationsSpecialty
            
            Marine
                and can coatings, packaging and traffic paint
            
            Fixed
                capital spending and government
                regulations




*Plastics
        End-Use Market.* The
        plastics end-use market accounts for approximately 20% of overall industry
        demand for titanium dioxide, based on reported industry sales volumes, and
        22%
        of our 2005 sales volume. Plastics producers focus on titanium dioxide’s
        opacity, durability, color stability and thermal stability. We recognize
        four
        sub-markets within the plastics market based on application, each of which
        requires different titanium dioxide formulations. The table below summarizes
        the
        sub-markets within plastics, as well as their applications and primary growth
        factors:


**Sub-Market**
            
            **Applications**
            
            **Growth
                Factors**Polyolefins
            
            Food
                packaging, plastic films and agricultural films
            
            Consumer
                non-durable goods spendingPVC
            
            Vinyl
                windows, siding, fencing, vinyl leather, roofing and shoes
            
            Construction
                and renovation markets and consumer non-durable goods
                spendingEngineering
                plastics
            
            Computer
                housing, cell phone cases, washing machines and refrigerators
            
            Consumer
                durable goods spending and electronics marketOther
                plastics
            
            Roofing
                and flooring
            
            Construction
                market and durable goods spending





*Paper
      and Specialty End-Use Market.* The
      paper and specialty end-use market accounts for approximately 20% of overall
      industry demand for titanium dioxide, based on reported industry sales volumes,
      and 11% of our 2005 sales volume. We recognize four sub-markets within paper
      and
      specialty end-use market based on application, each of which requires different
      titanium dioxide formulations. The table below summarizes the sub-markets within
      paper and specialty, as well as their applications and primary growth
      factors:





**Sub-Market**
            
            **Applications**
            
            **Growth
                Factors**Paper
                and paper laminate
            
            Filled
                paper, coated paper for print media, coated board for beverage container
                packaging, wallboard, flooring, cabinets and furniture
            
            Consumer
                non-durable goods spending and construction and renovation
                marketsInks
                and rubber
            
            Packaging,
                beverage cans, container printing and rubber flooring
            
            Consumer
                non-durable goods spendingFood
                and pharmaceuticals
            
            Creams,
                sauces, capsules, sun screen, face and body care products
            
            Consumer
                non-durable goods spendingCatalysts
                and electroceramics
            
            Anti-pollution
                equipment (catalysts) for automobiles and power-generators and production
                of capacitors and resistors
            
            Environmental
                regulations and electronics





***Electrolytic
      and Other Chemical Products***





Our
      other product lines include chemicals for battery materials, sodium chlorate
      for
      pulp bleaching and boron-based specialty chemicals. The sub-markets for those
      products, together with their applications and growth factors, are as
      follows:





**Product**
            
            **Sub-Market**
            
            **Applications**
            
            **Growth
                Factors**Battery
                materials
            
            Non-rechargeable
                battery materials
            
            Alkaline
                and zinc carbon battery markets
            
            Consumer
                non-durable goods spendingBattery
                materials
            
            Rechargeable
                battery materials
            
            Rechargeable
                lithium batteries
            
            Consumer
                non-durable goods spendingSodium
                Chlorate
            
            Pulp
                and paper industry
            
            Pulp
                bleaching
            
            Consumer
                non-durable goods spendingBoron
            
            Specialty
                chemical
            
            Pharmaceuticals,
                semiconductors, high-performance fibers, specialty ceramics and
                epoxies
            
            Consumer
                non-durable goods spendingBoron
            
            Defense,
                pyrotechnic and air bag industries
            
            Igniter
                formulations
            
            Consumer
                non-durable goods spending








**Sales
      and Marketing**





We
      supply titanium dioxide to a diverse customer base that includes market leaders
      in each of the major end-use markets for titanium dioxide. In 2005, our ten
      largest customers represented approximately 35% of our total sales volume and
      no
      single customer accounted for more than 10% of our total sales volume. In 2005,
      approximately 42% of our global production volume was covered by multi-year
      supply contracts.





In
      addition to price and product quality, we compete on the basis of technical
      support and customer service. Our direct sales and technical service
      organizations carry out our sales strategy and work together to provide quality
      customer service. Our direct sales staff is trained in all of our products
      and
      applications. Because of the technical requirements of titanium dioxide
      applications, our technical service organization and direct sales offices are
      supported by a regional customer service staff located in each of our major
      geographic markets.





Our
      sales and marketing strategy focuses on effective customer management through
      the development of strong relationships throughout our company with our
      customers. We develop customer relationships and manage customer contact through
      our sales team, technical service organization, research and development team,
      customer service team, plant operations personnel, supply chain specialists
      and
      senior management. We believe that multiple points of customer contact
      facilitate efficient problem-solving, supply chain support, formula optimization
      and product co-development. By developing close relationships with our customers
      and providing well-designed products and services, we are a value-added business
      partner.





**Competitive
      Conditions**





***Titanium
      Dioxide***





The
      global market in which our titanium dioxide business operates is highly
      competitive. Worldwide, we believe that we are one of only five companies
      (including E.I. du Pont de Nemours and Company, Millennium
      Chemicals Inc., Huntsman Corporation and Kronos Worldwide, Inc.) that
      use proprietary chloride process technology for production of titanium dioxide
      pigment. We estimate that, based on gross sales volumes, these companies
      accounted for approximately 70% of the global market share in 2005. We believe
      that cost efficiency and product quality, as well as technical and customer
      service, are key competitive factors for titanium dioxide
      producers.





Titanium
      dioxide produced using chloride process technology is preferred for many of
      the
      largest titanium dioxide end-use applications; however, titanium dioxide
      produced using sulfate process technology is preferred for certain specialty
      applications. The following charts summarize the estimated market share and
      production process mix for the five leading titanium dioxide pigment producers
      for fiscal year 2005:





**2005
                  Global Market Share**
              
              **2005
                  Production Process Mix**








As
      of
      December 31, 2005, including the total production capacity of our Tiwest
      Joint Venture (see “ *Manufacturing,
      Operations and Properties - The Tiwest Joint Venture* ”),
      we
      had global production capacity of 624,000 tonnes per year and an approximate
      13%
      global market share. In addition to the major competitors discussed above,
      we
      compete with numerous smaller, regional producers, as well as producers in
      China
      that have expanded their sulfate production capacity during the previous five
      years.





***Electrolytic
      and Other Chemical Products***





*Electrolytic
      Manganese Dioxide.* The
      U.S. market accounts for approximately one-third of global demand for EMD,
      and
      is based on alkaline grade EMD. Tronox is a key supplier to this market and
      has
      an estimated 8% share of total global capacity. Other significant producers
      and
      their estimated global capacity shares include Erachem (7%) in the United
      States, as well as international producers Delta (17%), Tosoh (15%), Xiangtan
      (11%) and Mitsui (7%). The remainder of global capacity is represented by
      various Chinese producers.





*Sodium
      Chlorate.* We
      have an estimated 7% share of North American sodium chlorate capacity. Our
      significant competitors and their estimated share of North American capacity
      are
      ERCO (27%), Eka Chemicals (27%), Canexus (19%) and Kemira-Finnish Chemicals
      (11%).





*Other
      Specialties.* For
      boron products, we believe that we have the majority of the installed global
      capacity for boron trichloride. Other boron production capacity is located
      in
      Ireland, Japan and Russia.





**Manufacturing,
      Operations and Properties**





***Titanium
      Dioxide***





We
      produce titanium dioxide using either the chloride process or the sulfate
      process at five production facilities located in four countries. We believe
      our
      facilities are well situated to serve our global customer base.





Two
      of
      our facilities are located in the United States, and we have one facility in
      each of Australia, Germany and the Netherlands. We own our facilities in Germany
      and the Netherlands, and the land under these facilities is held pursuant to
      long-term leases. We own our domestic facilities and hold a 50% undivided
      interest in our Australian facility. We market and sell all of the titanium
      dioxide produced by our Australian facility and share in the profits equally
      with our joint venture partner. See “ *The
      Tiwest Joint Venture* .”





The
      following table summarizes our production capacity as of December 31, 2005,
      by location and process:





**Titanium
      Dioxide Production Capacity**


**As
      of December 31, 2005**


**(Gross
      tonnes per year)**





**Facility**
            
            **Capacity**
            
            **Process**Hamilton,
                Mississippi
            
            
            225,000
            
            
            ChlorideSavannah,
                Georgia
            
            
            110,000
            
            
            ChlorideKwinana,
                Western Australia
            
            
            110,000
            (1)
            
            ChlorideBotlek,
                Netherlands
            
            
            72,000
            
            
            ChlorideUerdingen,
                Germany
            
            
            107,000
            
            
            SulfateTotal
            
            
            624,000







(1)
            Reflects
                100% of the production capacity of the pigment plant, which is owned
                50%
                by us and 50% by our joint venture
                partner.








Including
      the titanium dioxide produced by our Australian facility, we produced
      588,990 tonnes of titanium dioxide in 2005. Including production volumes
      from our Savannah sulfate facility that was closed in September 2004, we
      produced 602,024 tonnes in 2004, compared to 578,913 tonnes in 2003. Our
      average production rates, as a percentage of capacity, were 94%, 91% and 87%,
      in
      2005, 2004 and 2003, respectively. Over the past five years, production at
      our
      current facilities increased by approximately 24%, primarily due to
      debottlenecking and low cost incremental investments. Our global manufacturing
      presence, coupled with our ability to increase capacity incrementally, makes
      us
      a stable supplier to many of the largest titanium dioxide
      consumers.





***The
      Tiwest Joint Venture***





Our
      subsidiary, Tronox Western Australia Pty. Ltd., has a 50% undivided
      interest in all of the assets that comprise the operations conducted in
      Australia under the Tiwest joint venture arrangement and is severally liable
      for
      50% of associated liabilities. The remaining 50% undivided interest is held
      by a
      subsidiary of our joint venture partner, Ticor Pty Ltd, which is a subsidiary
      of
      Kumba Resources Limited. The joint venture partners operate a chloride process
      titanium dioxide plant located in Kwinana, Western Australia, as well as a
      mining venture in Cooljarloo, Western Australia, and a synthetic rutile
      processing facility in Chandala, Western Australia. Under separate marketing
      agreements, we have the right to market our partner’s share of the titanium
      dioxide produced by the Kwinana facility. For more information regarding our
      facility in Kwinana, see “ *Titanium
      Dioxide* ”
      above. For more information regarding the mining venture, see “ *Heavy
      Minerals* ”
      below.





*Management.* The
      operations associated with the Tiwest joint venture arrangement are governed
      by
      two committees: a management committee and an operating committee. The operating
      committee meets at least monthly and supervises the joint venture’s routine
      operations, and the management committee meets at least quarterly and has the
      authority to make fundamental corporate decisions and to overrule the operating
      committee’s decisions. The committees’ decisions are made by simple majority
      approval. If there is an equal number of votes cast for and against a matter
      at
      an operating committee meeting, the matter is referred to a subsequent meeting.
      If at the subsequent meeting, the matter still receives an equal number of
      votes
      cast on each side, the matter is referred to the management committee. Tronox
      Western Australia and Ticor each have the right to appoint half of each
      committee’s members.





*Heavy
      Minerals.* The
      joint venture partners mine heavy minerals from 21,036 acres under a long-term
      mineral lease from the State of Western Australia, for which each joint venture
      partner holds a 50% undivided interest. Our 50% undivided interest in the
      properties’ remaining in-place proven and probable reserves is 5.1 million
      tonnes of heavy minerals contained in 197 million tonnes of sand averaging
      2.6% heavy minerals. The valuable heavy minerals are composed on average of
      61.0% ilmenite, 10.0% zircon, 4.6% natural rutile and 3.3% leucoxene, with
      the
      remaining 21.1% of heavy minerals having no significant value.





Heavy-mineral
      concentrate from the mine is processed at a 750,000-tonne per year dry
      separation plant, for which each joint venture partner holds a 50% undivided
      interest. Some of the recovered ilmenite is upgraded at the nearby synthetic
      rutile facility in Chandala, which has a capacity of 225,000 tonnes per year.
      Synthetic rutile is a high-grade titanium dioxide feedstock. All of the
      synthetic rutile feedstock for the 110,000-tonne per year titanium dioxide
      plant
      located at Kwinana is provided by the Chandala processing facility. Production
      of feedstock in excess of the plant’s requirements is sold to third parties, as
      well as to us, for the portion not already owned, as part of the feedstock
      requirement for titanium dioxide at our other facilities.





Information
      regarding our 50% interest in heavy-mineral reserves, production and average
      prices for the three years ended December 31, 2005, is presented in the
      following table. Mineral reserves in this table represent the estimated
      quantities of proven and probable ore that, under anticipated conditions, may
      be
      profitably recovered and processed for the extraction of their mineral content.
      Future production of these resources depends on many factors, including market
      conditions and government regulations. See “ *Risk
      Factors - Fluctuations in costs of our raw materials or our access to supplies
      of our raw materials could have an adverse effect on our results of
      operations* .”








**Heavy-Mineral
      Reserves, Production and Prices**


**(Reserves
      and production in tonnes)**





**2005**
            
            **2004**
            
            **2003**Proven
                and probable reserves (as of year end)
            
            
            5,145,000
            
            
            5,570,000
            
            
            5,970,000Production
            
            
            300,000
            
            
            302,000
            
            
            294,000Average
                market price (per tonne)
            
            $
            182
            
            $
            161
            
            $
            152








***Electrolytic
      and Other Chemical Products***





We
      produce electrolytic and other chemical products at three domestic facilities,
      each of which we own. The following table summarizes our production capacity
      as
      of December 31, 2005, by location and product.





**Electrolytic
      and Other Chemical Capacity**


**As
      of December 31, 2005**


**(Gross
      tonnes per year)**





**Facility**
            
            **Capacity**
            
            **Product**Hamilton,
                Mississippi
            
            
            130,000
            
            
            Sodium
                chlorateHenderson,
                Nevada
            
            
            27,000
            
            
            EMDHenderson,
                Nevada
            
            
            525
            
            
            Boron
                productsSoda
                Springs, Idaho
            
            
            300
            
            
            Lithium
                manganese oxide
              and lithium vanadium oxide





**Raw
      Materials**





***Titanium
      Dioxide***





The
      primary raw materials that we use to produce titanium dioxide are various types
      of titanium-bearing ores, including ilmenite, natural rutile, synthetic rutile,
      titanium-bearing slag and leucoxene. We generally purchase ores under multi-year
      agreements from a variety of suppliers in Australia, Canada, India, Norway,
      South Africa, Ukraine and the United States. We purchase approximately 47%
      of
      the titanium-bearing ores we require from two suppliers under long-term supply
      contracts that expire in 2008 through 2010. Approximately 85% of the synthetic
      and natural rutile used by our facilities is obtained from the operations under
      the Tiwest joint venture arrangement. See “ *Manufacturing,
      Operations and Properties - The Tiwest Joint Venture* .”
We
      do not anticipate difficulties obtaining long-term extensions to our existing
      supply contracts prior to their expiration. Other significant raw materials
      include chlorine and petroleum coke for the chloride process, which we obtain
      from many suppliers worldwide, and sulfuric acid for the sulfate process, which
      we produce ourselves.





***Electrolytic
      and Other Chemical Products***





The
      primary raw material that we use to produce sodium chlorate is sodium chloride,
      and for battery materials, manganese ore. We purchase these materials under
      multi-year agreements and spot contracts.





**Research
      and Development**





Research
      and development is an integral component of our business strategy. Enhancing
      our
      product portfolio with high-quality, market-focused product development is
      key
      in driving our business from the customer perspective.





We
      have
      approximately 70 scientists, chemists, engineers and skilled technicians to
      provide the technology (products and processes) for our business. Our product
      development personnel have a high level of expertise in the plastics industry
      and polymer additives, the coatings industry and formulations, surface
      chemistry, material science, analytical chemistry and particle physics. Among
      the process technology development group’s highly developed skills are
      computational fluid dynamics, process modeling, particle growth physics,
      extractive metallurgy, corrosion engineering and thermodynamics. The majority
      of
      scientists supporting our research and development efforts are located in
      Oklahoma City, Oklahoma. Our expenditures for research and development were
      approximately $8.4 million in 2005, $6.3 million in 2004 and
      $8.0 million in 2003.








New
      process developments are focused on increased through-put, control of particle
      physical properties and general processing equipment-related issues. Ongoing
      development of process technology contributes to cost reduction, enhanced
      production flexibility, increased capacity and improved consistency of product
      quality.





In
      2005, we commercialized a new pigment grade for paper coatings and developed
      a
      new grade for architectural paints in close cooperation with our customers.
      New
      and enhanced grades for coatings, plastic, paper laminate and specialty
      applications are in the pipeline for introduction in 2006 and 2007.





**Patents
      and Other Intellectual Property**





Patents
      held for our products and production processes are important to our long-term
      success. We seek patent protection for our technology where competitive
      advantage may be obtained by patenting, and file for broad geographic protection
      given the global nature of our business. Our proprietary titanium dioxide
      technology is the subject of numerous patents worldwide, the substantial
      majority of which relate to our chloride products and production
      technology.





We
      also
      rely upon and have taken steps to secure our unpatented proprietary technology,
      know-how and other trade secrets. Our proprietary chloride production technology
      is an important part of our overall technology position. We are committed to
      pursuing technological innovations in order to maintain our competitive
      position.





**Employees**





We
      have
      approximately 2,110 employees, with approximately 1,210 in the United States,
      860 in Europe, 30 in Australia and 10 in other international locations.
      Approximately 15% of our employees in the United States are represented by
      collective bargaining agreements, and approximately 99% of our employees in
      Europe are represented by works’ councils. We consider relations with our
      employees to be good.





**Government
      Regulations and Environmental Matters**





***General***





We
      are
      subject to extensive regulation by federal, state, local and foreign
      governments. Governmental authorities regulate the generation and treatment
      of
      waste and air emissions at our operations and facilities. At many of our
      operations, we also comply with worldwide, voluntary standards such as ISO
      9002
      for quality management and ISO 14001 for environmental management. ISOs are
      standards developed by the International Organization for Standardization,
      a
      nongovernmental organization that promotes the development of standards and
      serves as an external oversight for quality and environmental
      issues.





***Environmental
      Matters***




A
      variety of laws and regulations relating to environmental protection affect
      almost all of our operations. Under these laws, we are or may be required to
      obtain or maintain permits or licenses in connection with our operations. In
      addition, these laws require us to remove or mitigate the effects on the
      environment of the disposal or release of chemical, petroleum, low-level
      radioactive and other substances at various sites. Operation of
      pollution-control equipment usually entails additional expense. Some
      expenditures to reduce the occurrence of releases into the environment may
      result in increased efficiency; however, most of these expenditures produce
      no
      significant increase in production capacity, efficiency or revenue.









The
      table below presents environmental related expenditures incurred by the company
      for the year ended December 31, 2005, and projections of expenditures for the
      next two years. While it is difficult to estimate the total direct and indirect
      costs of government environmental regulations, the table below includes our
      current estimate of expenditures for the next two years.




******Year
                ending December 31,****Estimated**
            
            **Estimated****2005**
            
            **2006**
            
            **2007****(Millions
                of dollars)**Cash
                expenditures of environmental reserves
            
            $
            61
            
            $
            78
            
            $
            47Recurring
                operating expenses
            
            
            41
            
            
            45
            
            
            43Capital
                expenditures
            
            
            11
            
            
            18
            
            
            22




Recurring
      operating expenses are expenditures related to the maintenance and operation
      of
      environmental equipment such as incinerators, waste treatment systems and
      pollution control equipment, as well as the cost of materials, energy and
      outside services needed to neutralize, process, handle and dispose of current
      waste streams at our operating facilities. These expenditures are necessary
      to
      ensure that current production is handled in an environmentally safe and
      effective manner.






We
      are
      party to a number of legal and administrative proceedings involving
      environmental matters or other matters pending in various courts or agencies.
      These include proceedings associated with businesses and facilities currently
      or
      previously owned, operated or used by our affiliates or their predecessors,
      and
      include claims for personal injuries, property damages, breach of contract,
      injury to the environment, including natural resource damages, and
      non-compliance with permits. Our current and former operations also involve
      management of regulated materials and are subject to various environmental
      laws
      and regulations. These laws and regulations obligate us to clean up various
      sites at which petroleum and other hydrocarbons, chemicals, low-level
      radioactive substances or other materials have been contained, disposed of
      and/or released. Some of these sites have been designated Superfund sites by
      the
      U.S. Environmental Protection Agency (“EPA”) pursuant to the Comprehensive
      Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”) and
      are listed on the National Priority List.






We
      provide for costs related to environmental contingencies when a loss is probable
      and the amount is reasonably estimable. It is not possible for us to reliably
      estimate the amount and timing of all future expenditures related to
      environmental matters because, among other reasons:




·
            Some
                sites are in the early stages of investigation, and other sites may
                be
                identified in the future.


·
            Remediation
                activities vary significantly in duration, scope and cost from site
                to
                site depending on the mix of unique site characteristics, applicable
                technologies and regulatory agencies involved.


·
            Remediation
                requirements are difficult to predict at sites where investigations
                have
                not been completed or final decisions have not been made regarding
                remediation requirements, technologies or other factors that bear
                on
                remediation costs.


·
            Environmental
                laws frequently impose joint and several liability on all potentially
                responsible parties, and it can be difficult to determine the number
                and
                financial condition of other potentially responsible parties and
                their
                respective shares of responsibility for remediation
                costs.


·
            Environmental
                laws and regulations, as well as enforcement policies, are continually
                changing, and the outcome of court proceedings and discussions with
                regulatory agencies are inherently
                uncertain.


·
            Unanticipated
                construction problems and weather conditions can hinder the completion
                of
                environmental remediation.


·
            Some
                legal matters are in the early stages of investigation or proceeding
                or
                their outcomes otherwise may be difficult to predict, and other legal
                matters may be identified in the
                future.









·
            The
                inability to implement a planned engineering design or use planned
                technologies and excavation methods may require revisions to the
                design of
                remediation measures, which can delay remediation and increase its
                costs.


·
            The
                identification of additional areas or volumes of contamination and
                changes
                in costs of labor, equipment and technology generate corresponding
                changes
                in environmental remediation costs.




We
      believe that we have reserved adequately for the reasonably estimable costs
      of
      known contingencies. However, additions to the reserves may be required as
      additional information is obtained that enables us to better estimate our
      liabilities, including any liabilities at sites now under review. We cannot
      reliably estimate the amount of future additions to the reserves at this time.
      Additionally, there may be other sites where we have potential liability for
      environmental-related matters but for which we do not have sufficient
      information to determine that the liability is probable and/or reasonably
      estimable. We have not established reserves for such sites.




For
      additional discussion of environmental matters, see “ *Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations* ”
and
      Note 22 to the Consolidated and Combined Financial Statements included in
      Item 8 of this annual report on Form 10-K.




**Item
      1A.  Risk
      Factors**




***We
      are subject to significant liabilities that are in addition to those associated
      with our primary business. These liabilities could adversely affect our
      financial condition and results of operations and we could suffer losses as
      a
      result of these liabilities even if our primary business performs well.***




We
      currently operate our chemical business through our subsidiary, Tronox Worldwide
      LLC, and its subsidiaries. Tronox Worldwide LLC, its subsidiaries and their
      predecessors have operated a number of businesses in addition to the current
      chemical business, including businesses involving the treatment of forest
      products, the production of ammonium perchlorate, the refining and marketing
      of
      petroleum products, offshore contract drilling, coal mining and the mining,
      milling and processing of nuclear materials. As a result, we are subject to
      significant liabilities that are in addition to those associated with our
      primary business, including legal, regulatory and environmental liabilities.
      For
      example, we have liabilities relating to the remediation of various sites at
      which chemicals such as creosote, perchlorate, low-level radioactive substances,
      asbestos and other materials have been used or disposed. Our financial condition
      and results of operations could be adversely affected by these liabilities.
      We
      also could suffer losses as a result of these liabilities even if our primary
      business performs well. See Note 22 to the Consolidated and Combined
      Financial Statements included in Item 8 of this annual report on Form 10-K
      for a
      discussion of contingencies.




***The
      costs of compliance with the extensive environmental, health and safety laws
      and
      regulations to which we are subject or the inability to obtain, update or renew
      permits required for the operation of our business could reduce our
      profitability or otherwise adversely affect us.***




Our
      current and former operations involve the generation and management of regulated
      materials that are subject to various environmental laws and regulations and
      are
      dependent on the periodic renewal of permits from various governmental agencies.
      The inability to obtain, update or renew permits related to the operation of
      our
      businesses, or the costs required in order to comply with permit standards,
      could have a material adverse affect on us. For example, we currently are
      updating permits related to water and air emissions for our facility in Botlek,
      Netherlands. Although we do not anticipate any significant difficulties in
      obtaining such permits or that any material expenditures will be required,
      the
      failure to update such permits could have a material adverse effect on our
      ability to produce our products and on our results of operations.









In
      addition, changes in the laws and regulations to which we are subject, or their
      interpretation, or the enactment of new laws and regulations, could result
      in
      materially increased and unanticipated capital expenditures and compliance
      costs. For example, the proposed REACH (Registration, Evaluation and
      Authorization of Chemicals) regulatory scheme in the European Union, if
      implemented as currently proposed, could adversely affect our European
      operations by imposing on us a testing, evaluation and registration program
      for
      some of the chemicals that we use or produce. At the present time, we are not
      able to predict the ultimate cost of compliance with these requirements or
      their
      effect on our business.




Environmental
      laws and regulations obligate us to remediate various sites at which chemicals
      such as creosote, perchlorate, low-level radioactive substances, asbestos and
      other materials have been disposed of or released. Some of these sites have
      been
      designated Superfund sites by EPA under the CERCLA. See Note 22 to the
      Consolidated and Combined Financial Statements included in Item 8 of this annual
      report on Form 10-K for a discussion of these matters. The discovery of
      contamination arising from historical industrial operations at some of our
      properties has exposed us, and in the future may continue to expose us, to
      significant remediation obligations and other damages.




***The
      actual costs of environmental remediation and restoration could exceed
      estimates.***




As
      of
      December 31, 2005, we had reserves in the amount of $223.7 million for
      environmental remediation and restoration. We reserve for costs related to
      environmental remediation and restoration only when a loss is probable and
      the
      amount is reasonably estimable. In estimating our environmental liabilities,
      including the cost of investigation and remediation at a particular site, we
      consider a variety of matters, including, but not limited to, the stage of
      the
      investigation at the site, the stage of remedial design for the site, the
      availability of existing remediation technologies, presently-enacted laws and
      regulations and the state of any related legal or administrative investigation
      or proceedings. For example, at certain sites we are in the preliminary stages
      of our environmental investigation and therefore have reserved for such sites
      amounts equal only to the cost of our environmental investigation. The findings
      of these site investigations could result in an increase in our reserves for
      environmental remediation. While we believe we have established appropriate
      reserves for environmental remediation based on the information we currently
      know, additions to the reserves may be required as we obtain additional
      information that enables us to better estimate our liabilities.




Our
      estimates of environmental liabilities at a particular site could increase
      significantly as a result of, among other things, changes in laws and
      regulations, revisions to the site’s remedial design, unanticipated construction
      problems, identification of additional areas or volumes of contamination,
      increases in labor, equipment and technology costs, changes in the financial
      condition of other potentially responsible parties and the outcome of any
      related legal and administrative proceedings to which we are or may become
      a
      party. For example, in 2004, remediation efforts required by the Nuclear
      Regulatory Commission (“NRC”) at our site in Cushing, Oklahoma, identified
      additional soil and groundwater impacts that would require assessment and
      possible remediation. As a result, in that year we increased our reserves for
      environmental remediation with respect to the Cushing site by $10.3 million,
      which was part of a total increase in our 2004 environmental reserves of $81.4
      million. See “ *Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Environmental Matters - Environmental Costs* ”
and
      Note 22 to the Consolidated and Combined Financial Statements included in Item
      8
      of this annual report on Form 10-K.




In
      addition to the sites for which we have established reserves, there may be
      other
      sites where we have potential liability for environmental matters but for which
      we do not have sufficient information to determine that a liability is probable
      and reasonably estimable. As we obtain additional information about those sites,
      we may determine that reserves for such sites should be established. New
      environmental claims also may arise as a result of changes in environmental
      laws
      and regulations or for other reasons. If new claims arise and losses associated
      with those claims become probable and reasonably estimable, we will need to
      increase our reserves to reflect those new claims.




As
      a
      result of the factors described above, it is not possible for us to reliably
      estimate the amount and timing of all future expenditures related to
      environmental or other contingent matters, and our actual costs related to
      such
      matters could exceed our current reserves at December 31, 2005. See
“ *Business
      and Properties - Government Regulations and Environmental
      Matters* ”
and
      “ *Legal
      Proceedings* .”









***Hazards
      associated with chemical manufacturing could adversely affect our results of
      operations.***






Due
      to
      the nature of our business, we are exposed to the hazards associated with
      chemical manufacturing and the related storage and transportation of raw
      materials, products and wastes. These hazards could lead to an interruption
      or
      suspension of operations and have an adverse effect on the productivity and
      profitability of a particular manufacturing facility or on us as a whole.
      Potential hazards include the following:




·
            Piping
                and storage tank leaks and ruptures


·
            Mechanical
                failure


·
            Employee
                exposure to hazardous substances


·
            Chemical
                spills and other discharges or releases of toxic or hazardous substances
                or gases




There
      is also a risk that one or more of our key raw materials or one or more of
      our
      products may be found to have currently unrecognized toxicological or
      health-related impact on the environment or on our customers or employees.
      Such
      hazards may cause personal injury and loss of life, damage to property and
      contamination of the environment, which could lead to government fines or work
      stoppage injunctions and lawsuits by injured persons. If such actions are
      determined adversely to us, we may have inadequate insurance to cover such
      claims, or we may have insufficient cash flow to pay for such claims. Such
      outcomes could adversely affect our financial condition and results of
      operations.




***Violations
      or noncompliance with the extensive environmental, health and safety laws and
      regulations to which we are subject could result in unanticipated loss or
      liability.***




Our
      operations and production facilities are subject to extensive environmental
      and
      health and safety laws and regulations at national, international and local
      levels in numerous jurisdictions relating to pollution, protection of the
      environment, transporting and storing raw materials and finished products and
      storing and disposing of hazardous wastes. We may incur substantial costs,
      including fines, damages, criminal or civil sanctions and remediation costs,
      or
      experience interruptions in our operations, for violations arising under these
      laws and regulations. In the event of a catastrophic incident involving any
      of
      the raw materials we use or chemicals we produce, we could incur material costs
      as a result of addressing the consequences of such event.




We
      are
      party to a number of legal and administrative proceedings involving
      environmental and other matters pending in various courts and before various
      agencies. These include proceedings associated with facilities currently or
      previously owned, operated or used by us or our predecessors, and include claims
      for personal injuries, property damages, injury to the environment, including
      natural resource damages, and non-compliance with permits. Any determination
      that one or more of our key raw materials or products, or the materials or
      products associated with facilities previously owned, operated or used by us
      or
      our predecessors, has, or is characterized as having, a toxicological or
      health-related impact on our environment, customers or employees could subject
      us to additional legal claims. These proceedings and any such additional claims
      may be costly and may require a substantial amount of management attention,
      which may have an adverse affect on our financial condition and results of
      operations. See “ *Business
      and Properties - Government Regulations and Environmental
      Matters* ”
and
      “ *Legal
      Proceedings.* ”




***The
      amount of our debt could adversely affect our financial condition, limit our
      ability to pursue business opportunities, reduce our operating flexibility
      or
      put us at a competitive disadvantage.***




As
      of
      December 31, 2005, we had $548.0 million of long-term debt and
      $489.0 million of stockholders’ equity. Our debt could have important
      consequences for us. For instance, it could:




·
            Require
                us to use a substantial portion of our cash flow from operations
                for debt
                service and reduce the availability of our cash flow to fund working
                capital, capital expenditures, acquisitions and other general corporate
                activities


·
            Limit
                our ability to obtain financing for working capital, capital expenditures,
                acquisitions or other general corporate activities in the future









·
            Expose
                us to greater interest rate risk because the interest rates on our
                senior
                secured credit facility will vary


·
            Impair
                our ability to successfully withstand a downturn in our business
                or the
                economy in general and place us at a disadvantage relative to our
                less-leveraged competitors




The
      MSA, the senior secured credit facility and the indenture governing the
      unsecured notes limit, but do not prohibit, us from incurring additional debt,
      and we may incur additional debt in the future. If we incur additional debt,
      our
      ability to satisfy our debt obligations may become more limited.




***The
      terms of our senior secured credit facility and our indenture governing the
      unsecured notes contain a number of restrictive and financial covenants that
      could limit our ability to pay dividends or to operate effectively in the
      future. If we are unable to comply with these covenants, our lenders could
      accelerate the repayment of our indebtedness.***




The
      terms of our senior secured credit facility and our indenture governing the
      unsecured notes subject us to a number of covenants that impose significant
      operating restrictions on us, including on our ability to incur indebtedness
      and
      liens, make loans and investments, make capital expenditures, sell assets,
      engage in mergers, consolidations and acquisitions, enter into transactions
      with
      affiliates, enter into sale and leaseback transactions, make optional payments
      or modifications of the unsecured notes or other material debt, change our
      lines
      of business and pay dividends on our common stock. We are also required by
      the
      terms of the senior secured credit facility to comply with financial covenant
      ratios. These restrictions could limit our ability to plan for or react to
      market conditions or meet capital needs.




A
      breach of any of the covenants imposed on us by the terms of our indebtedness,
      including the financial covenants in the senior secured credit facility, could
      result in a default under such indebtedness. In the event of a default, the
      lenders under the revolving credit facility could terminate their commitments
      to
      us, and they and the lenders of our other indebtedness could accelerate the
      repayment of all of our indebtedness. In such case, we may not have sufficient
      funds to pay the total amount of accelerated obligations, and our lenders under
      the senior secured credit facility could proceed against the collateral securing
      the facility. Any acceleration in the repayment of our indebtedness or related
      foreclosure could adversely affect our business.




***Market
      conditions and cyclical factors that adversely affect the demand for the end-use
      products that contain our titanium dioxide could adversely affect our
      results.***




Historically,
      regional and world events that negatively affect discretionary spending or
      economic conditions generally, such as terrorist attacks, the incidence or
      spread of contagious diseases (such as SARS), or other economic, political,
      or
      public health or safety conditions, have adversely affected demand for the
      finished products that contain titanium dioxide and from which we derive
      substantially all of our revenue. Events such as these are likely to contribute
      to a general reluctance by the public to purchase “quality of life” products,
      which could cause a decrease in demand for our chemicals and, as a result,
      may
      have an adverse effect on our results of operations and financial
      condition.




Additionally,
      the demand for titanium dioxide during a given year is subject to seasonal
      fluctuations. Titanium dioxide sales are generally higher in the second and
      third quarters of the year than in the other quarters due in part to the
      increase in paint production in the spring to meet demand resulting from the
      spring and summer painting season in North America and Europe. We may be
      adversely affected by existing or future cyclical changes, and such conditions
      may be sustained or further aggravated by anticipated or unanticipated changes
      in regional weather conditions. For example, poor weather conditions in a region
      can lead to an abbreviated painting season, which can depress consumer sales
      of
      paint products that use titanium dioxide pigment.




***Our
      business, financial condition and results of operations could be adversely
      affected by global and regional economic downturns and other
      conditions.***









We
      have
      significant production, sales and marketing operations throughout the United
      States, Europe and the Asia-Pacific region, with more than 1,100 customers
      in
      over 100 countries. We also purchase many of the raw materials used in the
      production of our products in foreign jurisdictions. In 2005, approximately
      45%
      of our total revenues were generated from production outside of the United
      States. Due to these factors, our performance, particularly the performance
      of
      our pigment segment, is cyclical and tied closely to general economic
      conditions, including global gross domestic product. As a result, our business,
      financial condition and results of operations are vulnerable to political and
      economic conditions affecting global gross domestic product and the countries
      in
      which we operate. For example, from 2000 through 2003, our business was affected
      when the titanium dioxide industry experienced a period of unusually weak
      business conditions as a result of a variety of factors, including the global
      economic recession, exceptionally rainy weather conditions in Europe and the
      Americas, and the outbreak of SARS in Asia. Based on these factors, global
      and
      regional economic downturns and other conditions may have an adverse effect
      on
      our financial condition and results of operations.




***Our
      results of operations may be adversely affected by fluctuations in currency
      exchange rates.***




The
      financial condition and results of operations of our operating entities in
      the
      European Union, among other jurisdictions, are reported in various foreign
      currencies and then translated into U.S. dollars at the applicable exchange
      rate
      for inclusion in the financial statements. As a result, any appreciation of
      the
      U.S. dollar against these foreign currencies will have a negative impact on
      our
      reported sales and operating margin (and conversely, the depreciation of the
      dollar against these foreign currencies will have a positive impact). In
      addition, our operating entities often need to convert currencies they receive
      for our products into currencies in which they purchase raw materials or pay
      for
      services, which could result in a gain or loss depending on fluctuations in
      exchange rates. Because we have significant operations in Europe and Australia,
      we are exposed primarily to fluctuations in the euro and the Australian
      dollar.




In
      the
      past, we have sought to minimize our foreign currency translation risk by
      engaging in hedging transactions. We may be unable to effectively manage our
      foreign currency translation risk, and any volatility in foreign currency
      exchange rates may have an adverse effect on our financial condition or results
      of operations. For a further discussion of how we manage our foreign currency
      risk, see “ *Quantitative
      and Qualitative Disclosure about Market Risk - Foreign Currency Exchange Rate
      Risk.* ” **




***Our
      industry and the end-use markets in which we compete are highly competitive.
      This competition may adversely affect our results of operations and operating
      cash flows.***




Each
      of
      the markets in which we compete is highly competitive. Competition is based
      on a
      number of factors such as price, product quality and service. We face
      significant competition from major international producers, such as E.I.
      du Pont de Nemours and Company, Millennium Chemicals Inc.,
      Huntsman Corporation and Kronos Worldwide, Inc., as well as smaller
      regional competitors. Our most significant competitors include major chemicals
      and materials manufacturers and diversified companies, a number of which have
      substantially larger financial resources, staffs and facilities than we do.
      The
      additional resources and larger staffs and facilities of such competitors may
      give them a competitive advantage when responding to market conditions and
      capitalizing on operating efficiencies. Increased competition could result
      in
      reduced sales, which could adversely affect our profitability and operating
      cash
      flows. See “ *Business
      and Properties - Competitive Conditions* .”




In
      addition, within the end-use markets in which we compete, competition between
      products is intense. We face substantial risk that certain events, such as
      new
      product development by our competitors, changing customer needs, production
      advances for competing products or price changes in raw materials, could cause
      our customers to switch to our competitor’s products. If we are unable to
      develop and produce or market our products to compete effectively against our
      competitors, our results of operations and operating cash flows may
      suffer.




***Fluctuations
      in costs of our raw materials or our access to supplies of our raw materials
      could have an adverse effect on our results of
      operations.***




In
      2005, raw materials used in the production of titanium dioxide constituted
      approximately 30% of our cost of products sold. Titanium-bearing ores, in
      particular, represented more than 18% of our cost of products sold in 2005.









Costs
      of many of the raw materials we use may fluctuate widely for a variety of
      reasons, including changes in availability, major capacity additions or
      reductions or significant facility operating problems. These fluctuations could
      negatively affect our operating margins and our profitability. As these costs
      rise, our operating expenses likely will increase and could adversely affect
      our
      business, especially if we are unable to pass price increases in raw materials
      through to our customers.




Should
      our vendors not be able to meet their contractual obligations or should we
      be
      otherwise unable to obtain necessary raw materials, we may incur higher costs
      for raw materials or may be required to reduce production levels, which may
      have
      an adverse effect on our financial position, results of operations or liquidity.
      For a further discussion, see “ *Business
      and Properties - Raw Materials* .”




***The
      labor and employment laws in many jurisdictions in which we operate are more
      restrictive than in the United States. Our relationship with our employees
      could
      deteriorate, which could adversely affect our
      operations.***




In
      the
      United States, approximately 200 employees at our Savannah, Georgia, facility
      are members of a union and are subject to a collective bargaining arrangement
      that is scheduled to expire in April 2006. Approximately 40% of our
      employees are employed outside the United States. In certain of those countries,
      such as Australia and the member states of the European Union, labor and
      employment laws are more restrictive than in the United States and, in many
      cases, grant significant job protection to employees, including rights on
      termination of employment. For example, in Germany and the Netherlands, by
      law
      some of our employees are represented by a works’ council, which subjects us to
      employment arrangements very similar to collective bargaining
      agreements.




We
      are
      required to consult with and seek the consent or advice of the unions or works’
councils that represent our employees for certain of our activities. This
      requirement could have a significant impact on our flexibility in managing
      costs
      and responding to market changes. Furthermore, there can be no assurance that
      we
      will be able to negotiate labor agreements with our unionized employees in
      the
      future on satisfactory terms. If those employees were to engage in a strike,
      work stoppage or other slowdown, or if any of our other employees were to become
      unionized, we could experience a significant disruption of our operations or
      higher ongoing labor costs, which could adversely affect our financial condition
      and results of operations.




***Third
      parties may claim that our products or processes infringe their intellectual
      property rights, which may cause us to pay unexpected litigation costs or
      damages or prevent us from making, using, or selling our
      products.***




Although
      currently there are no pending or threatened proceedings or claims relating
      to
      alleged infringement, misappropriation, or violation of the intellectual
      property rights of others, we may be subject to legal proceedings and claims
      in
      the future in which third parties allege that their patents or other
      intellectual property rights are infringed, misappropriated or otherwise
      violated by us or by our products or processes. In the event that any such
      infringement, misappropriation, or violation of the intellectual property rights
      of others is found, we may need to obtain licenses from those parties or
      substantially re-engineer our products or processes in order to avoid such
      infringement, misappropriation, or violation. We might not be able to obtain
      the
      necessary licenses on acceptable terms or be able to re-engineer our products
      or
      processes successfully. Moreover, if we are found by a court of law to infringe,
      misappropriate, or otherwise violate the intellectual property rights of others,
      we could be required to pay substantial damages or be enjoined from making,
      using, or selling the infringing products or technology. We also could be
      enjoined from making, using, or selling the allegedly infringing products or
      technology pending the final outcome of the suit. Any of the foregoing could
      adversely affect our financial condition and results of operations.




***If
      we are not able to continue our technological innovation and successful
      commercial introduction of new products, our profitability could be adversely
      affected.***









Our
      industries and the end-use markets into which we sell our products experience
      periodic technological change and product improvement. Our future growth will
      depend on our ability to gauge the direction of commercial and technological
      progress in key end-use markets and on our ability to fund and successfully
      develop, manufacture and market products in such changing end-use markets.
      We
      must continue to identify, develop and market innovative products or enhance
      existing products on a timely basis in order to maintain our profit margins
      and
      our competitive position. We may not be able to develop new products or
      technology, either alone or with third parties, or license intellectual property
      rights from third parties on a commercially competitive basis. If we fail to
      keep pace with the evolving technological innovations in our end-use markets
      on
      a competitive basis, our financial condition and results of operations could
      be
      adversely affected.




***If
      our intellectual property were compromised or copied by competitors, or if
      competitors were to develop similar intellectual property independently, our
      results of operations could be negatively affected.***




Our
      success depends to a significant degree upon our ability to protect and preserve
      our intellectual property rights. Although we own and have applied for numerous
      patents and trademarks throughout the world, we may have to rely on judicial
      enforcement of our patents and other proprietary rights. Our patents and other
      intellectual property rights may be challenged, invalidated, circumvented,
      rendered unenforceable or otherwise compromised. A failure to protect, defend
      or
      enforce our intellectual property could have an adverse effect on our financial
      condition and results of operations.




We
      also
      rely upon unpatented proprietary technology, know-how and other trade secrets
      to
      maintain our competitive position. While it is our policy to enter into
      confidentiality agreements with our employees and third parties to protect
      our
      proprietary expertise and other trade secrets, these agreements may not be
      enforceable or, even if legally enforceable, we may not have adequate remedies
      for breaches of such agreements. The failure of our patents or confidentiality
      agreements to protect our proprietary technology, know-how or trade secrets
      could result in significantly lower revenues, reduced profit margins or loss
      of
      market share.




We
      may
      be unable to determine when third parties are using our intellectual property
      rights without our authorization. We also have licensed certain of our
      intellectual property rights to third parties, and we cannot be certain that
      our
      licensees are using our intellectual property only as authorized by the
      applicable license agreement. The undetected or unremedied, unauthorized use
      of
      our intellectual property rights or the legitimate development or acquisition
      of
      intellectual property related to our industry by third parties could reduce
      or
      eliminate any competitive advantage we have as a result of our intellectual
      property, adversely affecting our financial condition and results of operations.
      If we must take legal action to protect, defend or enforce our intellectual
      property rights, any suits or proceedings could result in significant costs
      and
      diversion of our resources and our management’s attention, and we may not
      prevail in any such suits or proceedings. A failure to protect, defend or
      enforce our intellectual property rights could have an adverse effect on our
      financial condition and results of operations.




***We
      may need additional capital in the future and may not be able to obtain it
      on
      favorable terms, if at all.***




Our
      industry is highly capital intensive and our success depends to a significant
      degree on our ability to develop and market innovative products and to update
      our facilities and process technology. We may require additional capital in
      the
      future to finance our future growth and development, implement further marketing
      and sales activities, fund our ongoing research and development activities
      and
      meet our general working capital needs. Our capital requirements will depend
      on
      many factors, including acceptance of and demand for our products, the extent
      to
      which we invest in new technology and research and development projects, and
      the
      status and timing of competitive developments. Additional financing may not
      be
      available when needed on terms favorable to us or at all. Further, the terms
      of
      the senior secured credit facility and the indenture governing the unsecured
      notes, as well as our MSA with Kerr-McGee, may limit our ability to incur
      additional indebtedness or issue additional shares of our common stock. If
      we
      are unable to obtain adequate funds on acceptable terms, we may be unable to
      develop or enhance our products, take advantage of future opportunities or
      respond to competitive pressures, which could harm our business.









***As
      long as Kerr-McGee owns shares of our common stock representing a majority
      of
      the voting power of our common stock, it will control us and the influence
      of
      our other stockholders over significant corporate actions will be
      limited.***




At
      December 31, 2005, Kerr-McGee owned all of our Class B common stock, which
      represented a majority of the combined voting power of all outstanding classes
      of our common stock. Kerr-McGee’s Board of Directors declared a dividend on
      March 8, 2006, of Tronox’s Class B common stock to its stockholders, which is
      expected to be completed on March 30, 2006. However,
      until the Distribution occurs, Kerr-McGee will continue to control us. As a
      result, Kerr-McGee is entitled to nominate a majority of our board of directors
      and has the ability to control the vote in any election of directors. Kerr-McGee
      also has control over our decisions to enter into significant corporate
      transactions and, in its capacity as our majority stockholder, has the ability
      to prevent any transaction that it does not believe to be in Kerr-McGee’s best
      interest. As a result, Kerr-McGee is able to control, directly or indirectly
      and
      subject to applicable law, all matters affecting us, including the
      following:




·
            Any
                determination with respect to our business direction and policies,
                including the appointment and removal of
                officers


·
            Any
                determinations with respect to mergers, business combinations or
                dispositions of assets


·
            Our
                capital structure


·
            Compensation
                and other human resources policy
                decisions


·
            Changes
                to other agreements that may adversely affect us


·
            The
                payment of dividends on our common
                stock





***The
      interim services provided to us by Kerr-McGee may not be sufficient to meet
      our
      needs, and we may not be able to replace these services after our agreements
      with Kerr-McGee expire.***





Historically,
      Kerr-McGee performed various corporate functions on our behalf, including the
      following:





·
            Accounting
                services


·
            Tax
                services


·
            Employee
                benefits management


·
            Financial
                services


·
            Legal
                services


·
            Risk
                and claims management


·
            Information
                management and technology services


·
            Real
                estate management


·
            Travel
                services


·
            Office
                administration services





Following
      the IPO, Kerr-McGee has had no obligation to provide any services on our behalf
      other than as provided in our transition services agreement with Kerr-McGee.
      We
      are in the process of creating our own, or engaging third parties to provide,
      systems and business functions to replace many of the systems and business
      functions Kerr-McGee historically provided us. However, we may not be successful
      in implementing these systems and business functions or in transitioning data
      from Kerr-McGee’s systems to ours. If we do not have in place our own systems
      and business functions or if we do not have agreements with other providers
      of
      these services when our transition services agreement with Kerr-McGee expires,
      we may not be able to effectively operate our business and our profitability
      may
      be adversely affected.





***We
      will qualify for, and intend to rely on, exemptions from the New York Stock
      Exchange (“NYSE”) corporate governance requirements.***








At
      December 31, 2005, Kerr-McGee owned all of our Class B common stock, which
      represented a majority of the combined voting power of all outstanding classes
      of our common stock. Kerr-McGee’s Board of Directors declared a dividend on
      March 8, 2006, of Tronox’s Class B common stock to its stockholders, which is
      expected to be completed on March 30, 2006. Until the Distribution occurs,
      Kerr-McGee will continue to control a majority of the voting power of our
      outstanding common stock. As a result and until that time, we are a ‘‘controlled
      company’’ within the meaning of the NYSE corporate governance standards. Under
      the NYSE rules, a ‘‘controlled company’’ may elect not to comply with the
      following corporate governance requirements:





·
            A
                majority of independent directors on the board of
                directors


·
            A
                nominating and corporate governance committee composed entirely of
                independent directors


·
            A
                compensation committee composed entirely of independent
                directors


·
            An
                annual performance evaluation of the nominating and corporate governance
                and compensation committees





Until
      such time that we cease to be a “controlled company,” we intend to utilize these
      exemptions. As a result, we do not have a majority of independent directors
      and
      our nominating and corporate governance and compensation committees do not
      consist entirely of independent directors. Additionally, we are relying on
      a
      transition provision for the New York Stock Exchange standards relating to
      the
      independence of audit committees. That transition provision allows issuers,
      such
      as us, that have a registration statement under the Securities Act covering
      an
      IPO of securities to (1) exempt all but one of our audit committee members
      from
      the independence requirements for 90 days from the effective date of our
      registration statement, and (2) exempt a minority of the members of our audit
      committee from the independence requirement for one year from the effective
      date
      of our registration statement.





***Our
      executive officers and directors may have conflicts of interest because of
      their
      ownership of common stock of, and other ties to,
      Kerr-McGee.***





Two
      of
      our directors (Robert M. Wohleber and J. Michael Rauh) are officers of
      Kerr-McGee. These directors will have fiduciary duties to both companies and
      may
      have conflicts of interest on matters affecting both us and Kerr-McGee, which,
      in some circumstances, may have interests adverse to our interests. Mr. Wohleber
      and Mr. Rauh each have notified us of their intention to resign from our board
      effective upon, and subject to, the completion of the Distribution. In addition,
      all of our executive officers and the majority of our directors own common
      stock
      of Kerr-McGee or options to purchase common stock of Kerr-McGee. Ownership
      of
      such common stock or options could create, or appear to create, potential
      conflicts of interest when directors and officers are faced with decisions
      that
      could have different implications for Kerr-McGee and us.





**Item
      1B.**  **Unresolved
      Staff Comments**





The
      company has no outstanding or unresolved Securities and Exchange Commission
      (“SEC”) staff comments.





**Availability
      of Reports and Governance Documents**





Tronox
      makes available at no cost on its Internet website, www.tronox.com, its Annual
      Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
      8-K
      and any amendments to those reports as soon as reasonably practicable after
      the
      company electronically files or furnishes such reports to the SEC. Interested
      parties should refer to the Investor Relations link on the company’s website. In
      addition, the company’s Code of Business Conduct and Ethics, Code of Ethics for
      The Chief Executive Officer and Principal Financial Officers and Corporate
      Governance Guidelines, all of which were adopted by the company’s Board of
      Directors, can be found on the company’s website under the Corporate Governance
      link. The company will provide these governance documents in print to any
      stockholder who requests them. Any amendment to, or waiver of, any provision
      of
      the Code of Ethics for the Chief Executive Officer and Principal Financial
      Officers and any waiver of the Code of Business Conduct and Ethics for directors
      or executive officers will be disclosed on the company’s website under the
      Corporate Governance link.





We
      confirm, as required by NYSE Rule 303A.12, that we are filing the certifications
      required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to this
      annual report on Form 10-K.








**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





**Forward-Looking
      Statements**





Statements
      in this
      annual report regarding the company’s or management’s intentions, beliefs or
      expectations, or that otherwise speak to future events, are “forward-looking
      statements” within the meaning of the U.S. Private Securities Litigation Reform
      Act of 1995. These forward-looking statements include those statements preceded
      by, followed by or that otherwise include the words “believes,” “will,”
“expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,”
“budget,” “goal,” “plans,” “objective,” “outlook,” “should,” or similar words.
      Future results and developments discussed in these statements may be affected
      by
      numerous factors and risks, such as the accuracy of the assumptions that
      underlie the statements, the market value of Tronox’s products, demand for
      consumer products for which Tronox’s businesses supply raw materials, the
      financial resources of competitors, changes in laws and regulations, the ability
      to respond to challenges in international markets, including changes in currency
      exchange rates, political or economic conditions in areas where Tronox operates,
      trade and regulatory matters, general economic conditions, and other factors
      and
      risks identified in the company’s U.S. SEC filings. Actual results and
      developments may differ materially from those expressed or implied in this
      annual report. The company does not undertake to update forward-looking
      statements to reflect the impact of circumstances or events that arise after
      the
      date the forward-looking statement was made. Investors are urged to consider
      closely the disclosures and risk factors in this annual report on Form
      10-K.





**Item
      3.  Legal
      Proceedings**





***Savannah
      Plant Emissions***





On
      September 8, 2003, the Environmental Protection Division of the Georgia
      Department of Natural Resources issued a unilateral Administrative Order to
      our
      subsidiary, Tronox Pigments (Savannah) Inc., claiming that the Savannah
      plant exceeded emission allowances provided for in the facility’s Title V
      air permit. On September 19, 2005, the Environmental Protection Division
      rescinded the Administrative Order and filed a Withdrawal of Petition for
      Hearing on Civil Penalties. Accordingly, the proceeding on administrative
      penalties has been dismissed, without prejudice. However, the Environmental
      Protection Division’s most recent actions do not resolve the alleged violations,
      and representatives of Tronox Pigments (Savannah) Inc., the Environmental
      Protection Division and EPA
      are
      engaged in discussions to resolve the existing air permit disputes and potential
      civil penalties. We believe that any penalties related to this matter are not
      likely to have a material adverse effect on us.





***Flint
      Hills Contract***





On
      October 11, 2004, Kerr-McGee and one of our subsidiaries, Southwestern
      Refining Corporation, were named defendants in a lawsuit filed by Flint Hills
      Resources, LP. In the lawsuit, which was removed to the U.S. District Court
      in
      the Southern District of Texas, Corpus Christi division, Flint Hills alleged
      that Kerr-McGee and Southwestern Refining Corporation breached certain
      environmental representations and warranties contained in the agreement pursuant
      to which Southwestern Refining Corporation sold its refinery in Corpus Christi,
      Texas, to a predecessor of Flint Hills. Flint Hills claimed damages of
      approximately $7.0 million. An agreement to settle the litigation was
      executed on January 11, 2006, pursuant to which Southwestern Refining
      Corporation paid Flint Hills $1.4 million and the claim was dismissed, with
      prejudice .





***New
      Jersey Wood-Treatment Site***





Tronox
      LLC was named in 1999 as a potentially responsible party (“PRP”) under CERCLA at
      a former wood-treatment site in New Jersey at which EPA is conducting a cleanup.
      On April 15, 2005, Tronox LLC and Tronox Worldwide LLC received a letter
      from EPA asserting they are liable under CERCLA as a former owner or operator
      of
      the site and demanding reimbursement of costs expended by EPA at the site.
      The
      letter made demand for payment of past costs in the amount of approximately
      $179 million, plus interest though EPA has informed Tronox LLC that it
      expects final project costs will be approximately $236 million, plus possible
      other costs and interest. Tronox LLC did not operate the site, which had been
      sold to a third party before Tronox LLC succeeded to the interests of a
      predecessor owner in the 1960s. The predecessor also did not operate the site,
      which had been closed down before it was acquired by the predecessor. Based
      on
      historical records, there are substantial uncertainties about whether or under
      what terms the predecessor assumed liabilities for the site. In addition,
      although it appears there may be other PRPs, the company does not know whether
      the other PRPs have received similar letters from EPA, whether there are any
      defenses to liability available to the other PRPs or whether the other PRPs
      have
      the financial resources necessary to meet their obligations. The company intends
      to vigorously defend against EPA’s demand, though the company expects to have
      discussions with EPA that could lead to a settlement or resolution of EPA
      demand. No reserve for reimbursement of cleanup costs at the site has been
      recorded because it is not possible to reliably estimate the liability, if
      any,
      the company may have for the site because of the aforementioned defenses and
      uncertainties.








***Forest
      Products***




Between
      December 31, 2002, and May 2, 2005, approximately 250 lawsuits (filed
      on behalf of approximately 5,100 claimants) were filed against Tronox LLC in
      connection with the former wood-treatment plant in Columbus, Mississippi.
      Substantially all of these lawsuits are pending in the U.S. District Court
      for
      the Northern District of Mississippi and have been consolidated for pretrial
      and
      discovery purposes. In addition, a suit filed by the Maranatha Faith Center
      against Tronox LLC and Tronox Worldwide LLC on February 18, 2000, relates to
      the
      former wood-treatment plant in Columbus and is pending in the Circuit Court
      of
      Lowndes County, Mississippi. Between December 31, 2002, and June 25,
      2004, three lawsuits (filed on behalf of approximately 3,300 claimants) were
      filed against Tronox LLC in connection with a former wood-treatment plant
      located in Hattiesburg, Mississippi. These lawsuits were removed to the U.S.
      District Court for the Southern District of Mississippi. Between
      September 9, 2004, and December 28, 2005, four lawsuits (filed on behalf of
      69 claimants) were filed against Tronox LLC in connection with a former
      wood-treatment plant located in Texarkana, Texas. Two of the Texarkana lawsuits
      that were filed in Oklahoma (on behalf of 30 claimants) have been dismissed
      on
      jurisdictional grounds. Between January 3, 2005, and July 26, 2005, 35
      lawsuits (filed on behalf of approximately 4,600 claimants) were filed against
      Tronox LLC and Tronox Worldwide LLC in connection with the former wood-treatment
      plant in Avoca, Pennsylvania. All of these lawsuits seek recovery under a
      variety of common law and statutory legal theories for personal injuries and/or
      property damages allegedly caused by exposure to and/or release of creosote,
      a
      chemical used in the wood-treatment process.




In
      2003, Tronox LLC entered into a settlement agreement that resolved approximately
      1,490 of the Hattiesburg claims, which resulted in aggregate payments by Tronox
      LLC of approximately $0.6 million. In December 2005, Tronox LLC entered
      into settlement agreements to resolve up to 1,335 of the remaining Hattiesburg
      claims and up to 879 of the Columbus claims. The December 2005 settlement
      agreements require Tronox LLC to pay up to $2.5 million, of which $1.8 million
      was paid in December 2005. In addition, all of the remaining Hattiesburg claims
      have been dismissed without prejudice on the bases of failure to pay filing
      fees
      and failure to disclose information in compliance with court orders. The company
      currently believes that the unresolved claims relating to the Columbus,
      Hattiesburg, Texarkana and Avoca plants are without substantial merit and is
      vigorously defending against them.




For
      a
      discussion of other legal proceedings and contingencies, including proceedings
      related to our environmental liabilities, see Note 22 to the Consolidated
      and Combined Financial Statements included in Item 8 of this annual report
      on
      Form 10-K.





**Item
      4.  Submission of Matters
      to a Vote of Security Holders**





There
      were no matters submitted to a vote of security holders during the fourth
      quarter of 2005 subsequent to the IPO.





**PART
      II**





**Item
      5.  Market for
      Registrant’s Common Equity and Related Stockholder Matters**





On
      November 22, 2005, the company’s Class A common stock began trading on the New
      York Stock Exchange. As of March 15, 2006, we had 1,017 holders of record of
      our
      Class A common stock and estimated that approximately 1,050 additional
      stockholders held our Class A common stock in street name on that
      date. The
      company’s Class B common stock is not currently trading and was held by one
      stockholder (Kerr-McGee) as of March 15, 2006.







On
      December 19, 2005, Tronox declared a quarterly dividend of five cents per share
      for Class A and Class B common stock for the quarter ending March 31, 2006.
      There were no quarterly dividends prior to that time.





The
      high and low market prices of Tronox Class A common stock for the period from
      November 22, 2005, through December 31, 2005, were $14.50 and $11.75,
      respectively. As the company began trading on November 22, 2005, market prices
      were not applicable items in 2004 or the first three quarters of
      2005.





Information
      required under Item 201(d) of Regulation S-K relating to the company’s
      securities authorized for issuance under equity compensation plans is included
      in Item 12 of this annual report on Form 10-K.





***Use
      of Proceeds***





On
      November 28, 2005, we completed the initial public offering of our Class A
      common stock that was effected through a Registration Statement on Form S-1
      (Reg. No. 333-125574) declared effective by the SEC on November 21, 2005. The
      net proceeds resulting from the offering of approximately $224.7 million were
      distributed to Kerr-McGee.








**Item
                6.**
            **Selected
                Financial Data**





The
      following table sets forth selected financial data as of the dates and for
      the
      periods indicated in such table. The selected statement of operations data
      for
      the years ended December 31, 2005, 2004, 2003 and 2002, and the balance sheet
      data as of December 31, 2005, 2004 and 2003, have been derived from our audited
      consolidated and combined financial statements. The selected statement of
      operations data for the year ended December 31, 2001, and the balance sheet
      data
      as of December 31, 2002 and 2001, have been derived from our accounting records
      and are unaudited.




**Year
                Ended
                December 31,****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001********(Millions
                of dollars, except per share)****Consolidated
                and Combined Statement of Operations Data:**Net
                sales
            
            $
            1,364.0
            
            $
            1,301.8
            
            $
            1,157.7
            
            $
            1,064.3
            
            $
            1,022.6Cost
                of goods sold
            
            
            1,143.8
            
            
            1,168.9
            
            
            1,024.7
            
            
            949.0
            
            
            972.5Gross
                margin
            
            
            220.2
            
            
            132.9
            
            
            133.0
            
            
            115.3
            
            
            50.1Selling,
                general and administrative expenses
            
            
            115.2
            
            
            110.1
            
            
            98.9
            
            
            84.0
            
            
            92.2Restructuring
                charges (1)
            
            
            —
            
            
            113.0
            
            
            61.4
            
            
            11.8
            
            
            —Provision
                for environmental remediation and restoration, net of
                reimbursements
            
            
            17.1
            
            
            4.6
            
            
            14.9
            
            
            14.3
            
            
            7.787.9
            
            
            (94.8
            )
            
            (42.2
            )
            
            5.2
            
            
            (49.8
            )Interest
                and debt expense
            
            
            (4.5
            )
            
            (0.1
            )
            
            (0.1
            )
            
            (0.1
            )
            
            (0.1
            )Other
                income (expense) (2)
            
            
            (15.2
            )
            
            (25.2
            )
            
            (20.5
            )
            
            (13.1
            )
            
            (39.9
            )Income
                (loss) from continuing operations before income taxes
            
            
            68.2
            
            
            (120.1
            )
            
            (62.8
            )
            
            (8.0
            )
            
            (89.8
            )Income
                tax benefit (provision)
            
            
            (21.8
            )
            
            38.3
            
            
            15.1
            
            
            (8.3
            )
            
            30.7Income
                (loss) from continuing operations before cumulative effect of change
                in
                accounting principle
            
            
            46.4
            
            
            (81.8
            )
            
            (47.7
            )
            
            (16.3
            )
            
            (59.1
            )Loss
                from discontinued operations, net of income tax benefit
            
            
            (27.6
            )
            
            (45.8
            )
            
            (35.8
            )
            
            (81.0
            )
            
            (49.0
            )Income
                (loss) before cumulative effect of change in accounting
                principle
            
            
            18.8
            
            
            (127.6
            )
            
            (83.5
            )
            
            (97.3
            )
            
            (108.1
            )Cumulative
                effect of change in accounting principle, net of income tax
            
            
            —
            
            
            —
            
            
            (9.2
            )
            
            —
            
            
            0.7Net
                income (loss)
            
            $
            18.8
            
            $
            (127.6
            )
            $
            (92.7
            )
            $
            (97.3
            )
            $
            (107.4
            )Income
                (loss) from continuing operations per
              common
                share, basic and diluted
            
            $
            1.89
            
            $
            (3.57
            )
            $
            (2.08
            )
            $
            (0.71
            )
            $
            (2.58
            )Dividends
                declared per common share
            
            
            0.05
            
            
            —
            
            
            —
            
            
            —
            
            
            —












**Year
                Ended December 31,**2005
            
            
            2004
            
            
            2003
            
            
            2002
            
            
            2001**(Millions
                of dollars)****Consolidated
                and Combined Balance Sheet Data:**Working
                capital (3)
            
            $
            404.4
            
            $
            240.2
            
            $
            304.5
            
            $
            243.6
            
            $
            264.5Property,
                plant and equipment, net
            
            
            839.7
            
            
            883.0
            
            
            961.6
            
            
            944.9
            
            
            948.9Total
                assets (4)
            
            
            1,758.3
            
            
            1,595.9
            
            
            1,809.1
            
            
            1,733.6
            
            
            1,628.1Noncurrent
                liabilities:Long-term
                debt (5)
            
            
            548.0
            
            
            —
            
            
            —
            
            
            —
            
            
            —Environmental
                remediation and/or restoration
            
            
            145.9
            
            
            130.8
            
            
            135.9
            
            
            131.4
            
            
            40.0All
                other noncurrent liabilities(4)
            
            
            200.4
            
            
            215.9
            
            
            312.2
            
            
            192.4
            
            
            209.6Total
                liabilities (5)
            
            
            1,269.3
            
            
            706.0
            
            
            797.9
            
            
            671.2
            
            
            556.7Total
                business/stockholders’ equity (5)
            
            
            489.0
            
            
            889.9
            
            
            1,011.2
            
            
            1,062.4
            
            
            1,071.4**Supplemental
                Information:**Depreciation and
                amortization expense
            
            
            103.1
            
            
            104.6
            
            
            106.5
            
            
            105.7
            
            
            119.9Capital
                expenditures
            
            
            87.6
            
            
            92.5
            
            
            99.4
            
            
            86.7
            
            
            153.3Adjusted
                EBITDA (6)
            
            
            232.0
            
            
            162.2
            
            
            160.3
            
            
            134.5
            
            
            N/A





(1)
            Restructuring
                charges in 2004 include costs associated with the shutdown of our
                titanium
                dioxide pigment sulfate production at our Savannah, Georgia, facility.
                Restructuring charges in 2003 include costs associated with the shutdown
                of our synthetic rutile plant in Mobile, Alabama, and charges in
                connection with a work force reduction program consisting of both
                voluntary retirements and involuntary terminations. Restructuring
                charges
                in 2002 represent a write-down of fixed assets for abandoned engineering
                projects.





(2)
            Includes
                interest expense allocated to us by Kerr-McGee based on specifically
                identified borrowings from Kerr-McGee at Kerr-McGee’s average borrowing
                rates. Also includes net foreign currency transaction gain (loss),
                equity
                in net earnings of equity method investees, loss on accounts receivable
                sales and other expenses. See Note 21 to the Consolidated and
                Combined Financial Statements included in Item 8 of this annual report
                on
                Form 10-K.





(3)
            Working
                capital is defined as the excess of current assets over current
                liabilities.  (4)
            Total
                assets andall
                other noncurrent liabilities do not include the effects of certain
                employee benefit obligations and associated plan assets that will
                be
                assumed upon completion of the Distribution. See*“Management’s
                Discussion and Analysis of Financial Condition and Results of Operations
                -
                Critical Accounting Policies.”*  (5)
            In
                the fourth
                quarter of 2005, we completed a recapitalization of the company,
                whereby
                common stock held by Kerr-McGee converted into approximately 22.9
                million shares of Class B common stock.  Also in the fourth quarter
                of 2005, we completed an IPO, whereby approximately 17.5 million
                shares
                of Class A common stock were issued.  All of the net proceeds
                from the IPO were distributed to Kerr-McGee.  Concurrent with the
                IPO, we issued $350.0 million of senior unsecured notes and borrowed
                $200.0 million under senior secured credit
                facility.




(6)
            EBITDA
                represents net income (loss) before net interest expense, income
                tax
                benefit (provision), and depreciation and amortization expense. Adjusted
                EBITDA represents EBITDA as further adjusted to reflect the items
                set
                forth in the table below, all of which are required in determining
                our
                compliance with financial covenants under our senior secured credit
                facility. See “*Management’s
                Discussion and Analysis of Financial Condition and Results of Operations
                -**Financial
                Condition and Liquidity.*”








We
                have included EBITDA and adjusted EBITDA to provide investors with
                a
                supplemental measure of our operating performance and information
                about
                the calculation of some of the financial covenants that are contained
                in
                our senior secured credit facility. We believe EBITDA is an important
                supplemental measure of operating performance because it eliminates
                items
                that have less bearing on our operating performance and thus highlights
                trends in our core business that may not otherwise be apparent when
                relying solely on generally accepted accounting principles (“GAAP”)
                financial measures. We also believe that securities analysts, investors
                and other interested parties frequently use EBITDA in the evaluation
                of
                issuers, many of which present EBITDA when reporting their results.
                Adjusted EBITDA is a material component of the covenants imposed
                on us by
                the senior secured credit facility. Under the senior secured credit
                facility, we are subject to financial covenant ratios that are calculated
                by reference to adjusted EBITDA. Non-compliance with the financial
                covenants contained in the senior secured credit facility could result
                in
                a default, an acceleration in the repayment of amounts outstanding,
                and a
                termination of the lending commitments under the senior secured credit
                facility. Any acceleration in the repayment of amounts outstanding
                under
                the senior secured credit facility would result in a default under
                the
                indenture governing the unsecured notes. While an event of default
                under
                the senior secured credit facility or the indenture governing the
                unsecured notes is continuing, we would be precluded from, among
                other
                things, paying dividends on our common stock or borrowing under the
                revolving credit facility. For a description of required financial
                covenant levels, see “*Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations*-*Financial
                Condition and Liquidity.*”
                Our management also uses EBITDA and adjusted EBITDA in order to facilitate
                operating performance comparisons from period to period, prepare
                annual
                operating budgets and assess our ability to meet our future debt
                service,
                capital expenditure and working capital requirements and our ability
                to
                pay dividends on our common stock.





EBITDA
      and adjusted EBITDA are not presentations made in accordance with generally
      accepted accounting principles, or GAAP. As discussed above, we believe that
      the
      presentation of EBITDA and adjusted EBITDA in this annual report on Form 10-K
      is
      appropriate. However, when evaluating our results, you should not consider
      EBITDA and adjusted EBITDA in isolation of, or as a substitute for, measures
      of
      our financial performance as determined in accordance with GAAP, such as net
      income (loss). EBITDA and adjusted EBITDA have material limitations as
      performance measures because they exclude items that are necessary elements
      of
      our costs and operations. Because other companies may calculate EBITDA and
      adjusted EBITDA differently than we do, EBITDA may not be, and adjusted EBITDA
      as presented in this annual report on Form 10-K is not, comparable to similarly
      titled measures reported by other companies.








The
      following table reconciles net income (loss) to EBITDA and adjusted EBITDA
      for
      the periods presented:









**Year
                ended December 31,****2005**
            
            **2004**
            
            **2003**
            
            **2002****(Millions
                of dollars)**Net
                income (loss) (a)
            
            $
            18.8
            
            $
            (127.6
            )
            $
            (92.7
            )
            $
            (97.3
            )Interest
                and debt expense
            
            
            4.5
            
            
            0.1
            
            
            0.1
            
            
            0.1Net
                interest expense on borrowings
              with affiliates and interest income (b)
            
            
            11.9
            
            
            9.5
            
            
            8.8
            
            
            11.1Income
                tax provision (benefit)
            
            
            7.0
            
            
            (63.0
            )
            
            (39.3
            )
            
            (35.3
            )Depreciation
                and amortization expense
            
            
            103.1
            
            
            104.6
            
            
            106.5
            
            
            105.7EBITDA
            
            
            145.3
            
            
            (76.4
            )
            
            (16.6
            )
            
            (15.7
            )Savannah
                sulfate facility shutdown costs
            
            
            —
            
            
            29.0
            
            
            —
            
            
            —Loss
                from discontinued operations (c)
            
            
            42.4
            
            
            69.7
            
            
            51.9
            
            
            120.1Provision
                for environmental remediation and restoration, net of
                reimbursements
            
            
            17.1
            
            
            4.6
            
            
            14.9
            
            
            14.3Extraordinary,
                unusual or non-recurring expenses or losses (d)
            
            
            —
            
            
            (0.3
            )
            
            47.0
            
            
            —Noncash
                changes constituting:(Gain)
                loss on sales of accounts receivable (e)
            
            
            (0.1
            )
            
            8.2
            
            
            4.8
            
            
            4.7Write-downs
                of property, plant and equipment and other assets (f)
            
            
            9.3
            
            
            104.8
            
            
            29.3
            
            
            18.5Impairment
                of intangible assets
            
            
            —
            
            
            7.4
            
            
            —
            
            
            —Cumulative
                effect of change in accounting principle
            
            
            —
            
            
            —
            
            
            14.1
            
            
            —Provision
                for asset retirement obligations
            
            
            1.4
            
            
            —
            
            
            —
            
            
            —Other
                items (g)
            
            
            16.6
            
            
            15.2
            
            
            14.9
            
            
            (7.4
            )Adjusted
                EBITDA
            
            $
            232.0
            
            $
            162.2
            
            $
            160.3
            
            $
            134.5





(a)
            Net
                income (loss) includes operating losses associated with our Savannah
                sulfate facility, which was closed in September 2004, of $2.6
                million, $17.8 million, $18.6 million and $9.6 million
                for the years ended December 31, 2005, 2004, 2003 and 2002,
                respectively.





(b)
            Included
                as a component of Other income (expense) in the company’s Consolidated and
                Combined Statement of Operations. Net interest expense on borrowings
                with
                affiliates was $14.6 million, $12.1 million, $10.1 million and $12.9
                million for the years ended December 31, 2005, 2004, 2003 and 2002,
                respectively.





(c)
            Includes
                provisions for environmental remediation and restoration, net of
                reimbursements, related to our former forest products operations,
                thorium
                compounds manufacturing, uranium and refining operations of $17.6
                million,
                $61.5 million, $41.1 million and $61.1 million for
                the years ended December 31, 2005, 2004, 2003 and 2002,
                respectively.





(d)
            Represents
                extraordinary, unusual or non-recurring expenses or losses as defined
                within our credit agreement. Includes $25.8 million associated with
                the closure of our Mobile, Alabama, facility in 2003 for charges
                not
                reflected elsewhere and $21.2 million for a work force reduction
                program for continuing operations in 2003. See Note 16 to the Consolidated
                and Combined Financial Statements included in Item 8 of this annual
                report
                on Form 10-K.





(e)
            Loss
                on the sales of accounts receivable under an asset monetization program,
                or a factoring program, comparable to interest
                expense.





(f)
            The
                2004 amount includes $86.6 million associated with the shutdown of
                our Savannah sulfate facility.




(g)
            Includes
                noncash stock-based compensation, noncash pension and postretirement
                cost
                and accretion expense.







**Item
      7.**  **Management’s
      Discussion and Analysis of Financial Condition and Results of** Operations





*The
      following discussion should be read in conjunction with the selected historical
      consolidated and combined financial data and the consolidated and combined
      financial statements and the related notes included elsewhere in this annual
      report on Form 10-K. Except for the historical consolidated and combined
      financial information contained herein, the matters discussed below may contain
      forward-looking statements that reflect our plans, estimates and beliefs. Our
      actual results could differ materially from those discussed in these
      forward-looking statements. Factors that could cause or contribute to these
      differences include, but are not limited to, those discussed below and elsewhere
      in this annual report on Form 10-K, particularly in* “ *Risk
      Factors* ” *and* “ *Special
      Note Regarding Forward - Looking Statement.* ”





**Overview**





We
      are
      the world’s third-largest producer and marketer of titanium dioxide based on
      reported industry capacity by the leading titanium dioxide producers, and we
      have an estimated 13% market share of the $9 billion global market in 2005
      based on reported industry sales. We also produce and market electrolytic
      manganese dioxide and sodium chlorate, as well as boron-based and other
      specialty chemicals. We operate seven production facilities and have direct
      sales and technical service organizations in the United States, Europe and
      the
      Asia-Pacific region. We have approximately 2,110 employees worldwide and more
      than 1,100 customers located in over 100 countries. In 2005, we had net sales
      of
      $1.4 billion, net income of $18.8 million and adjusted EBITDA of
      $232.0 million. For a reconciliation of adjusted EBITDA to net income
      (loss), see “ *Selected
      Financial Data* .”





Our
      business has two reportable segments: pigment and electrolytic and other
      chemical products. Our pigment segment, which accounted for approximately 93%
      of
      our net sales in 2005, primarily produces and markets titanium dioxide pigment.
      Performance of our pigment segment is cyclical and tied closely to general
      economic conditions, including global gross domestic product. Events that
      negatively affect discretionary spending also may negatively affect demand
      for
      finished products that contain titanium dioxide. Our pigment segment also is
      affected by seasonal fluctuations in the demand for coatings, the largest
      end-use market for titanium dioxide. From 2000 through 2003, the titanium
      dioxide industry experienced a period of unusually weak business conditions
      as a
      result of a variety of factors, including the global economic recession,
      exceptionally rainy weather conditions in Europe and the Americas and the
      outbreak of SARS in Asia. However, global economic conditions generally improved
      in late 2004, driving increased demand, and, in the last half of 2004 and
      throughout 2005, increased prices. No major titanium dioxide plant construction
      projects have commenced, and we expect the industry’s current high capacity
      utilization rates to continue in the near term and believe that industry
      dynamics show a sustainable improving trend.





Due
      to
      the nature of our current and former operations, we have significant
      environmental remediation obligations and are subject to legal and regulatory
      liabilities. Former operations include, among others, operations involving
      the
      production of ammonium perchlorate, treatment of forest products, the refining
      and marketing of petroleum products, offshore contract drilling, coal mining
      and
      the mining, milling and processing of nuclear materials. For example, we have
      liabilities relating to the remediation of various sites at which chemicals
      such
      as creosote, perchlorate, low-level radioactive substances, asbestos and other
      materials have been used or disposed. As of December 31, 2005, we had reserves
      in the amount of $223.7 million for environmental matters and receivables
      for reimbursement for such matters of $56.7 million. For the year ended December
      31, 2005, we provided $34.7 million (net of reimbursements) for
      environmental remediation and restoration costs, of which $17.6 million
      related to discontinued operations. We had $61.1 million of expenditures
      associated with our environmental remediation projects, and received
      $71.4 million in third-party reimbursements in 2005.








Pursuant
      to the MSA, Kerr-McGee has agreed to reimburse us for a portion of the
      environmental remediation costs we incur and pay after the IPO. The
      reimbursement obligation extends to costs incurred at any site associated with
      any of our former businesses or operations. With respect to any site for which
      a
      reserve has been established as of the effective date of the MSA, 50% of the
      remediation costs we incur and pay in excess of the reserve amount (after
      meeting a $200,000 minimum threshold amount) will be reimbursable by Kerr-McGee,
      net of any amounts recovered or, in our reasonable and good faith estimate,
      that
      will be recovered from third parties. With respect to any site for which a
      reserve has not been established as of the effective date of the MSA, 50% of
      the
      amount of the remediation costs we incur and pay (after meeting a $200,000
      minimum threshold amount) will be reimbursable by Kerr-McGee, net of any amounts
      recovered or, in our reasonable and good faith estimate, that will be recovered
      from third parties. Kerr-McGee is only required to reimburse us for costs we
      actually incur and pay during the seven-year period following the IPO, up to
      a
      maximum aggregate amount of $100 million. Kerr-McGee’s reimbursement
      obligation is subject to various other limitations and
      restrictions.





*Potential
      Dilution.* Certain
      of our employees have participated in Kerr-McGee's long-term incentive plans.
      Under these plans, employees received various stock-based compensation awards,
      including stock options, restricted stock, stock opportunity grants and
      performance units. Other than with regard to employees eligible for retirement
      on the effective date of the Distribution, Kerr-McGee unvested stock options
      held by our employees on that date will be forfeited and replaced with options
      to purchase our Class A common stock. Unvested restricted shares of Kerr-McGee
      common stock and unvested Kerr-McGee performance unit awards held by our
      employees on that date will be forfeited and replaced with restricted shares
      of
      our Class A common stock.





The
      actual number of shares of our Class A common stock that will be issued in
      connection with the forfeiture and subsequent replacement of the Kerr-McGee
      stock-based awards on the Distribution date will depend on the per share price
      of our Class A common stock and Kerr-McGee's common stock, as well as on the
      number of Kerr-McGee stock-based awards held by our employees on that date.
      Based on approximately 161,500 unvested Kerr-McGee options, approximately 81,700
      restricted shares of Kerr-McGee stock and stock opportunity grants, and
      approximately $3.1 million in value of performance unit awards held by our
      employees on February 28, 2006, the following number of shares of our Class
      A
      common stock would be issued in connection with the replacement of awards,
      assuming the prices for our Class A common stock and Kerr-McGee's common stock
      shown below:




**Hypothetical
                Kerr-McGee**
              **Common
                Stock Price on**
              **Distribution
                Date******
            **Hypothetical
                Tronox Class A Common Stock Price**
              **on
                Distribution
                Date****$14.00**
            **$15.00**
            **$16.00**
            **$17.00****(Number
                of shares)**$
                90.00
            1,781,474
            1,662,709
            1,558,790
            1,467,096$100.00
            1,955,145
            1,824,802
            1,710,752
            1,610,120





The
      per
      share prices of Kerr-McGee common stock and of our Class A common stock set
      forth in this table do not necessarily reflect the range of expected prices
      on
      the Distribution date. The number of shares of our Class A common stock issued
      in connection with the conversion or replacement of Kerr-McGee stock-based
      awards could vary significantly from the above numbers due to changes in the
      relative values of our Class A common stock and Kerr-McGee's common stock.
      This
      will result in additional potentially dilutive securities.





**Basis
      of Presentation**





The
      combined financial statements prior to the Contribution have been derived from
      the accounting records of Kerr-McGee, principally representing the Chemical
      -
      Pigment and Chemical - Other segments of Kerr-McGee, using the historical
      results of operations, and historical basis of assets and liabilities of the
      subsidiaries that the company did not own but currently owns and the chemical
      business the company operates.





Our
      Consolidated and Combined Statement of Operations included in Item 8 of this
      annual report on Form 10-K includes allocations of costs for corporate functions
      historically provided to us by Kerr-McGee prior to the IPO,
      including:





*General
      Corporate Expenses.* Represents costs related to corporate functions such as accounting, tax,
      treasury, human resources, legal and information management and technology.
      These costs have historically been allocated primarily based on estimated use
      of
      services as compared to Kerr-McGee’s other businesses. These costs are included
      in selling, general and administrative expenses in the consolidated and combined
      statement of operations. This allocation ceased at the IPO date and any services
      rendered subsequent to that date and the resulting costs are being billed under
      the terms of the transition services agreement.








*Employee
      Benefits and Incentives.* Represents fringe benefit costs and other incentives, including group health
      and
      welfare benefits, U.S. pension plans, U.S. postretirement health and life plans
      and employee stock-based compensation plans. These costs have historically
      been
      allocated on an active headcount basis for health and welfare benefits,
      including U.S. postretirement plans, on the basis of salary for U.S. pension
      plans and on a specific identification basis for employee stock-based employee
      compensation plans. These costs are included in costs of goods sold, selling,
      general and administrative expenses, restructuring charges and loss from
      discontinued operations in the consolidated and combined statement of
      operations.





*Interest
      Expense.* Until
      the completion of the IPO and the concurrent financing, Kerr-McGee provided
      financing to us through cash flows from its other operations and debt incurred.
      Although the incurred debt was not allocated to us, a portion of the interest
      expense was allocated based on specifically-identified borrowings at
      Kerr-McGee’s average borrowing rates. These costs are included in other income
      (expense) in the consolidated and combined statement of operations, net of
      interest income that was allocated to Kerr-McGee on certain monies we loaned
      to
      Kerr-McGee. This allocation ceased at the IPO date as Kerr-McGee no longer
      provides financing to us.





Expense
      allocations from Kerr-McGee reflected in the income (loss) from continuing
      operations in our consolidated and combined financial statements were as
      follows:





**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)**General
                corporate expenses
            
            $
            24.3
            
            $
            27.4
            
            $
            25.3Employee
                benefits and incentives (1)
            
            
            24.0
            
            
            28.8
            
            
            35.9Interest
                expense, net
            
            
            14.6
            
            
            12.1
            
            
            10.1





(1)
            Includes
                special termination benefits, settlement and curtailment losses of
                nil,
                $9.1 million and $28.7 million for years 2005, 2004 and 2003,
                respectively.





These
      allocations were based on what were considered to be reasonable reflections
      of
      the historical utilization levels of these services required in support of
      our
      business. We currently estimate that general annual corporate expenses may
      be
      $15.0 million to $20.0 million greater on an annual basis in the future as
      a stand-alone company.





Subsequent
      to the IPO, the expense allocations for certain corporate services previously
      provided by Kerr-McGee ceased, and we began purchasing such services from
      Kerr-McGee under the terms of the transition services agreement. Under the
      terms
      of the transition services agreement, we also receive compensation for services
      provided to Kerr-McGee. The net expense charged to us in 2005 was nominal for
      the one-month period subsequent to the IPO.





Kerr-McGee
      utilized a worldwide centralized approach to cash management and the financing
      of its operations, with all related activity between Kerr-McGee and us reflected
      as net transfers from Kerr-McGee in our consolidated and combined statement
      of
      comprehensive income (loss) and business/stockholders’ equity. In connection
      with the IPO, the net amount due from us to Kerr-McGee at the closing date
      of
      the IPO was contributed by Kerr-McGee to us as equity, forming a part of our
      continuing equity. Subsequent to the closing of the IPO, amounts due from or
      to
      Kerr-McGee arising from transactions subsequent to that date are being settled
      in cash.





We
      believe the assumptions underlying our consolidated and combined financial
      statements are reasonable. However, the consolidated and combined financial
      statements may not necessarily reflect our future results of operations,
      financial position and cash flows or what our results of operations, financial
      position and cash flows would have been had we been a stand-alone company during
      the periods presented.








**Results
      of Operations**





The
      following table summarizes segment operating profit (loss), with reconciliation
      to consolidated and combined net income (loss) for each of the last three
      years:





**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)****Net
                sales—**Pigment
            
            $
            1,267.0
            
            $
            1,208.4
            
            $
            1,078.8Electrolytic
                and other chemical products
            
            
            97.0
            
            
            93.4
            
            
            78.9****Total
            
            $
            1,364.0
            
            $
            1,301.8
            
            $
            1,157.7**Operating
                profit (loss)**(1)**—**Pigment
            
            $
            101.5
            
            $
            (86.5
            )
            $
            (15.0
            )Electrolytic
                and other chemical products (2)
            
            
            (5.9
            )
            
            (0.6
            )
            
            (22.0
            )Subtotal
            
            
            95.6
            
            
            (87.1
            )
            
            (37.0
            )Expenses
                of nonoperating sites (3)
            
            
            (2.1
            )
            
            (5.5
            )
            
            (3.6
            )Provision
                for environmental remediation and restoration (3)
            
            
            (5.6
            )
            
            (2.2
            )
            
            (1.6
            )Operating
                profit (loss)
            
            
            87.9
            
            
            (94.8
            )
            
            (42.2
            )Interest
                and debt expense
            
            
            4.5
            
            
            0.1
            
            
            0.1Other
                income (expense) (4)
            
            
            (15.2
            )
            
            (25.2
            )
            
            (20.5
            )Benefit
                (provision) for income taxes
            
            
            (21.8
            )
            
            38.3
            
            
            15.1Income
                (loss) from continuing operations
            
            
            46.4
            
            
            (81.8
            )
            
            (47.7
            )Discontinued
                operations, net of taxes
            
            
            (27.6
            )
            
            (45.8
            )
            
            (35.8
            )Cumulative
                effect of change in accounting principle, net of taxes
            
            
            —
            
            
            —
            
            
            (9.2
            )Net
                income (loss)
            
            $
            18.8
            
            $
            (127.6
            )
            $
            (92.7
            )





(1)
            Our
                management evaluates segment performance based on segment operating
                profit
                (loss), which represents the results of segment operations before
                unallocated costs, such as general expenses and environmental provisions
                related to sites no longer in operation, income tax expense or benefit
                and
                other income (expense). Total operating profit (loss) of both of
                our
                segments is a non-GAAP financial measure of the company’s performance, as
                it excludes general expenses and environmental provisions related
                to sites
                no longer in operation which are a component of operating profit
                (loss),
                the most comparable GAAP measure. Our management considers total
                operating
                profit (loss) of our segments to be an important supplemental measure
                of
                our operating performance by presenting trends in our core businesses
                and
                facilities currently in operation. This measure is used by us for
                planning
                and budgeting purposes and to facilitate period-to-period comparisons
                in
                operating performance of our reportable segments in the aggregate
                by
                eliminating items that affect comparability between periods. We believe
                that total operating profit (loss) of our segments is useful to investors
                because it provides a means to evaluate the operating performance
                of our
                segments and our company on an ongoing basis using criteria that
                are used
                by our internal decision makers. Additionally, it highlights operating
                trends and aids analytical comparisons. However, total operating
                profit
                (loss) of our segments has limitations and should not be used as
                an
                alternative to operating profit (loss), a performance measure determined
                in accordance with GAAP, as it excludes certain costs that may affect
                our
                operating performance in future
                periods.





(2)
            Includes
                $10.3 million, nil and $11.0 million for the years ended 2005,
                2004 and 2003, respectively, of environmental charges, net of
                reimbursements, related to ammonium perchlorate at our Henderson
                facility.





(3)
            Includes
                general expenses and environmental provisions related to various
                businesses in which our affiliates are no longer engaged but that
                have not
                met the criteria for reporting as discontinued
                operations.





(4)
            Includes
                interest expense allocated to us by Kerr-McGee based on specifically
                identified borrowings from Kerr-McGee at Kerr-McGee’s average borrowing
                rates.








***Year
      Ended December 31, 2005 Compared to Year Ended December 31,
      2004***





*Net
      Sales.* Net
      sales increased by $62.2 million, or 4.8%, to $1,364.0 million in 2005
      from $1,301.8 million in 2004. The increase was due to an increase in the
      pigment segment sales of $58.6 million and an increase in electrolytic and
      other chemical product segment sales of $3.6 million, as discussed below
      under “ *Pigment
      Segment - Net Sales* ”
and
      “ *Electrolytic
      and Other Chemical Products Segment - Net Sales* .”





*Gross
      Margin.* Gross
      margin in 2005 was $220.2 million compared to $132.9 million in 2004. As a
      percent of sales, gross margin increased to 16.1% in 2005 from 10.2% in 2004.
      The improved margin was primarily due to improved pricing in the pigment segment
      realized in 2005 and due to an inventory revaluation charge of $15.6 million
      recognized in 2004 in connection with the shutdown of our titanium dioxide
      pigment sulfate production at our Savannah, Georgia, facility. (See further
      discussion under “Restructuring Charges” below.)





*Selling,
      General and Administrative Expenses.* Selling, general and administrative expenses increased $5.1 million in 2005
      compared to 2004. Selling, general and administrative costs were higher in
      2005
      compared to 2004, primarily due to an increase in employee incentive
      compensation (including stock-based compensation), largely as a result of
      improved operating performance for the year.





*Restructuring
      Charges.* In
      2005, we had no restructuring charges. In 2004, we shut down our titanium
      dioxide pigment sulfate production at our Savannah, Georgia, facility. Demand
      and prices for sulfate anatase pigments, particularly in the paper market,
      had
      declined in North America consistently during the previous several years. The
      decreasing volumes, along with unanticipated environmental and infrastructure
      issues discovered after we acquired the facility in 2000, created unacceptable
      financial returns for the facility and contributed to the decision to shut
      it
      down.





Included
      in the restructuring charges in 2004 related to the shutdown of the Savannah
      facility was $86.6 million of asset write-downs taken in the form of accelerated
      depreciation for plant assets, $7.4 million for impairment of intangible assets,
      $6.7 million for severance and benefit plan curtailment costs and $6.7 million
      for other closure costs. We also recognized an additional $5.6 million of costs
      in 2004 in connection with the closure of the synthetic rutile plant in Mobile,
      Alabama.





*Provision
      for Environmental Remediation and Restoration, net of
      Reimbursements.* Provision for environmental remediation and restoration, net of reimbursements,
      was $17.1 million in 2005 compared to $4.6 million in the same period
      of 2004. The net provision in 2005 included $11.3 million related to
      remediation of ammonium perchlorate contamination associated with the Henderson,
      Nevada, facility. It was determined in 2005 that the groundwater remediation
      system at the Henderson facility would need to be operated and maintained over
      an extended time period and a provision was added for the closure of an ammonium
      perchlorate pond. The provision for environmental remediation and restoration
      also included a charge of $5.6 million in 2005 related to remediation of
      the former agricultural chemical Jacksonville, Florida, site for soil
      remediation and excavation (see “ *Environmental
      Matters - Environmental Costs* ”
and
      Note 22 to the Consolidated and Combined Financial Statements included in
      Item 8 of this annual report on Form 10-K).





In
      the
      first quarter of 2006, we recognized a receivable of $20.5 million as a result
      of a settlement of our claim against the United States, which was documented
      in
      a consent decree approved by the court on January 13, 2006. We received this
      reimbursement in February 2006.





*Interest
      and Debt Expense* .
      Interest and debt expense to outside parties increased to $4.5 million in 2005
      from $0.1 million in 2004. The increase was due to interest on the company’s
      unsecured notes and term loan facility that were entered into concurrent with
      the IPO in November 2005.





*Other
      Income (Expense).* Other
      expenses, net, decreased $10.0 million from $25.2 million in 2004 to $15.2
      million in 2005, primarily due to a lower net fees incurred in connection with
      the accounts receivable securitization program that was terminated in April
      2005, including a return of estimated fees previously paid in excess of actual
      costs incurred. Other expenses were also lower due to a decrease in losses
      attributable to changes in the exchange rates for both the euro and the
      Australian dollar.








*Benefit
      (Provision) for Income Taxes.* Our
      effective tax rate related to continuing operations for 2005 was 32.0% compared
      to 31.9% for 2004. During 2005, we repatriated $131.0 million in
      extraordinary dividends under the American Jobs Creation Act of 2004, resulting
      in recognition of income tax expense of $4.7 million. Our effective tax
      rate was reduced in 2005 by tax benefits and reductions in statutory rates
      recognized in foreign jurisdictions. On a stand-alone basis, our pro forma
      provision for income taxes related to continuing operations in 2005 would have
      been $19.1 million less than that determined under our allocation policy with
      Kerr-McGee. This decrease in income taxes was due primarily to income in the
      United States that would have been eliminated by our theoretical stand-alone
      net
      operating loss carryforward, which we would not have previously recognized
      as a
      deferred tax asset.





*Loss
      from Discontinued Operations.* The
      loss from discontinued operations, net of tax, in 2005 was $27.6 million
      compared to $45.8 million in 2004. The loss in 2005 includes $17.7 million
      loss,
      net of tax, on our former forest products operations, including an environmental
      provision of $3.2 million, net of taxes, for additional soil volumes related
      to
      the Sauget, Illinois, wood-treatment plant and $4.8 million, net of tax, for
      litigation expenses. Also included is a $5.2 million environmental
      provision, net of taxes, for pond closure, rock placement and surface water
      channels at the former Ambrosia Lake, New Mexico, site associated with our
      formerly conducted uranium mining and milling operation (see “ *Environmental
      Matters - Environmental Costs* ”
and
      Note 22 to the Consolidated and Combined Financial Statements included in
      Item 8 of this annual report on Form 10-K).





*Pigment
      Segment*





*Net
      Sales.* Net
      sales increased $58.6 million, or 4.8%, in 2005 compared to 2004.
      Approximately $136.4 million of this increase was due to an increase in
      average selling prices of approximately 12%, partially offset by a decrease
      in
      volumes sold of $77.8 million. Stronger market conditions contributed to the
      improvement in pricing while the decline in volume was primarily attributable
      to
      the shutdown of our sulfate production facility in Savannah, Georgia, in 2004
      and due to reduced volumes in the Asia/Pacific region resulting from increased
      volumes in the latter part of 2004 in advance of announced price increases
      and
      an unplanned temporary two-week shutdown of our Australian pigment plant in
      the
      fourth quarter of 2005 necessitated by a shutdown of our third-party process
      gas
      supplier. Approximately $4.0 million of the increase in average sales prices
      in
      2005 was due to the effect of foreign currency exchange rates.





*Operating
      Profit.* Operating profit in 2005 was $101.5 million, an increase of
      $188.0 million over the operating loss of $86.5 million in 2004. In
      addition to t he
      $58.6 million increase in revenues discussed above, the improvement in operating
      results in 2005 was primarily attributable to the shutdown provisions incurred
      in 2004 of $123.0 million for the sulfate-process titanium dioxide pigment
      production at the Savannah, Georgia, facility and $6.8 million of costs incurred
      in connection with the continued efforts to close the synthetic rutile plant
      in
      Mobile, Alabama. These improvements were partially offset by an increase in
      selling, general and administrative expenses of $5.0 million over 2004,
      primarily due to an increase in employee incentive compensation (including
      stock-based compensation), largely as a result of improved operating performance
      for the year.





*Electrolytic
      and Other Chemical Products Segment*





*Net
      Sales.* Net
      sales in 2005 were $97.0 million, an increase of $3.6 million compared
      to 2004, primarily due to increased sales of electrolytic manganese dioxide
      and
      lithium manganese oxide. Sales of manganese dioxide increased due to improvement
      in both volumes and price, while sales of lithium manganese increased due to
      improved volumes.





*Operating
      Loss.* Operating loss in 2005 was $5.9 million compared with an operating loss of
      $0.6 million in 2004. Operating
      performance declined primarily due to higher environmental costs of $9.1 million
      resulting from a net $11.3 million environmental provision (net of expected
      insurance reimbursement of $20.5 million) incurred in the first quarter of
      2005,
      related primarily to ammonium perchlorate remediation associated with Tronox’s
      Henderson, Nevada, operations. Operating results were also impacted by higher
      selling, general and administrative expenses of $2.0 million attributable to
      increased litigation expenses and an increase in employee incentive compensation
      (including stock-based compensation), largely as a result of improved operating
      performance for the year. These higher costs were partially offset by $2.1
      million lower operating costs in 2005 at Tronox’s Henderson, Nevada, EMD
      manufacturing facility which incurred higher costs in 2004 when production
      recommenced after being temporarily curtailed in late 2003 .








***Year
      Ended December 31, 2004 Compared to Year Ended December 31,
      2003***





*Net
      Sales.* Net
      sales increased by $144.1 million, or 12.4%, to $1,301.8 million in
      2004 from $1,157.7 million in 2003. The increase was due to increased sales
      in the pigment segment of $129.6 million and increased sales in the electrolytic
      and other chemical products segment of $14.5 million, as discussed below under
      “ *Pigment
      Segment - Net Sales* ”
and
      “ *Electrolytic
      and Other Chemical Products Segment - Net Sales* .”





*Gross
      Margin.* Gross
      margin in 2004 was $132.9 million compared to $133.0 million in 2003.
      As a percent of sales, gross margin declined to 10.2% in 2004 from 11.5% in
      2003. The decline in the gross margin percentage was primarily due to an
      inventory revaluation charge of $15.6 million recognized in 2004 in
      connection with the shutdown of our titanium dioxide pigment sulfate production
      at our Savannah, Georgia, facility (see further discussion under “ *Restructuring
      Charges* ”
      below).





*Selling,
      General and Administrative Expenses.* Selling, general and administrative expenses increased $11.2 million in
      2004 compared to 2003. This increase was due to an increase in employee
      incentive compensation related to cash bonuses and restricted stock awards,
      additional costs associated with cash settlements of certain qualified benefits
      associated with retirements during the year and increased legal
      fees.





*Restructuring
      Charges.* In
      2004, we shut down the titanium dioxide pigment sulfate production at our
      Savannah, Georgia, facility. Demand and prices for sulfate anatase pigments,
      particularly in the paper market, had declined in North America consistently
      during the previous several years. The decreasing volumes, along with
      unanticipated environmental and infrastructure issues discovered after we
      acquired the facility in 2000, created unacceptable financial returns for the
      facility and contributed to the decision to shut it down. We expect this
      shutdown, once fully implemented, will result in an improvement in segment
      operating profit of approximately $15 million annually based on 2004
      costs.





Included
      in the restructuring charges in 2004 was $86.6 million of asset write-downs
      taken in the form of accelerated depreciation for plant assets,
      $7.4 million for impairment of intangible assets, $6.7 million for
      severance and benefit plan curtailment costs and $6.7 million for other
      closure costs. We also recognized an additional $5.6 million of costs in
      2004 in connection with the closure of the synthetic rutile plant in Mobile,
      Alabama. The 2003 restructuring charges included $38.6 million for shutdown
      costs related to the Mobile, Alabama, facility and $22.8 million in
      connection with a work force reduction program consisting of both voluntary
      retirements and involuntary terminations that reduced our work force by 138
      employees.




*Provision
      for Environmental Remediation and Restoration, net of
      Reimbursements.* Provision for environmental remediation and restoration, net of reimbursements,
      was $4.6 million in 2004 compared to $14.9 million in 2003. The
      decrease in 2004 was primarily due to an $11.0 million provision in 2003
      related to ammonium perchlorate at our Henderson, Nevada facility. Our
      environmental obligations are discussed in detail under “ *Environmental
      Matters - Environmental Costs* ”
below
      and Note 22 to the Consolidated and Combined Financial Statements included
      in Item 8 of this annual report on Form 10-K.





*Other
      Income (Expense).* Other
      expense increased $4.7 million in 2004 compared to 2003, primarily due to a
      $3.4 million increased loss on the pigment receivables sold under the asset
      monetization program due to increased activity in 2004 and an increase in the
      foreign currency losses in 2004 of $1.7 million primarily due to
      unfavorable changes in the Australian dollar exchange rates.





*Benefit
      for Income Taxes.* Our
      effective tax rate related to continuing operations was 31.9%, compared with
      24.0% in 2003. This rate was based on Kerr-McGee’s tax allocation policy. On a
      stand-alone basis, our pro forma provision for income taxes related to
      continuing operations in 2004 would have been $44.2 million more than that
      determined under our allocation policy with Kerr-McGee. This increase in income
      taxes was due primarily to net operating losses in the United States, which
      we
      would not have been able to utilize on a stand-alone basis.








*Loss
      from Discontinued Operations.* We
      recognized a loss from discontinued operations as a result of our decision
      to
      dispose of the forest products business and additional environmental provisions
      related to other previously discontinued operations of $45.8 million in
      2004 and $35.8 million in 2003, net of tax benefit. The increased loss in
      2004 was primarily due to additional environmental provisions, net of
      reimbursements and taxes, in 2004 related to our former thorium compounds
      manufacturing and refining operations of $5.7 million and $5.1 million
      net of taxes, respectively.





*Cumulative
      Effect of Change in Accounting Principle.* We
      recognized a charge of $9.2 million (net of income tax benefit of
      $4.9 million) in 2003 upon adoption, as of January 1, 2003, of
      Financial Accounting Standards Board Statement No. 143 (“FAS
      No. 143”), “ *Accounting
      for Asset Retirement Obligations* ”
      related to our Mobile plant, which we expected to close at the date of adoption
      of this standard.





*Pigment
      Segment*





*Net
      Sales.* Net
      sales increased $129.6 million, or 12.0%, in 2004 to $1,208.4 million
      from $1,078.8 million in 2003. Of the total increase, approximately
      $114 million was due to increased sales volumes and approximately
      $16 million resulted from an increase in average sales prices. Sales
      volumes for 2004 were approximately 9% higher than in the prior year due
      primarily to stronger market conditions. Approximately half of the increase
      in
      average sales prices in 2004 was due to the effect of foreign currency exchange
      rates with the remainder due to price increases resulting from improved market
      conditions.





*Operating
      Loss.* The
      pigment segment recorded an operating loss of $86.5 million in 2004,
      compared with an operating loss of $15.0 million in 2003. The 2004
      operating loss was primarily the result of shutdown provisions discussed above
      for the sulfate-process titanium dioxide pigment production at the Savannah,
      Georgia, facility totaling $123.0 million. Operating results for 2004 also
      were negatively impacted by $6.8 million of costs incurred in connection
      with the continued efforts to close the synthetic rutile plant in Mobile,
      Alabama, compared to a $46.7 million plant closure provision recognized in
      2003 for this facility. Additionally, operating results in 2003 were negatively
      impacted by a $22.9 million charge for work force reduction and other
      compensation costs. These charges had the effect of reducing operating profit
      by
      $129.8 million in 2004 and $69.6 million in 2003. The increase in
      revenues in 2004 resulting from higher volume and sales prices was offset by
      an
      increase of approximately $132 million in production costs due to higher
      volume (approximately $80 million) and costs (approximately
      $52 million including the effects of foreign currency exchange rate
      changes) and an increase in selling, general and administrative expenses of
      approximately $6 million over 2003. Additional information related to the
      shutdowns of the Savannah and Mobile facilities is included in Note 16 to
      the Consolidated and Combined Financial Statements included in Item 8 of this
      annual report on Form 10-K.





*Electrolytic
      and Other Chemical Products Segment*





*Net
      Sales.* Net
      sales increased $14.5 million, or 18.4%, in 2004 to $93.4 million from
      $78.9 million in 2003. The increase in net sales resulted primarily from an
      increase in electrolytic sales due primarily to the full year of operations
      at
      our electrolytic manganese dioxide (EMD) manufacturing operation in Henderson,
      Nevada (see further discussion under “ *Operating
      Loss* ”
      below).





*Operating
      Loss.* The
      electrolytic and other chemical products segment recorded an operating loss
      for
      2004 of $0.6 million compared with an operating loss of $22.0 million
      in 2003. The improved operating performance was primarily due to the full year
      of operations at the EMD facility, lower environmental costs in 2004 of
      $9.4 million compared to 2003 and work force reduction and other
      compensation charges recognized in 2003 that did not recur in 2004. The 2003
      environmental costs incurred related primarily to remediation of ammonium
      perchlorate contamination associated with the Henderson, Nevada facility. While
      we are no longer producing ammonium perchlorate, we continue to use the property
      in our other chemical products business.








During
      the third quarter of 2003, our EMD manufacturing operation in Henderson, Nevada,
      was placed on standby to reduce inventory levels due to the harmful effect
      of
      low-priced imports on our EMD business. In response to the pricing activities
      of
      importing companies, Tronox LLC filed a petition for the imposition of
      anti-dumping duties with the U.S. Department of Commerce International Trade
      Administration and the U.S. International Trade Commission on July 31,
      2003. In its petition, Tronox LLC alleged that manufacturers in certain named
      countries export EMD to the United States in violation of U.S. anti-dumping
      laws
      and requested that the U.S. Department of Commerce apply anti-dumping duties
      to
      the EMD imported from such countries. The Department of Commerce found probable
      cause to believe that manufacturers in the specified countries engaged in
      dumping and initiated an anti-dumping investigation with respect to such
      manufacturers. Subsequently, demand in the United States for U.S.-produced
      EMD
      product increased, and the plant resumed operations in December 2003.
      Tronox LLC withdrew its anti-dumping petition in February 2004 but
      continues to monitor the pricing activities of EMD importers.





**Financial
      Condition and Liquidity**





Concurrent
      with the IPO, our wholly-owned subsidiary, Tronox Worldwide LLC, entered into
      a
      senior secured credit facility. This facility consists of a $200 million
      six-year term loan facility and a five-year multicurrency revolving credit
      facility of $250 million. This facility is unconditionally and irrevocably
      guaranteed by Tronox and Tronox Worldwide LLC’s direct and indirect material
      domestic subsidiaries. The facility is secured by a first priority security
      interest in certain domestic assets, including certain property and equipment,
      inventory and receivables, of Tronox Worldwide LLC and the guarantors of the
      senior secured credit facility. The facility is also secured by pledges of
      the
      equity interest in Tronox Worldwide LLC and Tronox Worldwide LLC’s direct and
      indirect domestic subsidiaries and up to 65% of the voting and 100% of the
      non-voting equity interests in Tronox Worldwide LLC’s direct foreign
      subsidiaries and the direct foreign subsidiaries of the guarantors of the senior
      secured credit facility.





The
      term loan facility will amortize each year in an amount equal to 1% per year
      in
      equal quarterly installments for the first five years and in an amount equal
      to
      95% in equal quarterly installments for the final year.





Interest
      on amounts borrowed under the senior secured credit facility is payable, at
      the
      company’s election, at a base rate or a LIBOR rate, in each case as defined in
      the agreement. The initial margin applicable to LIBOR borrowings is 175 basis
      points and may vary from 100 to 200 basis points depending on the company’s
      credit rating.





The
      terms of the credit agreement provide for customary representations and
      warranties, affirmative and negative covenants, and events of default. The
      company is also required to maintain compliance with the following financial
      covenants effective beginning in 2006 (in each case, as defined in the
      agreement):





·
            Consolidated
                Total Leverage Ratio of no more than
                3.75:1


·
            Consolidated
                Interest Coverage Ratio of at least
                2:1


·
            Limitation
                on Capital Expenditures





Although
      these financial covenants did not apply at year-end 2005, we were in compliance
      with  the
      leverage and interest coverage ratio at December 31, 2005.





Also
      concurrently with the IPO, Tronox Worldwide LLC and Tronox Finance Corp. issued
      $350 million in aggregate principal amount of 91⁄2% senior unsecured notes due
      2012 in a private offering. These notes are guaranteed by Tronox and Tronox
      Worldwide LLC’s material direct and indirect wholly-owned domestic subsidiaries.
      Interest on the notes will be payable on June 1 and December 1 of each year,
      commencing June 1, 2006. The company has agreed to file a registration statement
      with the SEC relating to an offer to exchange the notes and guarantees for
      publicly tradable notes and guarantees having substantially identical terms
      no
      later than April 27, 2006.





Both
      the credit facility and the senior unsecured notes have limitations on the
      amount of cash dividends that Tronox can pay to its stockholders. These
      limitations restrict cash payments of dividends to $5.0 million in the aggregate
      in any fiscal quarter and to $13.5 million in the aggregate in any fiscal year.








Prior
      to the IPO, we did not have any long-term debt outstanding. This has changed
      our
      capital structure and long-term commitments significantly from those that
      existed prior to the IPO. The following table provides information for the
      analysis of our historical financial condition and liquidity:





**December
                31,**
              **2005**
            
            **December
                31,**
              **2004**
            
            **December
                31,**
              **2003****(Millions
                of dollars)**Current
                ratio (1)
            
            
            2.1:1
            
            
            1.7:1
            
            
            1.9:1Cash
                and cash equivalents
            
            $
            69.0
            
            $
            23.8
            
            $
            59.3Working
                capital (2)
            
            
            404.4
            
            
            240.2
            
            
            304.5Total
                assets
            
            
            1,758.3
            
            
            1,595.9
            
            
            1,809.1Long-term
                debt
            
            
            548.0
            
            
            -
            
            
            -Business/Stockholders’
                equity (3)
            
            
            489.0
            
            
            889.9
            
            
            1,011.2





(1)  Represents
      a ratio of current assets to current liabilities.





(2)  Represents
      excess of current assets over current liabilities.





(3)  Upon
      completion of the Distribution, we will assume certain employee benefit
      obligations and associated trust assets from Kerr-McGee, which will result
      in a
      reduction of stockholders’ equity by approximately $25 million based on current
      estimates.





***Overview***





Our
      primary cash needs will be for working capital, capital expenditures,
      environmental cash expenditures and debt service under the senior secured credit
      facility and the unsecured notes. We believe that our cash flows from
      operations, together with borrowings under our revolving credit facility, will
      be sufficient to meet these cash needs for the foreseeable future. However,
      our
      ability to generate cash is subject to general economic, financial, competitive,
      legislative, regulatory and other factors that are beyond our control. If our
      cash flows from operations are less than we expect, we may need to raise
      additional capital. We may also require additional capital to finance our future
      growth and development, implement additional marketing and sales activities,
      and
      fund our ongoing research and development activities.





Additional
      debt or equity financing may not be available when needed on terms favorable
      to
      us or even available to us at all. We are restricted by the terms of the senior
      secured credit facility and the indenture governing the unsecured notes from
      incurring additional indebtedness. Under our MSA, prior to the Distribution,
      we
      may not incur any additional indebtedness (other than under the revolving credit
      facility) without Kerr-McGee’s prior consent. While Kerr-McGee owns at least a
      majority of our outstanding common stock, we also are restricted from issuing
      any shares of our capital stock, or any rights, warrants or options to acquire
      our capital stock (other than any shares of our capital stock or options to
      acquire our capital stock granted in connection with the performance of
      services), if this would cause Kerr-McGee to own less than a majority of our
      outstanding common stock (on a fully diluted basis). In these circumstances,
      we
      also are restricted from issuing any shares of our capital stock if this would
      cause Kerr-McGee to own less than 80% of the total voting power of our
      outstanding capital stock entitled to vote generally in the election of our
      directors and from issuing any shares of non-voting stock. In addition, under
      our tax sharing agreement with Kerr-McGee, if we enter into transactions during
      the two-year period following the Distribution which results in the issuance
      or
      acquisition of our shares, and the Internal Revenue Service subsequently
      determines that Section 355(e) of the Internal Revenue Code is applicable to
      the
      Distribution, we will be required to indemnify Kerr-McGee for any resulting
      tax
      liability incurred by it.








We
      have
      an interest in The Landwell Company LP (“Landwell”), a limited partnership
      formed to market or develop land in the Henderson, Nevada, area. Landwell
      entered into an agreement in late 2004 to sell to Centex Homes approximately
      2,200 contiguous acres of land in Henderson for eventual use as a new, mixed-use
      master planned community. The agreement contains conditions to closing that
      are
      generally typical in sales of large tracts of undeveloped land. We have been
      advised by Landwell’s general partner that closing conditions on a significant
      portion of the land under contract are expected to be satisfied in the second
      half of 2006. This large parcel under contract, in addition to other parcels
      available for sale by Landwell or under contract, are in the vicinity of our
      Henderson facility, where we are in the preliminary stage of exploring the
      possible sale of 100% owned acreage considered surplus for plant operations.
      Land sale proceeds before taxes could be as much as $50 million in 2006. Cash
      flows resulting from the above described agreement with Centex Homes, net
      of taxes, are required to be used to pay down outstanding debt under our senior
      secured credit facility.





In
      the
      first quarter of 2006, we recognized an environmental reimbursement of $20.5
      million as a result of a settlement of our claim against the United States,
      which was documented in a consent decree approved by the court on January 13,
      2006. We received this reimbursement in February 2006.





***Liquidity
      and Capital Resources***





Prior
      to the IPO, we participated in Kerr-McGee’s centralized cash management system
      and relied on Kerr-McGee to provide necessary cash financing. Such activities
      included cash deposits from our operations which were transferred daily to
      Kerr-McGee’s centralized banking system and cash borrowings used to fund our
      operations and capital expenditures. The related cash activity between us and
      Kerr-McGee has been reflected as net transfers with affiliates within financing
      activities in our consolidated and combined statement of cash flows.
      Additionally, as discussed below under “ *Cash
      Flows from Operating Activities,* ”
      certain expenditures related to our operations were paid by Kerr-McGee on our
      behalf and, therefore, did not affect cash flows from operating, investing
      and
      financing activities reported in our consolidated and combined statement of
      cash
      flows. As such, the amounts of cash and cash equivalents, as well as cash flows
      from operating, investing and financing activities presented in our consolidated
      and combined financial statements are not representative of the amounts that
      would have been required or generated by us as a stand-alone
      company.





In
      connection with our separation from Kerr-McGee, the net amount due from us
      to
      Kerr-McGee was contributed by Kerr-McGee, forming a part of our continuing
      equity. Such net amounts due to Kerr-McGee that were outstanding at the balance
      sheet dates prior to our separation have been reflected in our consolidated
      and
      combined financial statements as a component of owner’s net investment in
      equity. Amounts due to or from Kerr-McGee arising from transactions subsequent
      to our separation are being settled in cash.





Of
      cash
      and cash equivalents at December 31, 2005, $25.1 million was held in the
      United States and $43.9 million was held in other countries. In 2005,
      $131 million of unremitted foreign earnings in Australia were repatriated
      as extraordinary dividends, as defined in the American Jobs Creation Act of
      2004, and subsequently transferred to Kerr-McGee as part of its centralized
      cash
      management system.





Until
      recently, we had an accounts receivable monetization program, which served
      as a
      source of liquidity up to a maximum of $165.0 million. This program was
      terminated in April 2005, as discussed in “ *Off-Balance
      Sheet Arrangements* ”
      below. Accounts receivable originated after the termination of this program
      are
      being collected over a longer period, resulting in increased balances of
      outstanding receivables and higher current ratio, working capital and total
      assets as of December 31, 2005, compared with year-end 2004.





*Cash
      Flows from Operating Activities.* Cash
      flows from operating activities in our consolidated and combined statement
      of
      cash flows for all periods presented prior to the IPO date exclude certain
      expenditures incurred by Kerr-McGee on our behalf, such as income taxes, general
      corporate expenses, employee benefits and incentives, and net interest costs.
      Therefore, reported amounts are not representative of cash flows from operating
      activities we will generate or use as a stand-alone company. For example, cash
      flows from operating activities for 2005 and 2004 exclude $27.2 million and
      $37.0 million, respectively, paid by Kerr-McGee for income taxes on our behalf.
      Additionally, 2005, 2004 and 2003 cash flows from operating activities exclude
      $48.0 million, $55.1 million, and $65.8 million, respectively, of
      general corporate expenses, employee benefits and incentives, and net interest
      costs associated with our present and discontinued operations. While such costs
      are reflected in our consolidated and combined statement of operations because
      they were allocated to us by Kerr-McGee, they did not result in cash outlays
      by
      us. As a stand-alone company, we expect costs and expenses of this nature will
      require the use of our cash and other sources of liquidity. Additionally, we
      expect that our general corporate expenses may be $15 million to
      $20 million greater on an annual basis than we have incurred historically,
      which will further reduce our cash flows from operating activities as compared
      to historical experience. Further, as discussed under “ *Contractual
      Obligations and Commitments* ”
      below, we expect cash requirements associated with employee pension and
      postretirement plans to increase following the completion of this
      offering.








Cash
      flows from operating activities for 2005 were $61.5 million, compared with
      cash from operating activities of $190.8 million for 2004. The
      $129.3 million decrease in cash flows from operating activities in 2005 was
      due primarily to increases in accounts receivable and inventories. As described
      under “ *Off-Balance
      Sheet Arrangements* - *Accounts
      Receivable Monetization Program* ”
      below, our accounts receivable program was terminated in April 2005. Termination
      of the program resulted in an extension of the collection period for accounts
      receivable arising from pigment sales compared to the collection period of
      receivables prior to program termination. This has had a one-time impact of
      reducing our cash flows from operating activities related to the increase in
      our
      accounts receivable. Cash flows from operating activities also decreased due
      to
      an increase in inventories at year-end 2005 compared to year-end 2004. This
      is
      in contrast to the significant decline in inventory levels at year-end 2004
      compared to the prior year that was attributable to the shutdown of our sulfate
      production facility in Savannah, Georgia, as well as strong demand during the
      latter half of 2004. The decrease in cash flows from operating activities caused
      by termination of our accounts receivables monetization program and increase
      in
      inventories was offset by decreased environmental expenditures of $24.1 million
      and an increase in environmental cost reimbursements of $20.9
      million.




Cash
      flows from operating activities for 2004 were $190.8 million, an increase
      of $70.4 million compared with cash flows from operating activities for
      2003 of $120.4 million. The increase in cash flows from operating
      activities in 2004 is attributable primarily to a reduction in inventories,
      $35.7 million higher environmental cost reimbursements, $12.7 million
      lower expenditures for environmental remediation and restoration and
      $35.0 million less cash paid for legal settlements largely related to our
      former forest products business. These positive effects on cash flows from
      operating activities were partially offset by an unfavorable effect of timing
      differences between product sales and collections of trade accounts receivable.
      While improved economic conditions resulted in increased sales volumes in late
      2004, collection of the related accounts receivable did not occur until
      2005.




*Cash
      Provided by (Used in) Investing Activities.* Net
      cash provided by investing activities in 2005 was $83.3 million, an increase
      of
      $174.7 million from $91.4 million used in investing activities for 2004. The
      collection of repurchased accounts receivable that were contributed to us by
      Kerr-McGee resulted in an increase of $165.0 million in cash from investing
      activities in 2005.





Capital
      expenditures in 2005 were $87.6 million, $4.9 million less than the prior year.
      Significant projects in 2005 include projects to increase productivity and
      enhance product quality. These projects include changes to the Uerdingen,
      Germany, pigment facility to convert waste to a saleable product and reduce
      raw
      material costs, upgrading the oxidation line at the Botlek, Netherlands, pigment
      facility and process improvements at the Hamilton, Mississippi, facility to
      produce a new grade for use in architectural paints.





Net
      cash used in investing activities was $91.4 million in 2004 compared to
      $95.7 million in 2003 principally representing capital expenditures.
      Significant capital expenditure projects in 2004 included waste management
      projects and an automated slurry project at our Hamilton, Mississippi facility
      that was begun in 2003. In 2003, significant projects included the Savannah
      plant high productivity oxidation line, waste management projects and the
      initial phase of the Hamilton plant automated slurry project that was completed
      in 2004.




*Cash
      Used in Financing Activities.* Net
      cash used in financing activities was $103.3 million in 2005, $131.1 million
      in
      2004, and $10.3 million in 2003. In 2005, we completed our IPO by issuing
      17.5 million shares of Class A common stock which provided proceeds, net of
      issuance costs, of $226.0 million. Concurrent with the IPO, we issued $350.0
      million in aggregate principal amount of 9 1⁄2% senior unsecured notes and entered
      into a senior secured credit facility consisting of a $200.0 million six-year
      term loan facility. Proceeds from the unsecured notes and the term loan facility
      provided $539.1 million in cash flow from financing activities in 2005, net
      of
      debt issuance costs. The net proceeds from our Class A common stock offering,
      unsecured notes and term loan facility were distributed to Kerr-McGee in the
      amount of $761.8 million. Net transfers to Kerr-McGee were $106.6 million,
      $131.1 million and $10.0 million in 2005, 2004 and 2003,
      respectively.







***Off-Balance
      Sheet Arrangements***





*Accounts
      Receivable Monetization Program.* Through April 2005, we sold selected accounts receivable through a
      three-year, credit-insurance-backed asset securitization program with a maximum
      availability of $165.0 million. Under the terms of the program, selected
      qualifying customer accounts receivable were sold monthly to a special-purpose
      entity (“SPE”), which in turn sold an undivided ownership interest in the
      receivables to a third-party multi-seller commercial paper conduit sponsored
      by
      an independent financial institution. We sold, and retained an interest in,
      excess receivables to the SPE as over-collateralization for the program. Our
      retained interest in the SPE’s receivables was classified in trade accounts
      receivable in our accompanying Consolidated and Combined Balance Sheet. No
      recourse obligations were recorded since we had no obligations for any recourse
      actions on the sold receivables.





The
      accounts receivable monetization program included ratings downgrade triggers
      based on Kerr-McGee’s senior unsecured debt rating. These triggers provide for
      program modifications, including a program termination event upon which the
      program would effectively liquidate over time and the third-party multi-seller
      commercial paper conduit would be repaid with the collections on accounts
      receivable sold. In April 2005, Kerr-McGee’s senior unsecured debt was
      downgraded, triggering program termination. As opposed to liquidating the
      program over time or modifying its terms, Kerr-McGee elected to terminate the
      program by repurchasing the then outstanding balance of receivables sold of
      $165.0 million, which were then contributed to us.




*Other
      Arrangements.* We
      have entered into agreements that require us to indemnify third parties for
      losses related to environmental matters, litigation and other claims. We have
      recorded no material obligations in connection with such indemnification
      obligations. In addition, pursuant to our MSA with Kerr-McGee, we will be
      required to indemnify Kerr-McGee for all costs and expenses incurred by it
      arising out of or due to our environmental and other liabilities other than
      such
      costs and expenses reimbursable by Kerr-McGee pursuant to the MSA. At
      December 31, 2005, we had outstanding letters of credit in the amount of
      approximately $34.5 million. These letters of credit have been granted to
      us by financial institutions to support our environmental clean-up costs and
      miscellaneous operational and severance requirements in international locations.
      As of March 15, 2006, outstanding letters of credit totaled $40.3
      million.





**Contractual
      Obligations and Commitments**





In
      the
      normal course of business, we enter into operating leases, purchase obligations
      and borrowing arrangements. Operating leases primarily consist of rental of
      railcars and production equipment. The aggregate future payments under these
      borrowings and contracts as of December 31, 2005, are summarized in the
      following table:





**Payments
                Due By Period****Type
                of Obligation**
            
            **Total**
            
            **2006**
            
            **2007**
              **-2008**
            
            **2009**
              **-2010**
            
            **After**
              **2010****(Millions
                of dollars)**Long-term
                debt, including current portion
            
            $
            550.0
            
            $
            2.0
            
            $
            4.0
            
            $
            4.0
            
            $
            540.0Interest
                payments on current and long-term
              debt
            
            
            306.7
            
            
            46.8
            
            
            92.7
            
            
            92.2
            
            
            75.0Operating
                leases
            
            
            48.0
            
            
            7.7
            
            
            14.2
            
            
            9.7
            
            
            16.4Purchase
                obligations:Ore
                contracts
            
            
            641.9
            
            
            162.3
            
            
            303.2
            
            
            137.0
            
            
            39.4Other
                purchase obligations
            
            
            360.5
            
            
            86.5
            
            
            140.2
            
            
            95.7
            
            
            38.1Total
            
            $
            1,907.1
            
            $
            305.3
            
            $
            554.3
            
            $
            338.6
            
            $
            708.9





We
      will
      be obligated under an employee benefits agreement with Kerr-McGee to maintain
      the Material Features (as defined in the employee benefits agreement) of the
      U.S. postretirement plan without change for a period of three years following
      the effective date of the Distribution. Based on the actuarially determined
      obligations under that plan, we expect contributions to be approximately $10.0
      million for each of the next five years.





**Environmental
      Matters**





***Current
      Businesses***





We
      are
      subject to a broad array of international, federal, state and local laws and
      regulations relating to environmental protection. Under these laws, we are
      or
      may be required to obtain or maintain permits or licenses in connection with
      our
      operations. In addition, under these laws, we are or may be required to remove
      or mitigate the effects on the environment of the disposal or release of
      chemical, petroleum, low-level radioactive and other substances at various
      sites. Environmental laws and regulations are becoming increasingly stringent,
      and compliance costs are significant and will continue to be significant in
      the
      foreseeable future. There can be no assurance that such laws and regulations
      or
      any environmental law or regulation enacted in the future is not likely to
      have
      a material effect on us.





Sites
      at which we have environmental responsibilities include sites that have been
      designated as Superfund sites by the U.S. EPA pursuant to CERCLA and that are
      included on the National Priority List (“NPL”). As of December 31, 2005, we had
      received notices that we had been named a PRP with respect to 12 existing EPA
      Superfund sites on the NPL that require remediation. We do not consider the
      number of sites for which we have been named a PRP to be the determining factor
      when considering our overall environmental liability.





Decommissioning
      and remediation obligations, and the attendant costs, vary substantially from
      site to site and depend on unique site characteristics, available technology
      and
      the regulatory requirements applicable to each site. Additionally, we may share
      liability at some sites with numerous other PRPs, and U.S. law currently imposes
      joint and several liability on all PRPs under CERCLA. We are also obligated
      to
      perform or have performed remediation or remedial investigations and feasibility
      studies at sites that have not been designated as Superfund sites by EPA. Such
      work frequently is undertaken pursuant to consent orders or other
      agreements.





***Legacy
      Businesses***





Historically,
      we have engaged in businesses unrelated to our current primary business, such
      as
      the treatment of forest products, the production of ammonium perchlorate, the
      refining and marketing of petroleum products, offshore contract drilling, coal
      mining and the mining, milling and processing of nuclear materials. Although
      we
      are no longer engaged in such businesses, residual obligations with respect
      to
      certain of these businesses still exist, including obligations related to
      compliance with environmental laws and regulations, including the Clean Water
      Act, the Clean Air Act, the Atomic Energy Act, CERCLA and the Resource
      Conservation and Recovery Act. These laws and regulations require us to
      undertake remedial measures at sites of current and former operations or at
      sites where waste was disposed. For example, we are required to conduct
      decommissioning and environmental remediation at certain refineries, production
      and distribution facilities and service stations previously owned or operated
      before exiting the refining and marketing business in 1995. We also are required
      to conduct decommissioning and remediation activities at sites where we were
      involved in the exploration, production, processing or sale of minerals,
      including uranium and thorium compounds and at sites where we were involved
      in
      the production and sale of ammonium perchlorate. Additionally, we are
      decommissioning and remediating our former wood-treatment facilities as part
      of
      our exit from the forest products business. For a description of the
      decommissioning and remediation activities in which we currently are engaged,
      see “ *Environmental
      Costs* ”
below
      and Note 22 to the Consolidated and Combined Financial Statements included
      in Item 8 of this annual report on Form 10-K.





***Environmental
      Costs***





Expenditures
      for environmental protection and cleanup for each of the last three years and
      for the three-year period ended December 31, 2005, are as
      follows:







**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**
            
            **Total****(Millions
                of dollars)**Cash
                expenditures of environmental reserves
            
            $
            61.1
            
            $
            85.2
            
            $
            97.9
            
            $
            244.2Recurring
                operating expenses
            
            
            41.4
            
            
            33.4
            
            
            33.8
            
            
            108.6Capital
                expenditures
            
            
            10.7
            
            
            8.6
            
            
            14.0
            
            
            33.3










Recurring
      operating expenses are expenditures related to the maintenance and operation
      of
      environmental equipment such as incinerators, waste treatment systems and
      pollution control equipment, as well as the cost of materials, energy and
      outside services needed to neutralize, process, handle and dispose of current
      waste streams at our operating facilities. These expenditures are necessary
      to
      ensure that current production is handled in an environmentally safe and
      effective manner.




In
      addition to past expenditures, reserves have been established for the
      remediation and restoration of active and inactive sites where it is probable
      that future costs will be incurred and the liability is reasonably estimable.
      For environmental sites, we consider a variety of matters when setting reserves,
      including the stage of investigation; whether EPA or another relevant agency
      has
      ordered action or quantified cost; whether we have received an order to conduct
      work; whether we participate as a PRP in the Remedial Investigation/Feasibility
      Study (RI/FS) process and, if so, how far the RI/FS has progressed; the status
      of the record of decision by the relevant agency; the status of site
      characterization; the stage of the remedial design; evaluation of existing
      remediation technologies; the number and financial condition of other potential
      PRPs; and whether we can reasonably evaluate costs based on a remedial design
      or
      engineering plan.




After
      the remediation work has begun, additional accruals or adjustments to costs
      may
      be made based on any number of developments, including revisions to the remedial
      design; unanticipated construction problems; identification of additional areas
      or volumes of contamination; inability to implement a planned engineering design
      or to use planned technologies and excavation methods; changes in costs of
      labor, equipment or technology; any additional or updated engineering and other
      studies; and weather conditions. Additional reserves of $69.0 million,
      $81.4 million and $88.2 million were added in 2005, 2004 and 2003,
      respectively, for active and inactive sites.





As
      of
      December 31, 2005, our financial reserves for all active and inactive sites
      totaled $223.7 million. This includes $69.0 million added to the
      reserves in 2005 for active and inactive sites. In the Consolidated and Combined
      balance sheet at December 31, 2005, included in Item 8 of this annual
      report on Form 10-K, $145.9 million of the total reserve is classified as
      noncurrent liabilities-environmental remediation or restoration, and the
      remaining $77.8 million is included in accrued liabilities. We believe we
      have reserved adequately for the reasonably estimable costs of known
      environmental contingencies. However, additional reserves may be required in
      the
      future due to the previously noted uncertainties.





Pursuant
      to the MSA, Kerr-McGee has agreed to reimburse us for a portion of the
      environmental remediation costs we incur and pay after the IPO (net of any
      cost
      reimbursements we expect to recover from insurers, governmental authorities
      or
      other parties). The reimbursement obligation extends to costs incurred at any
      site associated with any of our former businesses or operations.





With
      respect to any site for which we have established a reserve as of the effective
      date of the MSA, 50% of the remediation costs we incur and pay in excess of
      the
      reserve amount (after meeting a $200,000 minimum threshold amount) will be
      reimbursable by Kerr-McGee, net of any amounts recovered or, in our reasonable
      and good faith estimate, that will be recovered from third parties. With respect
      to any site for which we have not established a reserve as of the effective
      date
      of the MSA, 50% of the amount of the remediation costs we incur and pay (after
      meeting a $200,000 minimum threshold amount) will be reimbursable by Kerr-McGee,
      net of any amounts recovered or, in our reasonable and good faith estimate,
      that
      will be recovered from third parties.





Kerr-McGee’s
      aggregate reimbursement obligation to us cannot exceed $100 million and is
      subject to various other limitations and restrictions. For example, Kerr-McGee
      is not obligated to reimburse us for amounts we pay to third parties in
      connection with tort claims or personal injury lawsuits, or for administrative
      fines or civil penalties that we are required to pay. Kerr-McGee’s reimbursement
      obligation also is limited to costs that we actually incur and pay within seven
      years following the IPO.








The
      following table reflects our portion of the known estimated costs of
      investigation or remediation that are probable and estimable. The table
      summarizes EPA Superfund NPL sites where we have been notified we are a PRP
      under CERCLA and other sites for which we had financial reserves recorded at
      year-end 2005. In the table, aggregated information is presented for other
      sites
      (each of which has a remaining reserve balance of less than $3 million).
      The reimbursement obligation discussed above applies to each of the sites
      specifically identified in the table below. Sites specifically identified in
      the
      table below are discussed in Note 22 to the Consolidated and Combined
      Financial Statements included in Item 8 of this annual report on Form 10-K.





**Location
                of Site**
            **Stage
                of Investigation/Remediation**
            **Total**
              **Expenditures**
              **Through**
              **December
                31, 2005**
            **Remaining**
              **Reserve**
              **Balance
                at**
              **December
                31, 2005**
            **Total****(Millions
                of dollars)****EPA
                Superfund sites on NPL**West
                Chicago, Illinois(1)
              Vicinity
                areas
            Remediation
                of thorium tailings at residential areas and Reed-Keppler Park is
                substantially complete. Cleanup of thorium tailings at Kress Creek
                and
                Sewage Treatment Plant is ongoing.
            $141
            $75
            $216Milwaukee,
                Wisconsin
            Completed
                soil cleanup at former wood-treatment facility and began cleanup
                of
                offsite tributary creek. Groundwater remediation and cleanup of tributary
                creek is continuing.
            41
            4
            45Lakeview,
                Oregon
            Consolidation
                and capping of contaminated soils and neutralization of acidic waters
                from
                former uranium mining is ongoing.
            7
            4
            11Soda
                Springs, Idaho
            All
                former impoundments of calcine tailings have been closed as required
                by a
                record of decision (“ROD”). The ROD also requires continuation of
                groundwater monitoring. Closure of an additional ten-acre pond, not
                a part
                of the ROD, will be completed within two years. Duration of groundwater
                monitoring is unknown.
            3
            3
            6Other
                sites
            Sites
                where the company has been named a PRP, including landfills, wood-treating
                sites, a mine site and an oil recycling refinery. These sites are
                in
                various stages of investigation/remediation.
            15
            —
            15207
            86
            293











**Location
                of Site**
            **Stage
                of Investigation/Remediation**
            **Total**
              **Expenditures**
              **Through**
              **December
                31, 2005**
            **Remaining**
              **Reserve**
              **Balance
                at**
              **December
                31, 2005**
            **Total****(Millions
                of dollars)****Sites
                under consent order, license or agreement, not on EPA Superfund
                NPL**West
                Chicago, Illinois(1)
              Former
                manufacturing facility
            Excavation,
                removal and disposal of contaminated soils at former thorium mill
                are
                substantially complete. The site will be used for moving material
                from the
                Kress Creek and Sewage Treatment Plant remediation sites. Surface
                restoration and groundwater monitoring and remediation are expected
                to
                continue for approximately ten years.
            $
                447
            $
                12
            $
                459Cushing,
                Oklahoma
            Excavation,
                removal and disposal of thorium and uranium residuals were substantially
                completed in 2004. Investigation of and remediation addressing hydrocarbon
                contamination is continuing.
            147
            12
            159Henderson,
                Nevada(2)
            Groundwater
                treatment to address ammonium perchlorate contamination is being
                conducted
                under consent decree with Nevada Department of Environmental
                Protection.
            124
            37
            161Ambrosia
                Lake, New Mexico
            Uranium
                mill tailings and selected pond sediments consolidated and capped
                onsite.
                A request to end groundwater treatment and a decommissioning plan
                for
                impacted soils are under review by the NRC.
            28
            11
            39Crescent,
                Oklahoma
            Buildings
                and soil decommissioning complete. Evaluating available technologies
                to
                address limited on-site radionuclide contamination of
                groundwater.
            48
            7
            55Sauget,
                Illinois
            Soil
                remediation of wood-treatment related contamination is ongoing. Conducting
                groundwater monitoring and evaluating options to remediate sediment
                and
                surface water.
            8
            9
            17








**Location
                  of Site**
              **Stage
                  of Investigation/Remediation**
              **Total**
                **Expenditures**
                **Through**
                **December
                  31, 2005**
              **Remaining**
                **Reserve**
                **Balance
                  at**
                **December
                  31, 2005**
              **Total****(Millions
                  of dollars)****Sites
                  under consent order, license or agreement, not on EPA Superfund
                  NPL**Hattiesburg,
                  Mississippi
              Completed
                  remediation of process areas at former wood-treatment facility
                  and
                  completed most off-site remediation. Off-site remediation to be
                  completed
                  when access to certain properties is granted.
              $
                  12
              $
                  3
              $
                  15Cleveland,
                  Oklahoma
              Facility
                  is dismantled and certain interim remedial measures to address
                  air, soil,
                  surface water and groundwater contamination are complete. Design
                  of
                  on-site containment cell has been submitted for approval.
              19
              4
              23Calhoun,
                  Louisiana
              Soil
                  and groundwater remediation of petroleum hydrocarbons at a former
                  gas
                  condensate stripping facility is ongoing.
              22
              5
              27Jacksonville,
                  Florida
              Remedial
                  investigation of a former manufacturing and processing site for
                  fertilizers, pesticides and herbicides completed. Feasibility study
                  with
                  recommended remediation activities expected to be submitted to
                  EPA in
                  2006.
              4
              6
              10Other
                  sites
              Sites
                  related to wood-treatment, chemical production, landfills, mining,
                  and oil
                  and gas refining, distribution and marketing. These sites are in
                  various
                  stages of investigation/remediation.
              169
              32
              2011,028
              138
              1,166Total
              $1,235
              $224
              $1,459





(1)
            Amounts
                reported in the table for the West Chicago sites are not reduced
                for
                actual or expected reimbursement from the U.S. government under Title
                X of
                the Energy Policy Act of 1992 (Title X), described in Note 22 to the
                Consolidated and Combined Financial Statements included in Item 8
                of this
                annual report on Form 10-K.





(2)
            Amounts
                reported in the table for the Henderson, Nevada site are not reduced
                for
                actual or expected reimbursement from the U.S. government under a
                consent
                decree settlement nor for expected insurance policy recoveries, described
                in Note 22 to the Consolidated and Combined Financial Statements
                included in Item 8 of this annual report on Form
                10-K.








There
      may be other sites where we have potential liability for environmental-related
      matters but for which we do not have sufficient information to determine that
      the liability is probable or reasonably estimable. We have not established
      reserves for such sites. One such site involves a former wood treatment plant
      in
      New Jersey.




Tronox
      LLC was named in 1999 as a PRP under CERCLA at a former wood-treatment site
      in
      New Jersey at which EPA is conducting a cleanup. On April 15, 2005, Tronox
      LLC and Tronox Worldwide LLC received a letter from EPA asserting they are
      liable under CERCLA as a former owner or operator of the site and demanding
      reimbursement of costs expended by EPA at the site. The letter made demand
      for
      payment of past costs in the amount of approximately $179 million, plus
      interest though EPA has informed Tronox LLC that it expects final project costs
      will be approximately $236 million, plus possible other costs and interest.
      Tronox LLC did not operate the site, which had been sold to a third party before
      Tronox LLC succeeded to the interests of a predecessor owner in the 1960s.
      The
      predecessor also did not operate the site, which had been closed down before
      it
      was acquired by the predecessor. Based on historical records, there are
      substantial uncertainties about whether or under what terms the predecessor
      assumed liabilities for the site. In addition, although it appears there may
      be
      other PRPs, the company does not know whether the other PRPs have received
      similar letters from EPA, whether there are any defenses to liability available
      to the other PRPs or whether the other PRPs have the financial resources
      necessary to meet their obligations. The company intends to vigorously defend
      against EPA’s demand, though the company expects to have discussions with EPA
      that could lead to a settlement or resolution of EPA’s demand. No reserve for
      reimbursement of cleanup costs at the site has been recorded because it is
      not
      possible to reliably estimate the liability, if any, the company may have for
      the site because of the aforementioned defenses and uncertainties.





**Critical
      Accounting Policies**





Preparation
      of financial statements in conformity with accounting principles generally
      accepted in the United States requires management to make estimates, judgments
      and assumptions regarding matters that are inherently uncertain and that
      ultimately affect the reported amounts of assets, liabilities, revenues and
      expenses, and the disclosure of contingent assets and liabilities. Even so,
      the
      accounting principles we use generally do not impact our reported cash flows
      or
      liquidity. Generally, accounting rules do not involve a selection among
      alternatives, but involve a selection of the appropriate policies for applying
      the basic principles. Interpretation of the existing rules must be done and
      judgments made on how the specifics of a given rule apply to us.





The
      more significant reporting areas impacted by management’s judgments, estimates
      and assumptions are recoverability of long-lived assets, restructuring and
      exit
      activities, environmental remediation, tax accruals and benefit plans.
      Management’s judgments, estimates and assumptions in these areas are based on
      information available from both internal and external sources, including
      engineers, legal counsel, actuaries, environmental studies and historical
      experience in similar matters. Actual results could differ materially from
      those
      judgments, estimates and assumptions as additional information becomes
      known.





The
      following description of our critical accounting policies is not intended to
      be
      an all-inclusive discussion of the uncertainties considered and estimates made
      by management in applying accounting principles and policies. Results may vary
      significantly if different policies were used or required and if new or
      different information becomes known to management.





***Long-Lived
      Assets***





Key
      estimates related to long-lived assets include useful lives, recoverability
      of
      carrying values and existence of any retirement obligations. As a result of
      future decisions, such estimates could be significantly modified. The estimated
      useful lives of our property, plant and equipment range from three to
      40 years and depreciation is recognized on the straight-line basis. Useful
      lives are estimated based upon our historical experience, engineering estimates
      and industry information. Our estimates include an assumption regarding periodic
      maintenance and an appropriate level of annual capital expenditures to maintain
      the assets.








Long-lived
      assets are evaluated for potential impairment whenever events or changes in
      circumstances indicate that carrying value may be greater than future net cash
      flows. Such evaluations involve a significant amount of judgment since the
      results are based on estimated future events, such as sales prices; costs to
      produce the products; the economic and regulatory climates; and other factors.
      We cannot predict when or if future impairment charges will be required for
      held-for-use assets.





***Restructuring
      and Exit Activities***





We
      have
      recorded charges in recent periods in connection with closing facilities and
      work force reduction programs. These charges are recorded when management
      commits to a plan and incurs a liability related to the plan. Estimates for
      plant closing include write-down of inventory value, write-down of property,
      plant and equipment, any necessary environmental or regulatory costs, contract
      termination, asset retirement obligations and severance costs. Estimates for
      work force reductions are recorded based on estimates of the number of positions
      to be terminated, termination benefits to be provided, estimates of any enhanced
      benefits provided under pension and postretirement plans and the period over
      which future service will continue, if any. We evaluate the estimates on a
      quarterly basis and adjust the reserves when information indicates that the
      estimates are above or below the initial estimates. For additional information
      regarding work force reduction programs and exit activities, see Note 16 to
      the Consolidated and Combined Financial Statements included in Item 8 of this
      annual report on Form 10-K. Changes in estimates of provisions for restructuring
      and exit activities were not significant over the last three years.





***Environmental
      Remediation and Other Contingency Reserves***





Our
      management makes judgments and estimates in accordance with applicable
      accounting rules when it establishes reserves for environmental remediation,
      litigation and other contingent matters. Provisions for such matters are charged
      to expense when it is probable that a liability has been incurred and reasonable
      estimates of the liability can be made. Estimates of environmental liabilities,
      which include the cost of investigation and remediation, are based on a variety
      of matters, including, but not limited to, the stage of investigation, the
      stage
      of the remedial design, the availability of existing remediation technologies,
      presently enacted laws and regulations and the state of any related legal or
      administrative investigation or proceedings. In future periods, a number of
      factors could significantly change our estimate of environmental remediation
      costs, such as changes in laws and regulations, revisions to the remedial
      design, unanticipated construction problems, identification of additional areas
      or volumes of contamination, and increases in labor, equipment and technology
      costs, changes in the financial condition of other potentially responsible
      parties and the outcome of any related legal and administrative proceedings
      to
      which we are or may become a party. Consequently, it is not possible for us
      to
      reliably estimate the amount and timing of all future expenditures related
      to
      environmental or other contingent matters and actual costs could exceed our
      current reserves.





Before
      considering reimbursements of our environmental costs discussed below, we
      provided $69.0 million, $81.4 million and $88.2 million pre-tax
      for environmental remediation and restoration costs in 2005, 2004 and 2003,
      respectively, including provisions of $29.9 million, $75.7 million and
      $52.3 million in 2005, 2004 and 2003, respectively, related to former
      businesses reflected as a component of loss from discontinued
      operations.





To
      the
      extent costs of investigation and remediation are recoverable from the U.S.
      government or Kerr-McGee, and have been incurred or are recoverable under
      certain insurance policies or from other parties and such recoveries are deemed
      probable, we record a receivable. In considering the probability of receipt,
      we
      evaluate our historical experience with receipts, as well as our claim
      submission experience. At December 31, 2005, estimated recoveries of
      environmental costs recorded in the Consolidated and Combined Balance Sheet
      totaled $56.7 million. Provisions for environmental remediation and
      restoration in the Consolidated and Combined Statement of Operations were
      reduced by $34.3 million, $14.2 million and $32.2 million in
      2005, 2004 and 2003, respectively, for estimated recoveries, including
      recoveries of $12.3 million, $14.2 million and $11.2 million in
      2005, 2004 and 2003, respectively, related to former businesses reflected as
      a
      component of loss from discontinued operations.





For
      additional information about contingencies, refer to “ *Environmental
      Matters* ”
above
      and Note 22 to the Consolidated and Combined Financial Statements included
      in Item 8 of this annual report on Form 10-K.





***Income
      Taxes***





The
      closing of the IPO resulted in the deconsolidation of the company from
      Kerr-McGee under U.S. Federal income tax laws. We continued as a member included
      in the U.S. Federal consolidated income tax return of Kerr-McGee up to the
      deconsolidation date. Prior to the deconsolidation date, we had not been a
      party
      to a tax-sharing agreement with Kerr-McGee but had consistently followed an
      allocation policy whereby Kerr-McGee has allocated its members of the
      consolidated return provisions and/or benefits based upon each member’s taxable
      income or loss. This allocation methodology resulted in the recognition of
      deferred assets and liabilities for the differences between the financial
      statement carrying amounts and their respective tax basis, except to the extent
      for deferred taxes on income considered to be permanently reinvested in foreign
      jurisdictions. Deferred tax assets and liabilities are measured using enacted
      tax rates expected to apply to taxable income in the years in which those
      temporary differences are expected to be recovered or settled. Kerr-McGee has
      allocated current tax benefits to the members of its consolidated return,
      including us, that have generated losses that are utilized or expected to be
      utilized on the U.S. Federal consolidated income tax return. The income taxes
      presented as a result of this allocation methodology are not consistent with
      that calculated on a stand-alone tax return basis. In addition, Kerr-McGee
      manages its tax position for the benefit of its entire portfolio of businesses,
      and its tax strategies are not necessarily reflective of those tax strategies
      that we would have followed or will follow as a stand-alone
      company.





Upon
      closing the IPO and with the deconsolidation, we entered into a tax sharing
      agreement with Kerr-McGee that governs Kerr-McGee’s and our respective rights,
      responsibilities and obligations with respect to taxes for tax periods ending
      in
      2005 and prior. Generally, taxes incurred or accrued prior to the IPO that
      are
      attributable to the business of one party will be borne solely by that party.
      In
      addition, the tax sharing agreement addresses the allocation of liability for
      taxes incurred as a result of restructuring activities undertaken to implement
      the separation and distribution. We are required to indemnify Kerr-McGee for
      any
      tax liability incurred by reason of the Distribution by Kerr-McGee of our
      Class B common stock to its stockholders being considered a taxable
      transaction to Kerr-McGee as a result of a breach of any of our representations,
      warranties or covenants contained in the tax sharing agreement.





Under
      U.S. federal income tax laws, we and Kerr-McGee are jointly and severally liable
      for Kerr-McGee’s federal income taxes attributable to the periods prior to and
      including Kerr-McGee’s current taxable year, which ends on December 31,
      2005. If Kerr-McGee fails to pay the taxes attributable to it under the tax
      sharing agreement for periods prior to and including its current taxable year,
      we could be liable for any part of, including the whole amount of, these tax
      liabilities.





***Benefit
      Plans***





*U.S.
      Plans.* Our
      U.S. employees participate in the noncontributory defined benefit retirement
      plans and the contributory postretirement plans for health care and life
      insurance sponsored by Kerr-McGee. Our consolidated and combined results of
      operations reflect costs associated with Kerr-McGee’s U.S. plans which have been
      allocated by Kerr-McGee based on salary for defined benefit retirement plans
      and
      based on active headcount for postretirement plans, but do not reflect assets
      and liabilities associated with our employees’ participation in the plans, since
      we were not the plan sponsor for the historical periods presented.





Effective
      upon completion of the Distribution, we intend to establish a U.S. tax-qualified
      defined benefit retirement plan and related trust for our employees and former
      employees who participated in Kerr-McGee’s defined benefit retirement plans at
      the Distribution date. In connection with our assumption of obligations,
      Kerr-McGee will transfer assets from the trust for Kerr-McGee’s defined benefit
      retirement plans to the trust we will establish. It is estimated that our
      defined benefit obligation for this plan, determined on a plan termination
      basis
      as set forth in the employee benefits agreement, will be approximately
      $435.0 million and will be fully funded at the Distribution
      date.








We
      also
      intend to establish postretirement benefit plans for health care and life
      insurance and health and welfare benefits, which we expect will be an unfunded
      plan that will have comparable features to the plan currently maintained by
      Kerr-McGee. In connection with the establishment of our postretirement plans,
      we
      estimate that the accumulated benefit obligation relating to all eligible
      retired and active vested participants related to us of approximately
      $149.0 million will be assumed by us upon completion of the
      Distribution.





The
      estimated defined benefit obligation and the estimated postretirement health
      and
      welfare benefit obligation that we will assume has been made based primarily
      on
      Kerr-McGee plan assumptions as of December 31, 2005, and participant data as
      of
      January 1, 2006. Trust assets to be transferred were estimated using interest
      rate and other assumptions as of February 28, 2006. The assumptions and
      participant data will be updated as of the Distribution date and could result
      in
      a change in the liability assumed and trust assets to be
      transferred.





To
      measure plan obligations and attribute cost to periods when employee services
      are provided, we will form various assumptions related to the newly established
      plans, including discount rate, rate of compensation increases, long-term rate
      of return, mortality and retirement rates, inflation and health care cost trend
      rate, among others. Some of these assumptions are specific to us and our
      employee groups covered, and, therefore, are expected to be different from
      assumptions formed by Kerr-McGee for its plans. Therefore, application of such
      assumptions by us may result in different amounts of net periodic cost (benefit)
      recognized in our financial statements in future periods compared to the net
      periodic cost (benefit) historically allocated to us by Kerr-McGee (amounts
      historically allocated are presented in Note 19 to the Consolidated and
      Combined Financial Statements included in Item 8 of this annual report on Form
      10-K.) Further, we currently do not reflect any assets or liabilities associated
      with Kerr-McGee’s U.S. defined benefit retirement and postretirement
      plans.





*Foreign
      Benefit Plans.* We
      currently provide defined benefit retirement plans for employees in Germany
      and
      the Netherlands and account for these plans in accordance with FAS No. 87,
“ *Employers* ’ *Accounting for Pensions* .”
The
      various assumptions used and the attribution of the costs to periods of employee
      service are fundamental to the measurement of net periodic cost and pension
      obligations associated with the retirement plans.





The
      following are considered significant assumptions related to our foreign
      retirement plans:





·
            Long-term
                rate of return (applies to our plan in the Netherlands
                only)


·
            Discount
                rate


·
            Rate
                of compensation increases





Other
      factors considered in developing actuarial valuations include long-term
      inflation rates, retirement rates, mortality rates and other factors. Assumed
      long-term inflation rates are based on an evaluation of external market
      indicators. Retirement rates are based primarily on actual plan experience.
      Long-term rate of return assumption for the Netherlands plan is developed
      considering the portfolio mix and country-specific economic data that includes
      the expected long-term rates of return on local government and corporate bonds.
      The discount rate assumption is based on long-term local corporate bond index
      rates. We determine rate of compensation increases assumption based on our
      long-term plans for compensation increases specific to employee groups covered.
      The assumed rate of salary increases includes the effects of merit increases,
      promotions and general inflation. Additional information regarding the
      significant assumptions relevant to the determination of the net periodic
      pension cost and the actuarially determined present value of the benefit
      obligations is included in Note 19 to the Consolidated and Combined
      Financial Statements included in Item 8 of this annual report on Form
      10-K.





*Unrecognized
      Gains (Losses) and Prior Service Cost -* ****** Accounting
      standards currently in effect provide for deferring the recognition of certain
      gains and losses resulting from changes in actuarial assumptions and from
      experience different from that assumed (such as the difference between the
      actual and expected return on plan assets). Similarly, a portion of increases
      or
      reductions in the benefit obligations attributable to plan participants’ prior
      service arising from a plan amendment is also deferred. At December 31, 2005,
      unrecognized net actuarial losses and unrecognized net prior service gain for
      our foreign plans totaled $21.2 million and $1.4 million, respectively.
      Following accounting guidance currently in effect, amortization of these
      unrecognized items will be included as a component of net periodic cost over
      the
      remaining service period of plan participants expected to receive benefits
      under
      the plan. The average amortization periods for unrecognized net actuarial losses
      and unrecognized prior service gain as of December 31, 2005, are approximately
      11 and 9 years, respectively. The component of the 2006 net periodic cost
      related to amortization of unrecognized items for our foreign retirement plans
      is estimated to be approximately $1.0 million.








In
      connection with the assumption of the obligation for the U.S. retirement and
      health and welfare postretirement plans and the associated trust assets, as
      discussed above, we will recognize assets and liabilities upon completion of
      the
      Distribution that will reflect the funded status of our newly-established U.S.
      benefit plans, as well as net unrecognized actuarial losses and prior service
      cost associated with the assumed benefit obligation. As a result, net periodic
      cost in periods subsequent to the Distribution is expected to increase,
      reflecting amortization of such unrecognized items.





*FASB
      Project* - The
      Financial Accounting Standards Board (“FASB”) has recently initiated a project
      that is expected to result in issuing a new accounting standard later in 2006.
      Assuming the provisions of the final standard are consistent with decisions
      reached by the FASB to date, the standard will require recognition on the
      balance sheet of unrecognized items discussed above, with an offsetting change
      in accumulated other comprehensive income (loss) in equity. This initial stage
      of the FASB project is not expected to affect the measurement of the net
      periodic cost. The result of such accounting policy will be the recognition
      on
      the balance sheet of the over or (under) funded status of the plans (or the
      difference between the benefit obligation and the fair value of plan assets,
      if
      any).





**New/Revised
      Accounting Standards**





In
      November 2004, the FASB issued FAS No. 151, “Inventory Costs - an
      Amendment of ARB No. 43, Chapter 4,” which requires that abnormal amounts
      of idle facilities cost, freight, handling costs and spoilage be expensed as
      incurred and not capitalized as inventory. FAS No. 151 is effective for
      inventory costs incurred during fiscal years beginning after June 15, 2005.
      The company will adopt the standard effective January 1, 2006. The effect
      of adoption is not expected to have a material effect on the company’s financial
      position or results of operations.





In
      December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based
      Payment” (“FAS No. 123R”), which replaces FAS No. 123 and supersedes Accounting
      Principles Board Opinion (“APB”) No. 25. FAS No. 123R requires all share-based
      payments to employees to be recognized in the financial statements based on
      their fair values. The company will adopt FAS No. 123R effective January 1,
      2006, using the modified prospective method, as permitted by the standard.
      The
      modified prospective method requires that compensation expense be recorded
      for
      all unvested share-based compensation awards at the beginning of the first
      quarter of adoption. The following provides a summary of some of the
      implementation effects of this standard:





·
            Stock-based
                compensation expense recognized in the Consolidated and Combined
                Statement
                of Operations will be higher, reflecting a change in the measurement
                basis
                of stock options from intrinsic to fair value. The magnitude of the
                increase will depend upon the number of options granted and other
                factors
                affecting fair value.


·
            Net
                cash flows provided by operating activities will be lower and cash
                flows
                from financing activities will be higher by the amount of the reduction
                in
                cash income taxes as a result of tax deductibility of stock options
                and
                restricted stock awards.





In
      2005, the FASB initiated a project titled “Postretirement Benefit Obligations
      Other than Pensions,” which is expected to result in the issuance of a new
      accounting standard later in 2006. The possible effects of the expected standard
      on our Consolidated and Combined Balance Sheet are discussed above under
“ *Critical
      Accounting Policies - Benefit Plans - FASB Project.”*




**Item
      7A.**  **Quantitative
      and Qualitative Disclosure about Market Risk**





We
      are
      exposed to market risks, including credit risk, from fluctuations in foreign
      currency exchange rates and natural gas prices. To reduce the impact of these
      risks on earnings and to increase the predictability of cash flows, from time
      to
      time, we enter into derivative contracts, primarily forward contracts to buy
      and
      sell foreign currencies. In addition to information included in this section,
      see Notes 2 and 12 to the Consolidated and Combined Financial Statements
      included in Item 8 of this annual report on Form 10-K.








***Foreign
      Currency Exchange Rate Risk***





The
      U.S. dollar is the functional currency for our international operations, except
      for our European operations, for which the euro is the functional currency.
      Periodically, we enter into forward contracts to buy and sell foreign
      currencies. Certain of our contracts for the purchase of Australian dollars
      and
      the sale of euros have been designated and have qualified as cash flow hedges
      of
      our anticipated future cash flows related to pigment sales, raw material
      purchases and operating costs. These contracts generally have durations of
      less
      than three years. Changes in the fair value of these contracts are recorded
      in
      accumulated other comprehensive income (loss) and are recognized in earnings
      in
      the periods during which the hedged forecasted transactions affect
      earnings.





The
      following table presents the notional amounts at the contract exchange rates
      and
      the weighted-average contractual exchange rates for contracts to purchase (sell)
      foreign currencies outstanding at year-end 2005 and 2004. All amounts are U.S.
      dollar equivalents. The estimated fair value of our foreign currency forward
      contracts is based on the year-end forward exchange rates quoted by financial
      institutions. At December 31, 2005 and 2004, the net fair value of our
      foreign currency forward contracts was an asset of $0.7 million and a liability
      of $3.6 million, respectively.





**Notional**
              **Amount**
            **Weighted-**
              **Average**
              **Contract
                Rate****(Millions
                of dollars,**
              **except
                average contract rates)**Open
                contracts at December 31, 2005-Maturing
                in 2006:Euro
            $(17)
            1.2523Australian
                dollar
            5
            .7539Open
                contracts at December 31, 2004-Maturing
                in 2005:Euro
            $(72)
            1.2998Japanese
                yen
            (1)
            .0095New
                Zealand dollar
            (1)
            .6873British
                pound sterling
            (1)
            1.8043




***Interest
      Rate Risk***





We
      are
      exposed to changes in interest rates, primarily as a result of our debt
      obligations. The fair value of our fixed-rate debt is affected by changes in
      market interest rates. Our variable-rate debt exposes us to the risk of higher
      interest cost if market interest rates increase. Based on the current mix of
      variable and fixed-rate debt, we do not expect the impact of changes in interest
      rates to be material to our earnings or cash flows.











The
      table below presents principal amounts and related interest rates by maturity
      date for the company’s debt obligations outstanding at December 31, 2005:





**Fair****There-**
            
            
            
            **Value****2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **After**
            
            **Total(1)**
            
            **12/31/05****(Millions
                of dollars)**Fixed-rate
                debt -Principal
                amount
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            350.0
            
            $
            350.0
            
            $
            358.2Interest
                rate
            
            
            -
            %
            
            -
            %
            
            -
            %
            
            -
            %
            
            -
            %
            
            9.50
            %
            
            9.50
            %Variable-rate
                debt -Principal
                amount
            
            $
            2.0
            
            $
            2.0
            
            $
            2.0
            
            $
            2.0
            
            $
            2.0
            
            $
            190.0
            
            $
            200.0
            
            $
            200.0Weighted-averageinterest
                rate
            
            
            6.55
            %
            
            6.57
            %
            
            6.57
            %
            
            6.57
            %
            
            6.57
            %
            
            6.57
            %
            
            6.57
            %





(1)
            Principal
                amounts represent future payments and exclude the unamortized discount
                of
                $13.1 million.





***Natural
      Gas Derivatives***





From
      time to time, we enter into financial derivative instruments that generally
      fix
      the commodity prices to be paid for a portion of our forecasted natural gas
      purchases. These contracts have been designated and qualified as cash flow
      hedges. As such, the resulting changes in fair value of these contracts, to
      the
      extent effective in achieving their risk management objective, are recorded
      in
      accumulated other comprehensive income. At December 31, 2005 and 2004, the
      fair value of natural gas derivatives included in our Consolidated and Combined
      Balance Sheet was a liability of $1.4 million and an asset of $2.0 million,
      respectively. These amounts will be recognized in earnings in the periods during
      which the hedged forecasted transactions affect earnings (i.e., reported as
      cost
      of goods sold when product is sold).








**Item
      8.  Financial Statements
      and Supplementary Data**





Index
                to the Consolidated and Combined Financial Statements
            PAGEReport
                of Independent Registered Public Accounting Firm on Consolidated
              and Combined Financial Statements
            59Consolidated
                and Combined Statement of Operations for the years ended
              December 31, 2005, 2004 and 2003
            60Consolidated
                and Combined Balance Sheet at December 31, 2005 and
                2004
            61Consolidated
                and Combined Statement of Cash Flows for the years ended
              December 31, 2005, 2004 and 2003
            62Consolidated
                and Combined Statement of Comprehensive Income (Loss) and
                Business/Stockholders’ Equity for the years ended December 31, 2005,
                2004 and 2003
            63Notes
                to Consolidated and Combined Financial Statements
            64Index
                to
                the Financial Statement SchedulesSchedule
                II - Valuation Accounts and Reserves
            113All
                other schedules are omitted because they are either not applicable
                or the
                information is presented in the financial statements or the notes
                to the
                financial statements.













**Report
      of Independent Registered Public Accounting Firm on Consolidated**


**and
      Combined Financial Statements**





The
      Board of Directors and Stockholders


Tronox
      Incorporated





We
      have
      audited the accompanying consolidated and combined balance sheets of Tronox
      Incorporated as of December 31, 2005 and 2004, and the related consolidated
      and combined statements of operations, comprehensive income (loss) and
      business/stockholders’ equity, and cash flows for each of the three years in the
      period ended December 31, 2005. Our audits also included the financial
      statement schedule listed in the Index in Item 8. These financial statements
      and
      schedule are the responsibility of the Company’s management. Our responsibility
      is to express an opinion on these financial statements and schedule based on
      our
      audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. We were not engaged to perform
      an
      audit of the Company’s internal control over financial reporting. Our audit
      included consideration of internal control over financial reporting as a basis
      for designing audit procedures that are appropriate in the circumstances, but
      not for the purpose of expressing an opinion on the effectiveness of the
      Company’s internal control over financial reporting. Accordingly, we express no
      such opinion. An audit includes examining, on a test basis, evidence supporting
      the amounts and disclosures in the financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated and combined financial position of Tronox
      Incorporated at December 31, 2005 and 2004, and the consolidated and
      combined results of their operations and their cash flows for each of the three
      years in the period ended December 31, 2005, in conformity with U.S.
      generally accepted accounting principles. Also, in our opinion, the related
      financial statement schedule, when considered in relation to the basic financial
      statements taken as a whole, presents fairly in all material respects the
      information set forth therein.





As
      discussed in Notes 2 and 18 to the consolidated and combined financial
      statements, effective January 1, 2003, the Company adopted Statement of
      Financial Accounting Standards No. 143, Accounting for Asset Retirement
      Obligations.








/s/ Ernst & Young LLP





Oklahoma
      City, Oklahoma


March
      27, 2006








**TRONOX
      INCORPORATED**




**CONSOLIDATED
      AND COMBINED STATEMENT OF OPERATIONS**





**For
                the years ended December 31,****2005**
            
            **2004**
            
            **2003****(Millions
                of dollars, except per share)****Net
                sales**
            
            $
            1,364.0
            
            $
            1,301.8
            
            $
            1,157.7Cost
                of goods sold
            
            
            1,143.8
            
            
            1,168.9
            
            
            1,024.7**Gross
                margin**
            
            
            220.2
            
            
            132.9
            
            
            133.0Selling,
                general and administrative expenses
            
            
            115.2
            
            
            110.1
            
            
            98.9Restructuring
                charges
            
            
            —
            
            
            113.0
            
            
            61.4Provision
                for environmental remediation and restoration, net of
                reimbursements
            
            
            17.1
            
            
            4.6
            
            
            14.987.9
            
            
            (94.8
            )
            
            (42.2
            )Interest
                and debt expense - third parties
            
            
            4.5
            
            
            0.1
            
            
            0.1Other
                income (expense)
            
            
            (15.2
            )
            
            (25.2
            )
            
            (20.5
            )**Income
                (Loss) from Continuing Operations before Income
                Taxes**
            
            
            68.2
            
            
            (120.1
            )
            
            (62.8
            )Income
                Tax Benefit (Provision)
            
            
            (21.8
            )
            
            38.3
            
            
            15.1**Income
                (Loss) from Continuing Operations before Cumulative Effect of Change
                in
                Accounting Principle**
            
            
            46.4
            
            
            (81.8
            )
            
            (47.7
            )Loss
                from Discontinued Operations, net of income tax benefit of $14.8,
                $24.7,
                and $19.3, respectively
            
            
            (27.6
            )
            
            (45.8
            )
            
            (35.8
            )**Income
                (Loss) before Cumulative Effect of Change in Accounting
                Principle**
            
            
            18.8
            
            
            (127.6
            )
            
            (83.5
            )Cumulative
                Effect of Change in Accounting Principle, net of income tax benefit
                of
                $4.9
            
            
            —
            
            
            —
            
            
            (9.2
            )**Net
                Income (Loss)**
            
            $
            18.8
            
            $
            (127.6
            )
            $
            (92.7
            )**Income
                (loss) per common share:**Basic
                and diluted -Continuing operations
            
            $
            1.89
            
            $
            (3.57
            )
            $
            (2.08
            )Discontinued operations
            
            
            (1.12
            )
            
            (2.00
            )
            
            (1.57
            )Cumulative effect of change in accounting principle
            
            
            —
            
            
            —
            
            
            (0.40
            )Net income
            
            $
            0.77
            
            $
            (5.57
            )
            $
            (4.05
            )**Weighted
                average shares outstanding (in thousands):**Basic
                and diluted
            
            
            24,518
            
            
            22,889
            
            
            22,889**Pro
                forma as if income taxes were presented on a stand-alone basis
                (unaudited):****Income from Continuing Operations before Income
                Taxes**
            
            $
            68.2Income Tax Provision
            
            
            (2.7
            )**Income from Continuing Operations**
            
            
            65.5Loss from Discontinued Operations
            
            
            (42.4
            )**Net Income**
            
            $
            23.1Net income per common share
            
            $
            0.94





The
      accompanying notes are an integral part of these statements.





**TRONOX
      INCORPORATED**


**CONSOLIDATED
      AND COMBINED BALANCE SHEET**





**At
                December 31,****2005**
            
            **2004****(Millions
                of dollars)****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            69.0
            
            $
            23.8Accounts
                receivable, net of allowance for doubtful accounts of
              $11.3 in 2005 and $11.0 in 2004
            
            
            331.6
            
            
            222.2Inventories
            
            
            312.3
            
            
            285.1Prepaid
                and other assets
            
            
            28.5
            
            
            34.4Income
                tax receivable
            
            
            2.4
            
            
            12.7Deferred
                income taxes
            
            
            35.6
            
            
            17.9Assets
                held for sale
            
            
            —
            
            
            3.4**Total
                Current Assets**
            
            
            779.4
            
            
            599.5**Property,
                Plant and Equipment—Net**
            
            
            839.7
            
            
            883.0**Long-Term
                Receivables, Investments and Other Assets**
            
            
            78.8
            
            
            48.3**Goodwill
                and Other Intangible Assets**
            
            
            60.4
            
            
            65.1**Total
                Assets**
            
            $
            1,758.3
            
            $
            1,595.9**LIABILITIES
                AND BUSINESS/STOCKHOLDERS’ EQUITY****Current
                Liabilities**Accounts
                payable
            
            $
            195.3
            
            $
            196.0Accrued
                liabilities
            
            
            168.9
            
            
            163.3Long-term
                debt due within one year
            
            
            2.0
            
            
            —Income
                taxes payable
            
            
            8.8
            
            
            —**Total
                Current Liabilities**
            
            
            375.0
            
            
            359.3**Noncurrent
                Liabilities**Deferred
                income taxes
            
            
            79.0
            
            
            101.2Environmental
                remediation and/or restoration
            
            
            145.9
            
            
            130.8Long-term
                debt
            
            
            548.0
            
            
            —Other
            
            
            121.4
            
            
            114.7**Total
                Noncurrent Liabilities**
            
            
            894.3
            
            
            346.7**Contingencies
                and Commitments (Notes 22 and 23)****Business/Stockholders’
                Equity**Class
                A common stock, par value $0.01 - 100,000,000 shares authorized,
              17,886,640 shares issued and outstanding at December 31,
                2005
            
            
            0.2
            
            
            —Class
                B common stock, par value $0.01 - 100,000,000 shares authorized,
              22,889,431 shares issued and outstanding at December 31,
                2005
            
            
            0.2
            
            
            —Capital
                in excess of par value
            
            
            461.5
            
            
            —Accumulated
                deficit
            
            
            (2.9
            )
            
            —Deferred
                compensation
            
            
            (5.4
            )
            
            —Owner’s
                net investment
            
            
            —
            
            
            818.6Accumulated
                other comprehensive income
            
            
            35.4
            
            
            71.3**Total
                Business/Stockholders’ Equity**
            
            
            489.0
            
            
            889.9**Total
                Liabilities and Business/Stockholders’ Equity**
            
            $
            1,758.3
            
            $
            1,595.9





The
      accompanying notes are an integral part of these statements.








**TRONOX
      INCORPORATED**




**CONSOLIDATED
      AND COMBINED STATEMENT OF CASH FLOWS**





**For
                the years ended December 31,****2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)****Cash
                Flows from Operating Activities**Net
                income (loss)
            
            $
            18.8
            
            $
            (127.6
            )
            $
            (92.7
            )Adjustments
                to reconcile net income (loss) to net cash provided by operating
                activities—Depreciation
                and amortization
            
            
            103.1
            
            
            104.6
            
            
            106.5Deferred
                income taxes
            
            
            (31.9
            )
            
            (38.2
            )
            
            25.9Asset
                write-downs and impairments
            
            
            12.3
            
            
            122.4
            
            
            28.7Cumulative
                effect of change in accounting principle
            
            
            —
            
            
            —
            
            
            9.2Provision
                for environmental remediation and restoration, net of
                reimbursements
            
            
            34.7
            
            
            66.1
            
            
            56.0Allocations
                from Kerr-McGee
            
            
            48.0
            
            
            55.1
            
            
            65.8Other
                noncash items affecting net income (loss)
            
            
            33.1
            
            
            37.9
            
            
            33.6Changes
                in assets and liabilities—(Increase)
                decrease in accounts receivable
            
            
            (154.0
            )
            
            (41.6
            )
            
            13.3(Increase)
                decrease in inventories
            
            
            (42.7
            )
            
            59.9
            
            
            10.4(Increase)
                decrease in prepaid and other assets
            
            
            3.3
            
            
            5.6
            
            
            (0.5
            )Increase
                (decrease) in accounts payable and accrued liabilities
            
            
            12.8
            
            
            (17.8
            )
            
            (10.3
            )Increase
                (decrease) in income taxes payable
            
            
            18.3
            
            
            6.6
            
            
            (33.7
            )Other
            
            
            5.7
            
            
            (42.2
            )
            
            (91.8
            )Net
                cash provided by operating activities
            
            
            61.5
            
            
            190.8
            
            
            120.4**Cash
                Flows from Investing Activities**Capital
                expenditures
            
            
            (87.6
            )
            
            (92.5
            )
            
            (99.4
            )Collection
                on repurchased receivables
            
            
            165.0
            
            
            —
            
            
            —Other
                investing activities
            
            
            5.9
            
            
            1.1
            
            
            3.7Net
                cash provided by (used in) investing activities
            
            
            83.3
            
            
            (91.4
            )
            
            (95.7
            )**Cash
                Flows from Financing Activities**Issuance
                of common stock, net
            
            
            226.0
            
            
            —
            
            
            —Proceeds
                from borrowings
            
            
            550.0
            
            
            —
            
            
            —Costs
                of obtaining financing
            
            
            (10.9
            )
            
            —
            
            
            —Distributions
                to Kerr-McGee
            
            
            (761.8
            )
            
            —
            
            
            —Net
                transfers with affiliates
            
            
            (106.6
            )
            
            (131.1
            )
            
            (10.0
            )Other
                financing activities
            
            
            —
            
            
            —
            
            
            (0.3
            )Net
                cash used in financing activities
            
            
            (103.3
            )
            
            (131.1
            )
            
            (10.3
            )**Effects
                of Exchange Rate Changes on Cash and Cash
                Equivalents**
            
            
            3.7
            
            
            (3.8
            )
            
            4.7**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            45.2
            
            
            (35.5
            )
            
            19.1**Cash
                and Cash Equivalents at Beginning of Year**
            
            
            23.8
            
            
            59.3
            
            
            40.2**Cash
                and Cash Equivalents at End of Year**
            
            $
            69.0
            
            $
            23.8
            
            $
            59.3





The
      accompanying notes are an integral part of these statements.











**TRONOX
      INCORPORATED**




**CONSOLIDATED
      AND COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS) AND BUSINESS/STOCKHOLDERS’
EQUITY**





**Owner’s
                  Net Investment**
              
              **Class
                  A Common Stock**
              
              **Class
                  B Common Stock**
              
              **Capital
                  in Excess of Par Value**
              
              **Accumulated
                  Deficit**
              
              **Accumulated
                  Other Comprehensive Income (Loss)**
              
              **Deferred
                  Compensation**
              
              **Total
                  Business/**
                **Stockholders’**
                **Equity****(Millions
                  of dollars)****Balance
                  at December 31, 2002**
              
              **$**
              **1,054.7**
              
              **$**
              **—**
              
              **$**
              **—**
              
              **$**
              **—**
              
              **$**
              **—**
              
              **$**
              **7.7**
              
              **$**
              **—**
              
              **$**
              **1,062.4**Comprehensive
                  Income (Loss):Net
                  loss
              
              
              (92.7
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (92.7
              )Other
                  comprehensive income
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              56.8
              
              
              —
              
              
              56.8Comprehensive
                loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (35.9
              )Net
                  transfers to Kerr-McGee
              
              
              (15.3
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (15.3
              )**Balance
                  at December 31, 2003**
              
              
              **946.7**
              
              
              **—**
              
              
              **—**
              
              
              **—**
              
              
              **—**
              
              
              **64.5**
              
              
              **—**
              
              
              **1,011.2**Comprehensive
                  Income (Loss):Net
                  loss
              
              
              (127.6
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (127.6
              )Other
                  comprehensive income
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              6.8
              
              
              —
              
              
              6.8Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (120.8
              )Net
                  transfers to Kerr-McGee
              
              
              (0.5
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (0.5
              )**Balance
                  at December 31, 2004**
              
              
              **818.6**
              
              
              **—**
              
              
              **—**
              
              
              **—**
              
              
              **—**
              
              
              **71.3**
              
              
              **—**
              
              
              **889.9**Comprehensive
                  Income (Loss):Net
                  income (loss)
              
              
              19.7
              
              
              —
              
              
              —
              
              
              —
              
              
              (0.9
              )
              
              —
              
              
              —
              
              
              18.8Other
                  comprehensive loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (35.9
              )
              
              —
              
              
              (35.9
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (17.1
              )Net
                  transfers from Kerr-McGee
              
              
              155.1
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              155.1Recapitalization
                  upon contribution from Kerr-McGee
              
              
              (993.4
              )
              
              —
              
              
              0.2
              
              
              993.2
              
              
              —
              
              
              —
              
              
              —
              
              
              —IPO
                  proceeds, net of offering costs
              
              
              —
              
              
              0.2
              
              
              —
              
              
              224.5
              
              
              —
              
              
              —
              
              
              —
              
              
              224.7Distributions
                  to Kerr-McGee
              
              
              —
              
              
              —
              
              
              —
              
              
              (761.8
              )
              
              —
              
              
              —
              
              
              —
              
              
              (761.8
              )Issuance
                  and amortization of employee stock-based awards
              
              
              —
              
              
              —
              
              
              —
              
              
              5.6
              
              
              —
              
              
              —
              
              
              (5.4
              )
              
              0.2Dividends
                  declared ($0.05 per share)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (2.0
              )
              
              —
              
              
              —
              
              
              (2.0
              )**Balance
                  at December 31, 2005**
              
              **$**
              **—**
              
              **$**
              **0.2**
              
              **$**
              **0.2**
              
              **$**
              **461.5**
              
              **$**
              **(2.9**
              **)**
              **$**
              **35.4**
              
              **$**
              **(5.4**
              **)**
              **$**
              **489.0**








The
      accompanying notes are an integral part of these statements.








**TRONOX
      INCORPORATED**


**Notes
      to Consolidated and Combined Financial Statements**





**1. The
      Company**





Tronox
      Incorporated, a Delaware Corporation was formed on May 17, 2005, in preparation
      for the contribution and transfer by Kerr-McGee Corporation (“Kerr-McGee”) of
      certain entities, including those comprising substantially all of its chemical
      business (the “Contribution”). The Contribution was completed in November 2005
      along with the recapitalization of the company, whereby common stock held by
      Kerr-McGee converted into approximately 22.9 million shares of Class B common
      stock. An initial public offering (“IPO”) of Class A common stock was completed
      on November 28, 2005. Prior to the IPO, Tronox was a wholly-owned subsidiary
      of
      Kerr-McGee. Pursuant to the IPO registration statement on Form S-1 (File
      No.333-125574), the company sold approximately 17.5 million shares of its Class
      A common stock at a price of $14.00 per share. Pursuant
      to the terms of the Master Separation Agreement dated November 28, 2005, among
      Kerr-McGee, Kerr-McGee Worldwide Corporation and the company (the “MSA”), the
      net proceeds from the IPO of $224.7 million were distributed to
      Kerr-McGee.





Concurrent
      with the IPO, the company, through its wholly-owned subsidiaries, issued $350.0
      million in aggregate principal amount of 9.5% senior unsecured notes due 2012
      and borrowed $200.0 million under a six-year senior secured credit facility.
      Pursuant to the terms of the MSA, the company distributed to Kerr-McGee the
      net
      proceeds from the borrowings of approximately $537.1 million.





Following
      the IPO, approximately 43.3% of the total outstanding common stock of Tronox
      was
      held by the general public and 56.7% was held by Kerr-McGee. The holders of
      Class A common stock and Class B common stock have identical rights, except
      that
      holders of Class A common stock are entitled to one vote per share, while
      holders of Class B common stock are entitled to six votes per share on all
      matters to be voted on by stockholders. As of December 31, 2005, Kerr-McGee
      owned all of the company’s Class B common stock, which represented approximately
      88.7% of the company’s total voting power.





On
      March 8, 2006, Kerr-McGee’s Board of Directors declared a dividend of the
      company’s Class B common stock owned by Kerr-McGee to its stockholders (the
“Distribution”). The Distribution is expected to be completed on March 30, 2006.
      Upon completion of the Distribution, Kerr-McGee will have no ownership or voting
      interest in the company.





The
      terms “Tronox” or “the company” are used interchangeably in these consolidated
      and combined financial statements to refer to the consolidated group or to
      one
      or more of the companies that are part of the consolidated group.
      The company is primarily engaged in the global production and marketing of titanium
      dioxide, a white pigment used in a wide range of products. The company has
      production facilities in the United States, Germany and the Netherlands, mining
      and production facilities in Australia, and a European marketing subsidiary
      in
      Switzerland. The company has in the past operated or held businesses or
      properties, or currently holds properties, that do not relate to the current
      chemical business.





**Basis
      of Presentation**





Effective
      with the Contribution, the company’s consolidated financial statements include
      the accounts of all majority-owned subsidiary companies. Prior to the
      Contribution, the company’s combined financial statements included these
      entities and interests which were owned by Kerr-McGee. In circumstances where
      the company owns an undivided interest, the company recognizes its pro rata
      share of assets and its proportionate share of liabilities. Investments in
      affiliated companies that are 20% to 50% owned are carried as a component of
      long-term receivables, investments and other assets in the Consolidated and
      Combined Balance Sheet at cost adjusted for equity in undistributed earnings.
      Except for dividends and changes in ownership interest, changes in equity in
      undistributed earnings are included in other income (expense) in the
      Consolidated and Combined Statement of Operations. All material intercompany
      transactions have been eliminated.













The
      combined financial statements prior to the Contribution have been derived from
      the accounting records of Kerr-McGee, principally representing the Chemical
      -
      Pigment and Chemical - Other segments of Kerr-McGee, using the historical
      results of operations, and historical basis of assets and liabilities of the
      subsidiaries that the company did not own but currently owns and the chemical
      business the company operates. Certain of the subsidiaries that were transferred
      to the company by Kerr-McGee have in the past, directly or through predecessor
      entities, owned and operated businesses that are unrelated to the chemical
      business the company operates. Certain of these businesses, including the
      company’s former forest products operations, thorium compounds manufacturing,
      uranium and oil and gas refining, distribution and marketing, have been
      reflected as discontinued operations in the consolidated and combined financial
      statements. The discontinued operations have been included in the consolidated
      and combined financial statements because certain contingent obligations
      directly related to such operations have been retained, resulting in charges
      to
      operations in periods subsequent to the exit from these businesses and related
      liabilities associated with the exit from these businesses (see Notes 16 and
      22).





Management
      believes the assumptions underlying the financial statements are reasonable.
      However, the combined financial statements included herein may not necessarily
      reflect the company’s results of operations, financial position and cash flows
      in the future or what its results of operations, financial position and cash
      flows would have been had the company been a stand-alone company during the
      periods presented. Because a direct ownership relationship did not exist among
      all the various worldwide entities comprising the company before the
      Contribution, Kerr-McGee’s net investment in the company, including intercompany
      debt, is shown as owner’s net investment in lieu of stockholders’ equity in the
      2004 and 2003 combined financial statements. Transactions between Tronox and
      other Kerr-McGee operations have been identified in the Consolidated and
      Combined Statement of Comprehensive Income (Loss) and Business/Stockholders’
Equity as net transfers (to) from Kerr-McGee (see Note 3). In November, the
      company recognized the par value and capital in excess of par value associated
      with the issuance of the Class B common stock exchanged for the net assets
      of
      the company contributed by Kerr-McGee, after which time the company began
      accumulating retained earnings.





**2.
      Significant Accounting Policies**





**Use
      of Estimates**





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities, the disclosure of
      contingent assets and liabilities at the date of the financial statements,
      and
      the reported amounts of revenues and expenses during the reporting periods.
      Actual results could differ materially from those estimates as additional
      information becomes known.





**Foreign
      Currency Translation**





The
      U.S. dollar is considered the functional currency for the company’s
      international operations, except for its European operations. Foreign currency
      transaction gains or losses are recognized in the period incurred and are
      included in other income (expense) in the Consolidated and Combined Statement
      of
      Operations.





The
      euro is the functional currency for the company’s European operations.
      Translation adjustments resulting from translating the functional currency
      financial statements into U.S. dollar equivalents are reflected as a separate
      component of other comprehensive income (see Note 4).





**Cash
      Equivalents**





The
      company considers all investments with original maturities of three months
      or
      less to be cash equivalents. Cash equivalents totaling $47.0 million in 2005
      and
      $2.3 million in 2004 were comprised of time deposits.








**Accounts
      Receivable and Receivable Sales**





Accounts
      receivable are reflected at their net realizable values, reduced by an allowance
      for doubtful accounts to allow for expected credit losses. The allowance is
      estimated by management, based on factors such as age of the related receivables
      and historical experience, giving consideration to customer profiles. The
      company does not generally charge interest on accounts receivable, nor require
      collateral; however, certain operating agreements have provisions for interest
      and penalties that may be invoked, if deemed necessary. Accounts receivable
      are
      aged in accordance with contract terms and are written off when deemed
      uncollectible. Any subsequent recoveries of amounts written off are credited
      to
      the allowance for doubtful accounts.





Under
      an accounts receivable monetization program maintained by the company through
      April 2005, selected pigment customers’ accounts receivable were sold to a
      special-purpose entity (“SPE”). The company did not own any of the common stock
      of the SPE. When the receivables were sold, the company retained an interest
      in
      excess receivables that served as over-collateralization for the program and
      retained interests for servicing and in preference stock of the SPE. The
      interest in the preference stock was essentially a deposit to provide further
      credit enhancement to the securitization program, if needed, but otherwise
      was
      recoverable by the company at the end of the program. Management believes the
      servicing fee represented adequate compensation and was equal to what would
      otherwise be charged by an outside servicing agent. The loss associated with
      the
      receivable sales was determined as the difference in the book value of
      receivables sold and the total of cash and fair value of the deposit retained
      by
      the SPE. The losses were recorded in other income (expense). The estimate of
      fair value of the retained interests was based on the present value of future
      cash flows discounted at rates estimated by management to be commensurate with
      the risks. As discussed more fully in Note 6, this program was terminated
      in April 2005.





**Inventories**





Inventories
      are stated at the lower of cost or market. The cost of finished goods
      inventories is determined by the first-in, first-out (“FIFO”) method. Carrying
      values include material costs, labor and associated indirect manufacturing
      expenses. Costs for materials and supplies, excluding ore, are determined by
      average cost to acquire or standard cost, which approximates actual cost. Raw
      materials (ore) are carried at actual cost.





**Property,
      Plant and Equipment**





Property,
      plant and equipment are stated at cost less accumulated depreciation and
      amortization. Maintenance and repairs are expensed as incurred, except that
      costs of replacements or renewals that improve or extend the lives of existing
      properties are capitalized.





***Depreciation*** -
      Property, plant and equipment is depreciated over its estimated useful life
      by
      the straight-line method. Useful lives for property, plant and equipment are
      as
      follows:





Vessel
                linings, general mechanical and process equipment
            3
                - 10 yearsElectrical
                equipment, process piping and waste treatment ponds
            10-15 yearsSupport
                structures and process tanks
            20
                yearsElectrical
                distribution systems, mining equipment and other infrastructure
                assets
            25
                yearsBuildings
            10
                - 40 years





***Retirements
      and Sales*** - The
      cost and related accumulated depreciation and amortization are removed from
      the
      respective accounts upon retirement or sale of property, plant and equipment.
      Any resulting gain or loss is included in costs of goods sold in the
      Consolidated and Combined Statement of Operations.





***Interest
      Capitalized*** - The
      company capitalizes interest costs on major projects that require an extended
      period of time to complete. Interest capitalized in 2005, 2004 and 2003 was
      $2.1
      million, $2.0 million and $1.6 million, respectively.








**Asset
      Impairments**





The
      company evaluates impairments by asset group for which the lowest level of
      independent cash flows can be identified. If the sum of these estimated future
      cash flows (undiscounted and without interest charges) is less than the carrying
      amount of the asset, an impairment loss is recognized for the excess of the
      carrying amount of the asset over its estimated fair value.





**Gain
      or Loss on Assets Held for Sale**





Assets
      are classified as held for sale when the company commits to a plan to sell
      the
      assets, completion of the sale is probable and is expected to be completed
      within one year. Upon classification as held-for-sale, long-lived assets are
      no
      longer depreciated and a loss is recognized, if any, based on the excess of
      carrying value over fair value less costs to sell. Previous losses may be
      reversed up to the original carrying value as estimates are revised; however,
      gains are only recognized upon disposition.





**Goodwill
      and Other Intangible Assets**





Goodwill
      is initially measured as the excess of the purchase price of an acquired entity
      over the fair value of individual assets acquired and liabilities assumed.
      Goodwill and other indefinite-lived intangibles are not amortized but are
      reviewed annually for impairment, or more frequently if impairment indicators
      arise. The annual impairment assessment for goodwill and other indefinite-lived
      intangible assets is completed at June 30 each year. Based upon the most
      recent assessment, no impairment was indicated.





**Derivative
      Instruments and Hedging Activities**





From
      time to time, the company enters into foreign currency forward contracts to
      hedge a portion of its foreign currency risk associated with pigment sales,
      raw
      material purchases and operating costs. The company also uses natural gas swaps
      to hedge a portion of its commodity price risk arising from natural gas
      consumption. All derivative instruments are accounted for in accordance with
      FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging
      Activities” (“FAS No. 133”), as amended. Derivative instruments are
      recorded in prepaid and other assets or accrued liabilities in the Consolidated
      and Combined Balance Sheet, measured at fair value. When available, quoted
      market prices are used in determining fair value; however, if quoted market
      prices are not available, the company estimates fair value using either quoted
      market prices of financial instruments with similar characteristics or other
      valuation techniques. For contracts that qualify and are designated as cash
      flow
      hedges of forecasted transactions under the provisions of FAS No. 133,
      unrealized gains and losses are initially reflected in accumulated other
      comprehensive income and recognized in earnings in the periods during which
      the
      hedged forecasted transactions affect earnings (i.e., when the hedged forecasted
      pigment sales occur or operating costs are incurred, and upon the sale of
      finished inventory in the case of a hedged raw material purchase). The
      ineffective portion of the change in fair value of such hedges, if any, is
      included in current earnings. For derivatives not designated for hedge
      accounting, gains and losses are recognized in earnings in the periods incurred.
      Cash flows associated with derivative instruments are included in the same
      category in the Consolidated and Combined Statement of Cash Flows as the cash
      flows from the item being hedged.





**Environmental
      Remediation and Other Contingencies**





As
      sites of environmental concern are identified, the company assesses the existing
      conditions, claims and assertions, and records an estimated undiscounted
      liability when environmental assessments and/or remedial efforts are probable
      and the associated costs can be reasonably estimated. Estimates of environmental
      liabilities, which include the cost of investigation and remediation, are based
      on a variety of matters, including, but not limited to, the stage of
      investigation, the stage of the remedial design, evaluation of existing
      remediation technologies, and presently enacted laws and regulations. In future
      periods, a number of factors could significantly change the company’s estimate
      of environmental remediation costs, such as changes in laws and regulations,
      or
      changes in their interpretation or administration, revisions to the remedial
      design, unanticipated construction problems, identification of additional areas
      or volumes of contaminated soils and groundwater, and changes in costs of labor,
      equipment and technology.








To
      the
      extent costs of investigation and remediation have been incurred and are
      recoverable from the U.S. government or from Kerr-McGee and have been incurred
      or are recoverable under certain insurance policies or from other parties and
      such recoveries are deemed probable, the company records a receivable for the
      estimated amounts recoverable (undiscounted). Receivables are reflected in
      the
      Consolidated and Combined Balance Sheet as either accounts receivable or as
      a
      component of long-term receivables, investments and other assets, depending
      on
      estimated timing of collection.





**Asset
      Retirement Obligations**





In
      June 2001, the Financial Accounting Standards Board (“FASB”) issued FAS
      No. 143 which requires that an asset retirement obligation (“ARO”)
      associated with the retirement of a tangible long-lived asset be recognized
      as a
      liability in the period in which it is incurred or becomes determinable (as
      defined by the standard), with an associated increase in the carrying amount
      of
      the related long-lived asset. The cost of the tangible asset, including the
      asset retirement cost, is depreciated over the useful life of the asset. The
      company adopted the standard on January 1, 2003, as discussed further in
      Note 18.





In
      March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional
      Asset Retirement Obligations - An Interpretation of FASB Statement No. 143”
(“FIN No. 47”) to clarify that an entity must recognize a liability for the fair
      value of a conditional ARO when incurred, if the liability’s fair value can be
      reasonably estimated. Conditional AROs under this pronouncement are legal
      obligations to perform asset retirement activities when the timing and/or method
      of settlement are conditional on a future event or may not be within the control
      of the entity. FIN No. 47 also provides additional guidance for evaluating
      whether sufficient information to reasonably estimate the fair value of an
      ARO
      is available. The company adopted FIN No. 47 as of December 31, 2005 with no
      material effect to the company’s financial position or results of operations and
      no effect on reported cash flows.





The
      ARO
      is recorded at its estimated fair value and accretion expense is recognized
      over
      time as the discounted liability is accreted to its expected settlement value.
      Fair value is measured using expected future cash outflows discounted at
      Tronox’s credit-adjusted risk-free interest rate.





**Research
      and Development**





Research
      and development costs were $8.4 million, $6.3 million and $8.0 million
      in 2005, 2004 and 2003, respectively, and were expensed as
      incurred.





**Employee
      Stock-Based Compensation**





Prior
      to the IPO, certain of the company’s employees participated in Kerr-McGee’s
      long-term incentive plans. Under these plans, employees received various
      stock-based compensation awards, including stock options, restricted stock,
      stock opportunity grants and performance units.





In
      the
      fourth quarter of 2005, the company established its own long-term incentive
      plan
      and awarded stock options and restricted stock under the plan to its employees
      and non-employee directors.





*Intrinsic-Value
      Method.* The
      company accounts for its stock-based awards under the intrinsic-value method
      permitted by APB No. 25, “Accounting for Stock Issued to Employees.” Performance
      units provide for cash awards based on Kerr-McGee’s achievement of specified
      total stockholder return targets over a stated period. In accordance with APB
      No. 25, compensation cost associated with stock-based awards is determined
      using
      the following measurement principles:





·
            For
                restricted stock, cost is measured using the market price on the
                grant
                date.


·
            For
                stock options, cost is equal to the excess, if any, of the market
                price of
                Tronox or Kerr-McGee stock, as applicable, on the date of grant over
                the
                exercise price.


·
            For
                performance units, the liability is determined at each reporting
                date
                based on the estimated payout by reference to Kerr-McGee’s total
                stockholder return relative to selected peer companies. The liability
                so
                determined is further adjusted to reflect the extent to which employee
                services necessary to earn the awards have been rendered. Compensation
                cost for any given period equals the increase or decrease in the
                liability
                for outstanding awards.









·
            Upon
                employee forfeiture of an award, any associated compensation expense
                recognized prior to the forfeiture is
                reversed.





The
      aggregate intrinsic value of restricted stock granted by Tronox is initially
      recognized as an increase in common stock and capital in excess of par value,
      with a corresponding increase in deferred compensation cost in stockholders’
equity. Deferred compensation is amortized ratably as a reduction of earnings
      over the vesting periods of the underlying grants or over the service period,
      if
      shorter.





*Pro
      Forma Fair-Value Method.* Statement
      of Financial Accounting Standards No. 123, “Accounting for Stock-Based
      Compensation” (“FAS No. 123”), prescribes an alternative fair-value method of
      accounting for employee stock-based awards. Following this method, compensation
      expense for such awards is measured based on the estimated grant-date fair
      value
      and recognized as the related employee services are provided. If compensation
      expense for stock-based awards had been determined using the fair value-based
      method, net income (loss) would have been different, as presented in the
      following table. Pro forma stock-based compensation expense presented below
      may
      not be representative of future compensation expense using the fair-value method
      of accounting as the number and terms of awards granted in a particular year
      may
      not be indicative of the number and terms of awards granted in future years.






**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars, except per share)**Net
                income (loss) as reported
            
            $
            18.8
            
            $
            (127.6
            )
            $
            (92.7
            )Add:
                stock-based employee compensation expense included in reported net
                income
                (loss), net of taxes
            
            
            2.8
            
            
            1.5
            
            
            0.8Deduct:
                stock-based employee compensation expense determined using a fair-value
                method, net of taxes
            
            
            (3.5
            )
            
            (3.6
            )
            
            (3.4
            )Pro
                forma net income (loss)
            
            $
            18.1
            
            $
            (129.7
            )
            $
            (95.3
            )Basic
                and diluted net income (loss) per common share:As reported
            
            $
            0.77
            
            $
            (5.57
            )
            $
            (4.05
            )Pro forma
            
            $
            0.74
            
            $
            (5.67
            )
            $
            (4.16
            )




The
      fair value of the Tronox options granted in 2005 was estimated as of the date
      of
      the grant using the Black-Scholes option-pricing model with the following
      assumptions:





**2005**Risk-free
                interest rate
            4.6%Expected
                dividend yield
            1.5%Expected
                volatility
            34.5%Expected
                life (years)
            6.3Per-unit
                fair value of options granted
            $5.01





The
      following table presents inputs and assumptions used to estimate the grant-date
      fair value of employee stock options granted by Kerr-McGee that had no intrinsic
      value on the fair value measurement date.





**2005**
            
            **2004**
            
            **2003**Risk-free
                interest rate
            
            
            3.9
            %
            
            3.5
            %
            
            3.6
            %Expected
                dividend yield
            
            
            3.5
            %
            
            3.6
            %
            
            3.3
            %Expected
                volatility
            
            
            27.4
            %
            
            22.6
            %
            
            32.7
            %Expected
                life (years)
            
            
            6.0
            
            
            5.8
            
            
            5.8Weighted-average
                fair value of options granted
            
            $
            12.50
            
            $
            8.63
            
            $
            11.09





While
      all Kerr-McGee options granted in 2005 had the same contractual terms, for
      some
      of the options, the compensation cost measurement date, as defined by FAS No.
      123, occurred subsequent to the date on which the options’ exercise price was
      set. Because the market price of Kerr-McGee’s stock increased by the measurement
      date, those options had intrinsic value of $18.26 and an estimated fair value
      of
      $22.89, which was determined using the following assumptions: expected life
      of
      six years, risk-free interest rate of 4.0%, expected dividend yield of 3.5%
      and
      expected volatility of 26.2%.








*New
      Accounting Standard.* In
      December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based
      Payment” (“FAS No. 123R”), which replaces FAS No. 123 and supersedes APB No. 25.
      FAS No. 123R requires all share-based payments to employees to be recognized
      in
      the financial statements based on their fair values. The company will adopt
      FAS
      No. 123R effective January 1, 2006, using the modified prospective method,
      as
      permitted by the standard. The modified prospective method requires that
      compensation expense be recorded for all unvested share-based compensation
      awards at the beginning of the first quarter of adoption. The following provides
      a summary of some of the implementation effects of this standard:





·
            Stock-based
                compensation expense recognized in the Consolidated Statement of
                Income
                will be higher in the future, reflecting a change in the measurement
                basis
                of stock options from intrinsic to fair value. The magnitude of the
                increase will depend upon the number of options granted and other
                factors
                affecting fair value.


·
            Net
                cash flows provided by operating activities will be lower and cash
                flows
                from financing activities will be higher by the amount of the reduction
                in
                cash income taxes as a result of tax deductibility of stock options
                and
                restricted stock awards.





**Revenue
      Recognition**





Revenue
      is recognized when persuasive evidence of a sales arrangement exists, delivery
      has occurred, sales price is fixed or determinable and collectibility is
      reasonably assured. All amounts billed to a customer in a sales transaction
      related to shipping and handling represent revenues earned and are reported
      as
      net sales. Costs incurred by the company for shipping and handling are reported
      as cost of goods sold.





**Cost
      of Goods Sold**





Cost
      of
      goods sold includes the costs of manufacturing and distributing products,
      including raw materials, energy, labor, depreciation and other production costs.
      Receiving, distribution, freight and warehousing costs are also included in
      cost
      of goods sold.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative expenses include costs related to marketing, sales,
      research and development, legal and administrative functions such as accounting,
      treasury and finance, as well as costs for salaries and benefits, travel and
      entertainment, promotional materials and professional fees.





**Income
      Taxes**





The
      closing of the IPO resulted in the deconsolidation of the company from
      Kerr-McGee under U.S. Federal income tax laws. The company continued as a member
      included in the U.S. Federal consolidated income tax return of Kerr-McGee up
      to
      the deconsolidation date. Prior to the deconsolidation date, the company had
      not
      been a party to a tax-sharing agreement with Kerr-McGee, but had consistently
      followed an allocation policy whereby Kerr-McGee has allocated its members
      of
      the consolidated return provisions and/or benefits based upon each member’s
      taxable income or loss. This allocation methodology resulted in the recognition
      of deferred assets and liabilities for the differences between the financial
      statement carrying amounts and their respective tax basis, except to the extent
      for deferred taxes on income considered to be indefinitely reinvested in foreign
      jurisdictions. Deferred tax assets and liabilities are measured using enacted
      tax rates expected to apply to taxable income in the years in which those
      temporary differences are expected to be recovered or settled. Kerr-McGee had
      allocated current tax benefits to the members of its consolidated return,
      including the company, that had generated losses that were utilized or expected
      to be utilized on the U.S. Federal consolidated income tax return. The income
      taxes presented as a result of this allocation methodology are not consistent
      with that calculated on a stand-alone tax return basis. In addition, Kerr-McGee
      manages its tax position for the benefit of its entire portfolio of businesses,
      and its tax strategies are not necessarily reflective of those tax strategies
      that the company would have followed or does follow as a stand-alone company.








Subsequent
      to the IPO and the deconsolidation, deferred income taxes are provided to
      reflect the future tax consequences of temporary differences between the tax
      basis of assets and liabilities and their reported amounts in the financial
      statements, except for deferred taxes on income considered to be indefinitely
      reinvested in certain foreign subsidiaries.





**Earnings
      Per Share**





The
      company calculated its earnings per share in accordance with FAS No. 128
“Earnings per Share.” Basic earnings per share includes no dilution and is
      computed by dividing net income or loss available to common stockholders by
      the
      weighted average number of common shares outstanding for the period. The
      weighted average number of common shares outstanding for all periods presented
      includes 22,889,431 shares of Class B common stock issued to Kerr-McGee in
      connection with the Contribution, retroactively adjusted for the
      recapitalization. Basic earnings per share for 2005 also includes 17,480,000
      shares of Class A common stock, weighted as of the IPO date, and restricted
      stock from the date awarded. There is no difference between basic and diluted
      earnings per share for all periods presented, since there were no dilutive
      securities during the periods presented. At the Distribution, additional
      potentially dilutive shares will be issued with the forfeiture of Kerr-McGee
      stock-based awards and issuance of Tronox stock-based awards (see Note
      20).





**New/Revised
      Accounting Standards**





In
      November 2004, the FASB issued FAS No. 151, “Inventory Costs - an
      Amendment of ARB No. 43, Chapter 4”(“FAS No. 151”), which requires that
      abnormal amounts of idle facilities cost, freight, handling costs and spoilage
      be expensed as incurred and not capitalized as inventory. FAS No. 151 is
      effective for inventory costs incurred during fiscal years beginning after
      June 15, 2005. The company will adopt the standard effective
      January 1, 2006. The effect of adoption is not expected to have a material
      effect on the company’s financial position or results of
      operations.





In
      May
      2005, the FASB issued FAS No. 154, “Accounting Changes and Error Corrections”
(“FAS No. 154”), which will require that, unless it is impracticable to do so, a
      change in an accounting principle be applied retrospectively to prior periods’
financial statements for all voluntary changes in accounting principles and
      upon
      adoption of a new accounting standard if the standard does not include specific
      transition provisions. FAS No. 154 supersedes APB No. 20,
“ *Accounting
      Changes* ,”
      which previously required that most voluntary changes in accounting principles
      be recognized by including in the current period’s net income (loss) the
      cumulative effect of changing to the new accounting principle. FAS No. 154
      also provides that if an entity changes its method of depreciation,
      amortization, or depletion for long-lived, nonfinancial assets, the change
      must
      be accounted for as a change in accounting estimate. Under APB No. 20, such
      a change would have been reported as a change in an accounting principle. FAS
      No. 154 will be applicable to accounting changes and error corrections made
      by the company effective January 1, 2006. The effect of applying this new
      standard on the company will depend on whether material voluntary changes in
      accounting principles, changes in estimates or error corrections occur, and
      transition and other provisions included in new accounting
      standards.





In
      March 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on
      EITF 04-6 regarding the accounting for post-production stripping costs. The
      consensus reached was that “stripping costs incurred during the production phase
      of a mine are variable production costs that should be included in the costs
      of
      the inventory produced (extracted) during the period that the stripping costs
      are incurred.” This represents a change from the company’s current accounting
      for production-related stripping costs, as the company has historically included
      production-related stripping costs as a component of surface mining inventory
      and allocated the costs incurred over the estimated total reserves of the mine.
      EITF 04-6 is effective for the first reporting period beginning after
      December 15, 2005. The company will adopt EITF 04-6 on January 1,
      2006. The effect of adoption is not expected to have a material effect on the
      company’s financial position or results of operations.








**3.
      Transactions with Kerr-McGee**




During
      the fourth quarter of 2005, the Contribution and recapitalization of the company
      was completed, whereby common stock held by Kerr-McGee converted into
      approximately 22.9 million shares of Class B common stock. Tronox also entered
      into agreements with Kerr-McGee in connection with its separation from
      Kerr-McGee. These agreements include:





·
            A
                master separation agreement (“MSA”), providing for, among other things,
                the separation from Kerr-McGee and the Distribution ofClass
                B shares following the initial public offering of Class A common
                stock,
                the distribution of the net proceeds from the IPO and concurrent
                debt
                financing as well as cash in excess of $40 million to Kerr-McGee
                and
                agreements between Tronox Incorporated and Kerr-McGee, including
                those
                relating to indemnification


·
            A
                tax sharing agreement, providing for, among other things, the allocation
                between Tronox and Kerr-McGee of federal, state, local and foreign
                tax
                liabilities for periods prior to the Distribution and in some instances
                for periods after the Distribution


·
            An
                employee benefits agreement, pursuant to which, among other things,
                some
                employee benefit plan related assets and liabilities of Kerr-McGee
                are to
                be allocated between Tronox and Kerr-McGee and some arrangements
                are to be
                made with respect to employee compensation
                arrangements


·
            A
                transition services agreement, pursuant to which, among other things,
                Kerr-McGee will provide certain services to Tronox and Tronox will
                provide
                certain services to Kerr-McGee for a transition period following
                the IPO
                and the Distribution





The
      Consolidated and Combined Statement of Operations includes an allocation of
      costs for certain corporate functions historically provided by Kerr-McGee,
      including:





***General
      Corporate Expenses*** -
      Represents costs related to corporate functions such as accounting, tax,
      treasury, human resources, legal and information management and technology.
      These costs were historically allocated primarily based on estimated use of
      services as compared to Kerr-McGee’s other businesses. These costs are included
      in selling, general and administrative expenses in the Consolidated and Combined
      Statement of Operations. This allocation ceased at the IPO date and any services
      rendered subsequent to that date and the resulting costs are being billed under
      the terms of the transition services agreement.





***Employee
      Benefits and Incentives*** -
      Represents fringe benefit costs and other incentives, including group health
      and
      welfare benefits, U.S. pension plans, U.S. postretirement health and life plans
      and stock-based compensation plans. These costs have historically been allocated
      on an active headcount basis for health and welfare benefits, including
      postretirement benefits, on the basis of salary for U.S. pension plans and
      on a
      specific identification basis for stock-based compensation plans. These costs
      are included in costs of goods sold, selling, general and administrative
      expenses, restructuring charges and loss from discontinued operations in the
      Consolidated and Combined Statement of Operations.





***Interest
      Expense*** -
      Until the completion of the IPO and the concurrent financing, Kerr-McGee
      provided financing to the company through cash flows from its other operations
      and debt incurred. Although the incurred debt was not allocated to the company,
      a portion of the interest expense was allocated based on specifically-identified
      borrowings from Kerr-McGee at Kerr-McGee’s average borrowing rates. These costs
      are included in other income (expense) in the Consolidated and Combined
      Statement of Operations, net of interest income that was allocated from the
      company to Kerr-McGee on certain monies the company has loaned to Kerr-McGee.
      This allocation ceased at the IPO date as Kerr-McGee no longer provides
      financing to the company.








Expense
      allocations from Kerr-McGee reflected in the income (loss) from continuing
      operations in the company’s Consolidated and Combined Statement of Operations
      were as follows:





**2005**
            **2004**
            **2003****(Millions
                of dollars)**General
                corporate expenses
            $24.3
            $27.4
            $25.3Employee
                benefits and incentives
            24.0
            28.8
            35.9Interest
                expense, net
            14.6
            12.1
            10.1





These
      allocations were based on what were considered to be reasonable reflections
      of
      the historical utilization levels of the services required in support of our
      business. The company’s management currently estimates that general corporate
      expenses may be $15.0 million to $20.0 million greater on an annual basis
      in the future as a stand-alone company (unaudited).





Subsequent
      to the IPO, the expense allocations for certain corporate services previously
      provided by Kerr-McGee ceased, and the company began purchasing such services
      from Kerr-McGee under the terms of the transition services agreement. Under
      the
      terms of the transition services agreement, the company also receives
      compensation for services provided to Kerr-McGee. The net expense charged to
      the
      company in 2005 was nominal for the one-month period subsequent to the
      IPO.





Kerr-McGee
      utilized a worldwide centralized approach to cash management and the financing
      of its operations with all related activity between Kerr-McGee and the company
      reflected as net transfers from (to) Kerr-McGee in the company’s Consolidated
      and Combined Statement of Comprehensive Income (Loss) and Business/Stockholders’
Equity. In connection with the IPO, the net amount due from the company to
      Kerr-McGee at November 28, 2005, was contributed by Kerr-McGee to the company,
      forming a part of the continuing equity of the company and is a component of
      Recapitalization upon contribution from Kerr-McGee shown in the Consolidated
      and
      Combined Statement of Comprehensive Income (Loss) and Business/Stockholders’
Equity. Subsequent to November 28, 2005, amounts due from or to Kerr-McGee
      arising from transactions subsequent to that date are being settled in
      cash.





**4.
      Other Comprehensive Income (Loss)**





Components
      of other comprehensive income (loss) for the years ended December 31, 2005,
      2004 and 2003 were as follows:





**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)**Foreign
                currency translation adjustments
            
            $
            (41.7
            )
            $
            20.0
            
            $
            50.8Unrealized
                gain on cash flow hedges, net of taxes of $(2.5), $(0.8) and
                $(4.7)
            
            
            4.1
            
            
            0.6
            
            
            13.8Reclassification
                of realized gain on cash flow hedges to net income (loss), net of
                taxes of
                $2.5, $2.8 and $3.1
            
            
            (3.2
            )
            
            (7.7
            )
            
            (7.2
            )Minimum
                pension liability adjustments, net of taxes of $(2.4), $3.6 and
                $0.1
            
            
            4.9
            
            
            (6.1
            )
            
            (0.6
            )$
            (35.9
            )
            $
            6.8
            
            $
            56.8





Components
      of accumulated other comprehensive income at December 31, 2005 and 2004,
      net of applicable tax effects, were as follows:





**2005**
            
            **2004****(Millions
                of dollars)**Foreign
                currency translation adjustments
            
            $
            37.5
            
            $
            79.2Unrealized
                loss on cash flow hedges
            
            
            (0.3
            )
            
            (1.2
            )Minimum
                pension liability adjustments
            
            
            (1.8
            )
            
            (6.7
            )$
            35.4
            
            $
            71.3








**5.
      Cash Flow Information**





Net
      cash provided by operating activities reflects cash payments for income taxes
      and interest as follows:





**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)**Income
                tax payments
            
            $
            11.9
            
            $
            8.0
            
            $
            10.4Less
                refunds received
            
            
            (11.4
            )
            
            (0.2
            )
            
            (0.5
            )Net
                income tax payments
            
            $
            0.5
            
            $
            7.8
            
            $
            9.9Interest
                payments
            
            $
            0.4
            
            $
            0.1
            
            $
            0.1





Additionally,
      in 2005 and 2004, Kerr-McGee paid income taxes of $27.2 million and
      $37.0 million, respectively, on the company’s behalf, which is included as
      net transfers with Kerr-McGee in the Consolidated and Combined Statement of
      Comprehensive Income (Loss) and Business/Stockholders’ Equity.





Other
      noncash items included in the reconciliation of net income (loss) to net cash
      provided by operating activities include the following:





**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)**Stock-based
                compensation (1)
            
            $
            5.8
            
            $
            2.5
            
            $
            1.2Pension
                and postretirement cost (1)
            
            
            9.9
            
            
            15.5
            
            
            24.0Litigation
                provision
            
            
            8.7
            
            
            0.2
            
            
            1.3Loss
                on retirements of property and equipment
            
            
            0.9
            
            
            9.7
            
            
            5.9Equity
                in net earnings of equity method investees
            
            
            (2.0
            )
            
            (2.4
            )
            
            (0.8
            )All
                other (2)
            
            
            9.8
            
            
            12.4
            
            
            2.0Total
            
            $
            33.1
            
            $
            37.9
            
            $
            33.6





(1)  Amounts
      consist principally of cost allocations from Kerr-McGee.





(2)  No
      other individual item is material to net cash flows provided by operating
      activities.





Details
      of changes in other assets and liabilities within net cash provided by operating
      activities of the Consolidated and Combined Statement of Cash Flows are as
      follows:





**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)**Environmental
                expenditures
            
            $
            (61.1
            )
            $
            (85.2
            )
            $
            (97.9
            )Reimbursements
                of environmental expenditures
            
            
            71.4
            
            
            50.5
            
            
            14.8Cash
                abandonment expenditures
            
            
            (2.3
            )
            
            (3.2
            )
            
            —Employer
                contributions to pension and postretirement plans
            
            
            (7.0
            )
            
            (1.9
            )
            
            (0.8
            )All
                other(1)
            
            
            4.7
            
            
            (2.4
            )
            
            (7.9
            )Total
            
            $
            5.7
            
            $
            (42.2
            )
            $
            (91.8
            )





(1)  No
      other individual item is material to net cash flows provided by operating
      activities.




Other
      noncash investing and noncash financing activities were as follows:





**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)**Noncash
                Investing Activities -Receivables
                repurchased and contributed by Kerr-McGee
            
            $
            165.0
            
            $
            —
            
            $
            —Noncash
                Financing Activities -Contribution
                of repurchased receivables by Kerr-McGee
            
            $
            (165.0
            )
            $
            —
            
            $
            —








In
      addition to transactions with Kerr-McGee affecting the company’s net income
      (loss), the company periodically has had other transactions with Kerr-McGee
      that
      have not affected net income (loss) but have affected recognized assets and
      liabilities and owner’s net investment. Such noncash items are excluded from
      operating and financing activities in the accompanying Consolidated and Combined
      Statement of Cash Flows but are reflected in the net transfers with Kerr-McGee
      in the accompanying Consolidated and Combined Statement of Comprehensive Income
      (Loss) and Business/Stockholders’ Equity.





**6.
      Accounts Receivable**





Summarized
      below are accounts receivable, net of the related allowance for doubtful
      accounts, at December 31, 2005 and 2004:





**2005**
            
            **2004****(Millions
                of dollars)**Accounts
                receivable - trade
            
            $
            305.1
            
            $
            153.4Receivable
                from the U.S. Department of Energy (Note 22) (1)
            
            
            13.0
            
            
            66.0Receivable
                from insurers (Note 22) (1)
            
            
            7.7
            
            
            6.0Receivable
                from affiliates, net (2)
            
            
            8.7
            
            
            —Other
            
            
            8.4
            
            
            7.8342.9
            
            
            233.2Allowance
                for doubtful account
            
            
            (11.3
            )
            
            (11.0
            )Total
            
            $
            331.6
            
            $
            222.2





(1)
            Amounts
                receivable from the U.S. Department of Energy and insurers not expected
                to
                be collected within one year from the balance sheet date are reflected
                in
                long-term receivables, investments and other
                assets.





(2)
            Amounts
                receivable from Kerr-McGee for employee bonuses associated with services
                provided prior to the IPO, net of amounts payable to Kerr-McGee for
                services provided to the company under the transition services agreement.





Through
      April 2005, the company had an accounts receivable monetization program
      with a maximum availability of $165.0 million. Under the terms of the
      program, selected qualifying customer accounts receivable were sold monthly
      to a
      SPE, which in turn sold an undivided ownership interest in the receivables
      to a
      third-party multi-seller commercial paper conduit sponsored by an independent
      financial institution. As the receivables were sold, such amounts were reflected
      as cash flows from operating activities within the Consolidated and Combined
      Statement of Cash Flows. The company sold, and retained an interest in, excess
      receivables to the SPE as over-collateralization for the program. The retained
      interest in sold receivables was subordinate to, and provided credit enhancement
      for, the conduit’s ownership interest in the SPE’s receivables, and was
      available to the conduit to pay certain fees or expenses due to the conduit,
      and
      to absorb credit losses incurred on any of the SPE’s receivables in the event of
      program termination. No recourse obligations were recorded since the company
      had
      no obligations for any recourse actions on the sold receivables. At December
      31,
      2004, the outstanding balance of receivables sold (and excluded from the
      company’s Consolidated and Combined Balance Sheet as of that date) was $165.0
      million, which was net of the company’s retained interest in receivables serving
      as over-collateralization of $38.8 million.





The
      accounts receivable monetization program included ratings downgrade triggers
      based on Kerr-McGee’s corporate senior unsecured debt rating that provided for
      certain program modifications, including a program termination event, upon
      which
      the program would effectively liquidate over time and the third-party
      multi-seller commercial paper conduit would be repaid with the collections
      on
      accounts receivable. In April 2005, Kerr-McGee’s senior unsecured debt was
      downgraded, triggering program termination. As opposed to liquidating the
      program over time in accordance with its terms, Kerr-McGee entered into an
      agreement to terminate the program by repurchasing the then outstanding balance
      of receivables sold of $165.0 million. The repurchased receivables were
      then contributed to the company in a non-cash financing transaction. The
      balances of repurchased receivables have subsequently been collected by the
      company. Such collections are included in cash flows from investing activities
      in the Consolidated and Combined Statement of Cash Flows.








While
      the program was in effect in 2005 and during 2004 and 2003, the company sold
      $384.1 million, $1.1 billion and $836.2 million, respectively, of its pigment
      receivables and had pretax income (loss) of $0.1 million, $(8.2) million and
      $(4.8) million in each of those periods, which is included in Other income
      (expense) in the Consolidated and Combined Statement of Operations.





**7.
      Inventories**





Major
      categories of inventories at December 31, 2005 and 2004 were:





**2005**
            
            **2004****(Millions
                of dollars)**Raw
                materials
            
            $
            77.1
            
            $
            79.5Work-in-progress
            
            
            15.2
            
            
            13.4Finished
                goods
            
            
            154.7
            
            
            135.6Materials
                and supplies
            
            
            65.3
            
            
            56.6Total
            
            $
            312.3
            
            $
            285.1





**8.
      Financial Instruments**





The
      company holds or issues financial instruments for other than trading purposes.
      At December 31, 2005 and 2004, the carrying amount and estimated fair value
      of these instruments are as follows:




**December
                31, 2005**
            
            **December
                31, 2004****Carrying
                Value**
            
            **Estimated
                Fair Value**
            
            **Carrying
                Value**
            
            **Estimated
                Fair Value****(Millions
                of dollars)**Cash
                and cash equivalents
            
            $
            69.0
            
            $
            69.0
            
            $
            23.8
            
            $
            23.8Long-term
                receivables
            
            
            35.9
            
            
            30.5
            
            
            21.8
            
            
            19.5Long-term
                debt
            
            
            550.0
            
            
            558.2
            
            
            —
            
            
            —





The
      carrying amount of cash and cash equivalents approximates fair value of those
      instruments due to their short maturity. The fair value of long-term receivables
      is based on discounted cash flows. The fair value of the company’s long-term
      fixed-rate debt is based on the quoted market prices for the debt. The carrying
      value of the company’s variable-rate debt approximates its fair value. Carrying
      values of derivative instruments, all of which approximate their fair values,
      are disclosed in Note 12.





***Concentration
      of Credit Risk***





A
      significant portion of the company’s liquidity is concentrated in trade accounts
      receivable that arise from sales of titanium dioxide pigment to customers in
      the
      paint and coatings industry. The industry concentration has the potential to
      impact the company’s overall exposure to credit risk, either positively or
      negatively, in that its customers may be similarly affected by changes in
      economic, industry or other conditions. The company performs ongoing credit
      evaluations of its customers, and uses credit risk insurance policies from
      time
      to time as deemed appropriate to mitigate credit risk but generally does not
      require collateral. The company maintains reserves for potential credit losses
      based on historical experience and such losses have been within
      expectations.








**9.
      Property, Plant and Equipment**





Property,
      plant and equipment at December 31, 2005 and 2004, was as
      follows:





**2005**
            
            **2004****(Millions
                of dollars)**Land
            
            $
            63.1
            
            $
            58.4Buildings
            
            
            145.0
            
            
            146.9Machinery
                and equipment
            
            
            1,769.2
            
            
            1,770.8Other
            
            
            111.9
            
            
            96.3Total
            
            
            2,089.2
            
            
            2,072.4Less
                accumulated depreciation
            
            
            (1,249.5
            )
            
            (1,189.4
            )Net
            
            $
            839.7
            
            $
            883.0





**10.
      Long-Term Receivables, Investments and Other Assets**





Long-term
      receivables, investments and other assets were as follows at December 31,
      2005 and 2004:





**2005**
            
            **2004****(Millions
                of dollars)**Receivable
                from the U.S. Department of Energy (Note 22)
            
            $
            12.5
            
            $
            12.8Investments
                in equity method investees
            
            
            17.5
            
            
            16.8Receivables
                from insurers (Note 22)
            
            
            23.5
            
            
            9.0Prepaid
                pension cost
            
            
            11.7
            
            
            —Other
            
            
            13.6
            
            
            9.7Total
            
            $
            78.8
            
            $
            48.3





**11.
      Goodwill and Other Intangible Assets**





The
      changes in the carrying value of goodwill, all of which is associated with
      the
      company’s pigment reportable segment, for 2004 and 2005 were as follows (in
      millions of dollars):





Balance
                at December 31, 2003
            
            $
            10.9Change
                due to foreign currency translation
            
            
            0.9Balance
                at December 31, 2004
            
            
            11.8Change
                due to foreign currency translation
            
            
            (1.5
            )Balance
                at December 31, 2005
            
            $
            10.3




The
      changes in the carrying value of indefinite-lived intangible assets for 2004
      and
      2005 were as follows (in millions of dollars):





*Proprietary
                Technology*Balance
                at December 31, 2003
            
            $
            55.5Impairment
                associated with the Savannah sulfate plant shutdown (1)
            
            
            (7.4
            )Change
                due to foreign currency translation
            
            
            5.0Balance
                at December 31, 2004
            
            
            53.1Change
                due to foreign currency translation
            
            
            (3.2
            )Balance
                at December 31, 2005
            
            $
            49.9





(1)  Refer
      to Note 16 for more information regarding the Savannah sulfate plant
      shutdown.





The
      net
      carrying amount of intangible assets subject to amortization at both
      December 31, 2005 and 2004 was $0.2 million.








**12.
      Derivative Instruments**





At
      December 31, 2005 and 2004, the net fair value of foreign currency and
      commodity hedging contracts included in the Consolidated and Combined Balance
      Sheet was a liability of $0.7 million and $1.6 million, respectively, and
      the related balance of deferred after-tax losses in accumulated other
      comprehensive income was $0.4 million and $1.2 million, respectively. All
      contracts outstanding at December 31, 2005, are expected to settle in 2006.
      In 2005, 2004 and 2003, pre-tax gains on cash flow hedges of $5.8 million,
      $10.5 million and $10.3 million, respectively, were reclassified from
      accumulated other comprehensive income to earnings. Substantially all of such
      gains are reflected as a component of cost of goods sold in the Consolidated
      and
      Combined Statement of Operations. No hedges were discontinued and no
      ineffectiveness was recognized in the periods presented.





**13.
      Accrued Liabilities**





Accrued
      liabilities at December 31, 2005 and 2004 were as follows:




**2005**
            
            
            **2004****(Millions
                of dollars)**Employee-related
                costs and benefits
            
            $
            54.2
            
            $
            43.5Reserves
                for environmental remediation and restoration - current
                portion
            
            
            77.8
            
            
            85.0Other(1)
            
            
            36.9
            
            
            34.8Total
            
            $
            168.9
            
            $
            163.3





(1)  No
      other individual item is material to total current liabilities.





**14.
      Long-Term Debt**





No
      long-term debt was outstanding at December 31, 2004. Long-term debt at December
      31, 2005, consisted of the following (in millions of dollars):





Variable-rate
                term loan due in installments through November 2011
            
            $
            200.09.5%
                Senior Unsecured Notes due December 2012
            
            
            350.0Total
                debt
            
            
            550.0Less:
                Current portion of long-term debt
            
            
            (2.0
            )Total
                long-term debt
            
            $
            548.0





In
      November 2005, Tronox Worldwide LLC, a wholly-owned subsidiary of the company,
      entered into a senior secured credit facility consisting of a $200.0 million
      six-year term loan facility and a five-year multicurrency revolving credit
      facility with maximum borrowing capacity of $250.0 million. Interest on amounts
      borrowed under the credit agreement is payable, at Tronox Worldwide LLC’s
      election, at a base rate or a LIBOR rate, in each case as defined in the credit
      agreement. The initial margin applicable to LIBOR borrowings is 175 basis points
      and may vary from 100 to 200 basis points depending on the company’s credit
      rating. The weighted average rate on outstanding borrowings under the term
      loan
      at December 31, 2005, was 6.5%. The term loan requires mandatory payments of
      $0.5 million each quarter beginning in March 2006 through 2010, and $47.5
      million each quarter beginning in March 2011 until maturity. At December 31,
      2005, no amounts were outstanding under the revolving credit facility, but
      the
      company had outstanding letters of credit issued under the facility of $33.8
      million, which reduced the total amount available under the facility to $216.2
      million.





The
      company is required to use 75% of its excess cash flow as defined in the credit
      agreement to pay down debt outstanding under the credit facility. The first
      such
      mandatory payment, if any, is due in March 2007 based on excess cash flow
      for the fiscal year 2006. In addition, 100% of proceeds from certain asset
      sales
      (as defined in the credit agreement) must be used to pay down term loan debt
      within five business days of receipt of such proceeds.








The
      terms of the credit agreement provide for customary representations and
      warranties, affirmative and negative covenants, and events of default. The
      company is also required to maintain compliance with the following financial
      covenants beginning in 2006 (in each case, as defined in the credit
      agreement):





·
            Consolidated
                Total Leverage Ratio of no more than
                3.75:1


·
            Consolidated
                Interest Coverage Ratio of at least
                2:1


·
            Limitation
                on Capital Expenditures





Tronox
      Incorporated and certain of its subsidiaries have guaranteed the obligations
      and
      granted a security interest in specified assets, including property and
      equipment, inventory and accounts receivable.




Tronox
      Worldwide LLC and its wholly-owned direct subsidiary, Tronox Finance Corp.
      issued $350.0 million in aggregate principal amount of 91⁄2% senior unsecured
      notes due in 2012. Interest on the notes will be payable on June 1 and December
      1 of each year, commencing June 1, 2006. The unsecured notes were only offered
      and sold to qualified institutional buyers. The company may redeem all or part
      of the notes on or after December 1, 2009 at specified redemption prices. Prior
      to December 1, 2008, the company may redeem up to 35% of the notes from the
      proceeds of certain equity offerings. The notes are guaranteed on an unsecured
      senior basis by Tronox Incorporated and all of its material wholly-owned
      domestic subsidiaries. The company’s foreign subsidiaries do not guarantee the
      notes. The notes and the guarantees will rank equally in right of payment with
      all of the company’s existing and future unsecured senior debt and will rank
      senior in right of payment to all the company’s existing and future subordinated
      debt. The company has agreed to file a registration statement with the
      Securities and Exchange Commission (“SEC”) relating to an offer to exchange the
      notes and guarantees for registered notes and guarantees with substantially
      identical terms.





The
      credit facility and the indenture governing the senior unsecured notes have
      restrictive covenants that limit the company's ability to, among other things,
      incur additional debt and liens, make loans or investments, sell assets, and
      engage in mergers, consolidations or acquisitions. Both
      the credit facility and the senior unsecured notes have limitations on the
      amount of cash dividends that Tronox can pay to its stockholders. These
      limitations restrict cash payments of dividends not to exceed $5.0 million
      in
      the aggregate in any fiscal quarter and not to exceed $13.5 million in the
      aggregate in any fiscal year.




The
      scheduled maturities of our debt were as follows at December 31, 2005 (in
      millions of dollars):





2006
            
            $
            2.02007
            
            
            2.02008
            
            
            2.02009
            
            
            2.02010
            
            
            2.02011
                and thereafter
            
            
            540.0Total
                debt
            
            $
            550.0





**15.
      Noncurrent Liabilities—Other**





Noncurrent
      liabilities—other consisted of the following at December 31, 2005 and
      2004:





**2005**
            
            **2004****(Millions
                of dollars)**Reserve
                for income taxes payable
            
            $
            37.2
            
            $
            39.7Asset
                retirement obligations
            
            
            27.7
            
            
            24.3Reserve
                for workers’ compensation and general liability claims
            
            
            18.5
            
            
            16.1Pension
                obligations
            
            
            12.6
            
            
            13.5Other
            
            
            25.4
            
            
            21.1Total
            
            $
            121.4
            
            $
            114.7











**16.
      Discontinued Operations, Restructuring and Exit Activities**





***Restructuring
      and Exit Activities*** - The
      following table presents a reconciliation of the beginning and ending balances
      of reserves for restructuring and exit activities for 2005 and 2004, with
      discussion of material components of the activity provided below.






**2005**
            
            **2004****Personnel**
              **Costs**
            
            **Dismantlement**
              **and
                Closure**
            
            **Contract**
              **Termination**
            
            **Total(1)(2)**
            
            **Personnel**
              **Costs**
            
            **Dismantlement**
              **and
                Closure**
            
            **Contract**
              **Termination**
            
            **Total
                (1)(2)****(Millions
                of dollars)**Beginning
                balance
            
            $
            7.1
            
            $
            10.4
            
            $
            4.3
            
            $
            21.8
            
            $
            16.3
            
            $
            12.6
            
            $
            —
            
            $
            28.9Provisions
            
            
            (0.2
            )
            
            (0.2
            )
            
            —
            
            
            (0.4
            )
            
            4.2
            
            
            2.8
            
            
            6.7
            
            
            13.7Payments
            
            
            (2.2
            )
            
            (4.1
            )
            
            (3.3
            )
            
            (9.6
            )
            
            (12.5
            )
            
            (6.4
            )
            
            (2.4
            )
            
            (21.3
            )Adjustments
            
            
            (1.6
            )
            
            (1.2
            )
            
            —
            
            
            (2.8
            )
            
            (0.9
            )
            
            1.4
            
            
            —
            
            
            0.5Ending
                balance
            
            $
            3.1
            
            $
            4.9
            
            $
            1.0
            
            $
            9.0
            
            $
            7.1
            
            $
            10.4
            
            $
            4.3
            
            $
            21.8





(1)  Amounts
      exclude AROs and pension reserves.





(2)
            Amounts include obligations of the discontinued forest products operations
                that have been retained by the
                company.





In
      2004, the company shut down sulfate and curtailed gypsum production at the
      Savannah, Georgia facility, wrote down assets that were no longer in service
      and
      recognized a pretax charge of $123.0 million. Of the total charge in 2004,
      $86.6 million represented a write-down of plant assets (of which
      $12.7 million related to an ARO recognized during the third quarter of
      2004), $15.6 million for inventory revaluation, $7.4 million for
      impairment of intangible assets, $6.7 million for severance and benefit
      plan curtailment costs, and $6.7 million for contract termination costs.
      The company’s 2004 Consolidated and Combined Statement of Operations includes
      $15.6 million in cost of goods sold and $107.4 million in
      restructuring charges, for total pretax charges of $123.0 million
      associated with the Savannah facility. (See Note 18 for additional
      discussion regarding the ARO.) Severance of $1.2 million and $2.1 million was
      paid during 2005 and 2004, respectively, while the remainder of $0.9 million,
      representing an excess of estimated provisions over actual costs, was reversed
      in 2005. The shutdown resulted in the elimination of approximately 100
      positions.





In
      September 2003, the company implemented a work force reduction program
      through which it reduced its U.S. non-bargaining work force through both
      voluntary retirements and involuntary terminations. As a result, the company’s
      work force was reduced by 138 employees. Qualifying employees terminated under
      this program were eligible for enhanced benefits under Kerr-McGee’s pension and
      postretirement plans, along with severance payments. In connection with the
      work
      force reduction program, the company incurred a pretax charge of
      $9.4 million for severance-related costs and $14.2 million for
      curtailment and special termination benefits associated with the company’s
      participation in Kerr-McGee’s U.S. retirement plans. These charges are reflected
      in restructuring charges in the Consolidated and Combined Statement of
      Operations. Of the total severance provision, $2.6 million was paid in
      2003, and $6.5 million was paid in 2004. The remaining reserve balance of
      $0.3 million, representing an excess of estimated provisions over actual
      costs, was reversed in 2004.





During
      2003, the company provided $60.8 million pretax for costs associated with
      the closure of its synthetic rutile plant in Mobile, Alabama. Included in the
      $60.8 million were $14.1 million for the cumulative effect of change
      in accounting principle related to the recognition of an ARO, $15.2 million
      for accelerated depreciation, $14.9 million for other closure costs,
      $10.5 million for severance benefits and $6.1 million for benefit plan
      curtailment costs. The company’s 2003 Consolidated and Combined Statement of
      Operations includes $6.1 million in cost of goods sold, $0.5 million
      in selling, general and administrative expenses, $38.6 million in
      restructuring charges and $1.5 million in provision for environmental
      remediation and restoration, net of reimbursements. In 2004, $6.8 million
      was provided by the company for additional costs associated with the plant
      closure, of which $5.6 million was accelerated depreciation of additional
      asset retirement cost and is included in restructuring charges. See Note 18
      for a discussion of the related ARO. The reserve balance related to this plant
      closure was $0.9 million and $2.0 million at the end of 2005 and 2004,
      respectively. Approximately 127 employees will ultimately be terminated in
      connection with this plant closure, of which 112 had been terminated as of
      December 31, 2005. Payments are expected to continue through the end of
      2007.








During
      2002, the company approved a plan to exit its forest products business, which
      was a component of the company’s electrolytic and other chemical products
      segment. This decision was made as part of the company’s strategic plan to focus
      on its core business. At the time of this decision, five plants were in
      operation. Four of these plants were closed and abandoned during 2003. The
      fifth
      plant, a leased facility, was operated throughout 2004 until the lease expired
      and the fixed assets at the facility were sold in January 2005. Criteria
      for classification of these assets as held for sale were met in 2004, at which
      time the results of forest products operations met the requirements for
      reporting as discontinued operations in the accompanying Consolidated and
      Combined Statements of Operations for all years presented. Therefore, the
      provisions for plant closures discussed below are included in loss from
      discontinued operations. The assets held for sale at December 31, 2004 were
      stated in the Consolidated and Combined Balance Sheet at estimated sales price
      less costs to sell of $3.4 million. A loss of approximately $0.8 million
      was recognized upon the disposition of these assets in 2005. Environmental
      liabilities associated with the wood-treating sites were retained by the company
      and are included in the Consolidated and Combined Balance Sheets in current
      and
      noncurrent liabilities for environmental remediation and/or
      restoration.





The
      company provided nil, $1.9 million and $5.2 million for costs
      associated with exiting its forest products business in 2005, 2004 and 2003,
      respectively. Since
      the announced exit, $17.0 million has been provided for dismantlement and
      closure costs and $6.6 million for severance costs. Through
      December 31, 2005, $20.7 million was paid, with $2.9 million
      remaining in the reserve at year-end. Payments related to the plant closures
      are
      expected to continue for several years in connection with dismantlement and
      cleanup efforts; however, all of the severance costs were paid by the end of
      2005. In connection with the plant closures, 233 employees were terminated
      as of
      year-end 2005. In addition to the provisions for severance, dismantlement and
      closure, the company recognized $8.8 million in 2003 and $8.1 million
      in 2004 for other costs associated with the shutdown. The 2003 costs included
      accelerated depreciation on plant assets, curtailment costs and special
      termination benefits related to pension and postretirement plans, while 2004
      costs represented operating costs during the shutdown period. See “Discontinued
      Operations” below for discussion of costs incurred in 2005.





In
      2001, the company provided $31.8 million related to the closure of a plant
      in Antwerp, Belgium. The provision consisted of $12.0 million for severance
      costs, $12.3 million for dismantlement costs, $6.7 million for
      contract settlement costs and $0.8 million for other plant closure costs.
      Of this total accrual, $3.0 million and $4.6 million remained in the
      restructuring reserve at the end of 2005 and 2004, respectively. As a result
      of
      this plant closure, 122 employees have been terminated as of December 31,
      2005. Payments related to severance are expected to continue until early 2016.
      Payments related to other shutdown costs could extend into 2017.





***Discontinued
      Operations*** - As
      discussed above, in 2004 the company’s forest products operations met the
      criteria for reporting as discontinued operations. Revenues applicable to
      discontinued forest products operations totaled $0.2 million, $21.8 million
      and $105.0 million and pretax losses totaled $27.3 million,
      $15.7 million and $15.5 million for the years 2005, 2004 and 2003,
      respectively. In 2005, the pretax loss from discontinued forest products
      operations included $11.1 million in environmental provisions for various
      wood-treating sites and $7.3 million in provisions related to creosote
      litigation (see Note 22).





In
      addition to the company’s forest products operations, losses from discontinued
      operations for all periods presented include adjustments to amounts previously
      reported as discontinued operations upon disposition of the company’s thorium
      compounds manufacturing, uranium and refining operations. These adjustments
      resulted from changes in estimated cost of environmental remediation and
      restoration activities directly related to the disposed operations. Disposals
      of
      the company’s uranium and refining operations were completed in 1989 and 1995,
      respectively. The company ceased operations at its West Chicago thorium
      processing facility in 1973. The company retained certain environmental
      remediation obligations and continues remediation activities directly related
      to
      these former operations, as more fully discussed in
      Note 22.





**17.
      Income Taxes**





The
      2005, 2004 and 2003 income tax benefit (provision) from continuing operations
      are summarized below:





**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)**U.S.
                Federal—Current
            
            $
            (28.5
            )
            $
            26.7
            
            $
            32.0Deferred
            
            
            10.5
            
            
            17.5
            
            
            2.6(18.0
            )
            
            44.2
            
            
            34.6International—Current
            
            
            (8.8
            )
            
            (13.8
            )
            
            (9.2
            )Deferred
            
            
            7.4
            
            
            7.9
            
            
            (10.2
            )(1.4
            )
            
            (5.9
            )
            
            (19.4
            )State
            
            
            (2.4
            )
            
            —
            
            
            (0.1
            )Total
                benefit (provision)
            
            $
            (21.8
            )
            $
            38.3
            
            $
            15.1





In
      the
      following table, the U.S. Federal income tax rate is reconciled to the company’s
      effective tax rates for income or loss from continuing operations as reflected
      in the Consolidated and Combined Statement of Operations.





**2005**
            
            **2004**
            
            **2003**U.S.
                statutory tax rate
            
            35.0
            %
            35.0
            %
            35.0
            %Increases
                (decreases) resulting from -Adjustment
                of deferred tax balances due to tax rate changes
            
            
            (2.6
            )
            
            3.4
            
            
            —Taxation
                of foreign operations
            
            
            (5.7
            )
            
            (5.8
            )
            
            (7.8
            )State
                income taxes
            
            
            2.3
            
            
            —
            
            
            (0.1
            )Adjustment
                of prior year’s tax attributes from parent
            
            
            (2.9
            )
            
            —
            
            
            —Tax
                on repatriated foreign earnings
            
            
            6.8
            
            
            —
            
            
            —Other
                - net
            
            
            (0.9
            )
            
            (0.7
            )
            
            (3.1
            )Effective
                tax rate
            
            
            32.0
            %
            
            31.9
            %
            
            24.0
            %





Net
      deferred tax liabilities at December 31, 2005 and 2004, were comprised of
      the following:




**2005**
            
            
            **2004**Deferred
              tax
              liabilities -
            
            
            **(Millions
                of dollars)**Property,
                plant and equipment
            
            $
            145.9
            
            $
            156.4Investments
            
            
            6.1
            
            
            5.9Intercompany
                notes and payables
            
            
            11.6
            
            
            20.0Intangible
                assets
            
            
            9.1
            
            
            9.1Inventory
            
            
            2.3
            
            
            —Other
            
            
            5.0
            
            
            0.1Total
                deferred tax liabilities
            
            
            180.0
            
            
            191.5Deferred
                tax assets -Net
                operating loss and other carryforwards
            
            
            (40.2
            )
            
            (45.9
            )Reserves
                for environmental remediation and restoration, net
            
            
            (69.3
            )
            
            (48.1
            )Obligations
                for pension and other employee benefits
            
            
            (5.0
            )
            
            (3.9
            )Bad
                debt allowance
            
            
            (6.7
            )
            
            (5.3
            )Inventory
            
            
            (2.0
            )
            
            (3.7
            )Accrued
                insurance costs
            
            
            (8.3
            )
            
            —Other
            
            
            (10.9
            )
            
            (7.4
            )(142.4
            )
            
            (114.3
            )Valuation
                allowance associated with loss carryforwards
            
            
            5.8
            
            
            6.1Net
                deferred tax assets
            
            
            (136.6
            )
            
            (108.2
            )Net
                deferred tax liability
            
            $
            43.4
            
            $
            83.3








Taxation
      for a company with operations in several foreign countries involves many complex
      variables, such as tax structures that differ from country to country and the
      effect on U.S. taxation of foreign earnings. These complexities do not permit
      meaningful comparisons between the U.S. and international components of income
      before income taxes and the provision for income taxes, and disclosures of
      these
      components do not necessarily provide reliable indicators of relationships
      in
      future periods. Income (loss) from continuing operations before income taxes
      is
      comprised of the following:





**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)**United
                States
            
            $
            53.2
            
            $
            (130.2
            )
            $
            (102.5
            )International
            
            
            15.0
            
            
            10.1
            
            
            39.7Total
            
            $
            68.2
            
            $
            (120.1
            )
            $
            (62.8
            )





At
      December 31, 2005, the company had foreign operating loss carryforwards
      totaling $157.8 million. Of this amount, $10.4 million expires in
      2009, $20.7 million in 2011, $0.5 million in 2012 and $126.2 million
      has no expiration date. Realization of these operating loss carryforwards
      depends on generating sufficient taxable income in future periods. A valuation
      allowance of $5.8 million has been recorded at December 31, 2005, to
      reduce deferred tax assets associated with the foreign loss carryforwards that
      the company does not expect to fully realize prior to expiration.





As
      a
      result of the separation from Kerr-McGee, deconsolidation of the company from
      Kerr-McGee for U.S. Federal income tax purposes occurred during 2005. The
      company will file a U.S. Federal consolidated income tax return for a short
      period beginning November 29, 2005, and ending December 31, 2005. The company
      generated a U.S net operating loss carryforward of $7.5 million during this
      short period. The company expects to fully utilize the U.S. net operating loss
      in 2006. Prior to deconsolidation, Kerr-McGee settled the tax benefit from
      U.S.
      net operating losses generated by its U.S. tax consolidated subsidiaries,
      including the company and company’s U.S. subsidiaries. The company believes it
      has been adequately compensated for all U.S. Federal tax net operating losses
      sustained by the company and the company’s U.S. subsidiaries prior to
      deconsolidation for U.S. Federal income tax purposes.





Undistributed
      earnings of certain foreign subsidiaries totaled $115.4 million at
      December 31, 2005. At December 31, 2005, no provision for deferred
      U.S. income taxes had been made for these earnings because they were considered
      to be indefinitely invested outside the United States. As discussed below,
      the
      distribution of these earnings in the form of dividends or otherwise, may
      subject the company to U.S. Federal and state income taxes and, possibly,
      foreign withholding taxes. However, because of the complexities of U.S. taxation
      of foreign earnings, it is not practicable to estimate the amount of additional
      tax that might be payable on the eventual remittance of these earnings to the
      U.S.





On
      October 22, 2004, the President of the United States signed into law the
      American Jobs Creation Act of 2004 (the “Act”). A provision of the Act includes
      a one-time dividends received deduction of 85% of certain foreign earnings
      that
      are repatriated, as defined in the Act. On April 11, 2005, Kerr-McGee’s
      management completed its analysis of the impact of the Act on its plans for
      repatriation. Based on this analysis, the company repatriated
      $131.0 million in extraordinary dividends, as defined in the Act, during
      2005. Accordingly, income tax expense, net of available tax credits, of
      $4.7 million has been recognized in the company’s Consolidated and Combined
      Statement of Operations. Cash requirements for the dividends were met with
      cash
      on hand at the time each of the distributions was made.





The
      Internal Revenue Service has completed its examination of Kerr-McGee Corporation
      and subsidiaries’ U.S. Federal income tax returns for all years through 2002 and
      is conducting an examination of the years 2003 and 2004. The years through
      1996
      have been closed with the exception of issues for which a refund claim has
      been
      filed. Contingent tax liabilities of $37.2 million and $39.7 million
      at December 31, 2005 and 2004, respectively, have been included in
      noncurrent liabilities separate and apart from deferred income taxes. It is
      not
      expected that these contingent amounts will be paid prior to the close of
      calendar year 2006. These contingencies relate primarily to certain deductions
      associated with plant shutdown activities, deductions related to the effects
      of
      foreign currency translation and other tax-related matters. The company believes
      that it has made adequate provision for income taxes that may be payable with
      respect to years open for examination.








***Tax
      Sharing Agreement and Tax Allocations*** - The
      company entered into a tax sharing agreement with Kerr-McGee that governs
      Kerr-McGee’s and the company’s respective rights, responsibilities and
      obligations subsequent to the IPO with respect to taxes for tax periods ending
      in 2005 and prior. Generally, taxes incurred or accrued prior to the IPO that
      are attributable to the business of one party will be borne solely by that
      party. A liability to Kerr-McGee of $2.1 million for the company’s share of
      state income taxes has been recorded as of December 31, 2005.





The
      company may incur certain restructuring taxes as a result of the separation
      from
      Kerr-McGee. A restructuring tax is any tax incurred as a result of any
      restructuring transaction undertaken to effectuate the separation other than
      the
      IPO, the Distribution and entering into the senior secured credit
      facility, which in the judgment of the parties is currently required to be
      taken
      into account in determining the tax liability of Kerr-McGee or Tronox (or their
      respective subsidiaries) for any pre-deconsolidation period as defined in the
      tax sharing agreement. The tax sharing agreement provides that Kerr-McGee will
      be responsible for 100% of the restructuring taxes up to, but not to exceed,
      $17.0 million. The company is responsible for any restructuring taxes in excess
      of $17.0 million. However, the company does not expect the restructuring taxes
      to exceed $17.0 million. In addition, the company is required to indemnify
      Kerr-McGee for any tax liability incurred by reason of the Distribution being
      considered a taxable transaction to Kerr-McGee as a result of a breach of any
      representation, warranty or covenant made by the company in the tax sharing
      agreement.





Under
      U.S. Federal income tax laws, the company and Kerr-McGee are jointly and
      severally liable for Kerr-McGee’s U.S. Federal income taxes attributable to the
      periods prior to and including the 2005 taxable year of Kerr-McGee. If
      Kerr-McGee fails to pay the taxes attributable to it under the tax sharing
      agreement for periods prior to and including the 2005 taxable year of
      Kerr-McGee, the company may be liable for any part of, including the whole
      amount of, these tax liabilities.





**18.
      Asset Retirement Obligations**





As
      a
      result of the adoption of FAS No. 143 on January 1, 2003, and the company’s
      expressed intent to close the synthetic rutile plant in Mobile, Alabama, the
      company recorded an abandonment liability of $17.6 million and an increase
      in
      net property of $3.5 million. The net result was a pre-tax charge to earnings
      of
      $14.1 million to recognize the cumulative effect of adopting the
      standard.




As
      discussed in Note 2, in March 2005, the FASB issued Interpretation No. 47,
      “Accounting for Conditional Asset Retirement Obligations - An Interpretation
      of
      FASB Statement No. 143” (“FIN No. 47”) to clarify that an entity must recognize
      a liability for the fair value of a conditional ARO when incurred, if the
      liability’s fair value can be reasonably estimated. Conditional AROs under this
      pronouncement are legal obligations to perform asset retirement activities
      when
      the timing and/or method of settlement are conditional on a future event or
      may
      not be within the control of the entity. FIN No. 47 also provides additional
      guidance for evaluating whether sufficient information to reasonably estimate
      the fair value of an ARO is available. The company adopted FIN No. 47 as of
      December 31, 2005 with no material effect to the company’s financial position or
      results of operations and no effect on reported cash flows.








A
      summary of the changes in the abandonment liability during 2005 and 2004 is
      included in the table below.





**2005**
            
            **2004****(Millions
                of dollars)**Balance,
                January 1
            
            $
            30.9
            
            $
            17.6Adoption
                of FIN No. 47 and obligations incurred
            
            
            4.4
            
            
            12.7Accretion
                expense
            
            
            0.9
            
            
            0.2Changes
                in estimates, including timing
            
            
            1.0
            
            
            3.6Abandonment
                expenditures
            
            
            (2.3
            )
            
            (3.2
            )Balance,
                December 31
            
            $
            34.9
            
            $
            30.9Current
                portion (1)
            
            $
            7.2
            
            $
            6.6Noncurrent
                portion (2)
            
            $
            27.7
            
            $
            24.3





(1)  Included
      in accrued liabilities





(2)
            Included in noncurrent liabilities -
                other





As
      discussed in Note 16, the company shut down its synthetic rutile plant in
      Mobile, Alabama, in 2003. In September 2004, the company shut down sulfate
      and curtailed gypsum production at its Savannah, Georgia, plant. Until the
      decisions to shut down these facilities had been made, it was undeterminable
      when the asset retirement liability associated with these facilities would
      be
      settled. Upon deciding to shut down the facilities, the timing of settlement
      and
      method of abandonment became known and estimable and the related ARO was
      recorded at the estimated fair value. For the synthetic rutile plant in Mobile,
      Alabama, a $17.6 million liability was recognized at the beginning of 2003.
      For the sulfate production facility at the company’s Savannah, Georgia, plant,
      an abandonment liability of $12.7 million was recognized in
      September 2004.





Operations
      at the Mobile, Alabama, facility included production of feedstock for the
      company’s titanium dioxide pigment plants. The facility ceased feedstock
      production in June 2003, though it is currently being used on a temporary basis
      to dry ore for titanium dioxide production. Feedstock operations had resulted
      in
      minor contamination of groundwater adjacent to surface impoundments. A
      groundwater recovery system was installed prior to closure and continues in
      operation, as required under the National Pollutant Discharge Elimination System
      (NPDES) permit. Remediation work, including groundwater recovery, closure of
      the
      impoundments and other minor work, is expected to be substantially completed
      five years after the facility is no longer being used to dry ore.





In
      2004, an abandonment reserve related to the titanium dioxide pigment sulfate
      production at Savannah, Georgia, was established to address probable remediation
      activities, including environmental assessment, closure of certain impoundments,
      groundwater monitoring, asbestos abatement, and other work, which are expected
      to take more than 25 years.





In
      2005
      in connection with the adoption of FIN No. 47, the company recognized an
      obligation for its 50% share of the cost to close and rehabilitate the mine
      site
      in Western Australia, operated by the joint venture partners. As of December
      31,
      2005, the accreted reserve represented management’s estimate of the total costs
      to restore the area that has been disturbed, as required under the mining
      lease.




**19.
      Employee Benefit Plans**





***Overview*** -
      Tronox is a sponsor of a noncontributory defined benefit retirement plan in
      Germany and a contributory defined benefit retirement plan in the Netherlands.
      Qualifying current and former U.S. employees of the company participate in
      the
      noncontributory defined benefit pension plans and the contributory
      postretirement plans for health care and life insurance sponsored by Kerr-McGee.
      As discussed in Note 3, under the provisions of the employee benefits agreement
      between Kerr-McGee and Tronox, this participation extends through the date
      of
      Distribution. The anticipated impact of the Distribution on Tronox is discussed
      in more detail below.








***U.S.
      Plans*** -
      Benefits under the qualified defined benefit plan are generally based on years
      of service and final average pay. Company employees also participate in a
      Kerr-McGee sponsored supplemental nonqualified plan designed to maintain
      benefits for all employees at the plan formula level. Substantially all U.S.
      employees may become eligible for the postretirement health and welfare benefits
      if they reach retirement age while covered by the Kerr-McGee
      plan.





Kerr-McGee
      allocated costs associated with its U.S. plans based on salary for defined
      benefit pension plans and based on active headcount for health and welfare
      postretirement plans. Net periodic (benefit) cost associated with the U.S.
      plans
      allocated to the company for each of the last three years was as
      follows:





**U.S.
                Retirement Plans**
              **Allocation**
            **U.S.
                Postretirement Plans**
              **Allocation****2005**
            **2004**
            **2003**
            **2005**
            **2004**
            **2003****(Millions
                of dollars)**Net
                periodic (benefit) cost, excluding special termination benefits,
                settlement and curtailment losses
            $(0.4)
            $(6.2)
            $(15.0)
            $7.0
            $10.0
            $
                7.2Special
                termination benefits, settlement and curtailment losses
            —
            8.6
            23.7
            —
            0.5
            5.0Total
                net periodic (benefit) cost
            $(0.4)
            $
                2.4
            $
                8.7
            $7.0
            $10.5
            $12.2





The
      2004 net periodic cost includes curtailment loss and special termination
      benefits associated with the shutdown of sulfate production at the Savannah,
      Georgia, facility and losses on settlement of certain qualified benefits as
      a
      result of cash settlements associated with retirements, including retirements
      associated with the work force reduction program announced in 2003. In 2003,
      the
      company recognized a curtailment loss with respect to pension and postretirement
      benefits in connection with its U.S. work force reduction program and plant
      closures and recognized special termination benefits associated with its U.S.
      work force reduction program.





The
      costs that have historically been allocated to the company are not necessarily
      indicative of the costs that will be incurred in the future by the company
      for
      U.S. benefit plans. Costs related to Kerr-McGee employees performing corporate
      and administrative functions for the company that became employees of the
      company at the time of the IPO are included in the Consolidated and Combined
      Statement of Operations starting with November 28, 2005, the IPO closing date.





For
      the
      periods presented, the company was not the plan sponsor for the U.S. qualified
      and non-qualified retirement plans and the U.S. health and welfare plans.
      Accordingly, the company’s Consolidated and Combined Balance Sheet does not
      reflect any such assets or liabilities. As described below, the company intends
      to establish such plans for its U.S. employees and former employees, which
      will
      result in a transfer of assets to the company and an assumption of obligations
      associated with current and former employees participating in such newly
      established plans.





The
      company plans to establish a U.S. tax-qualified defined benefit retirement
      plan
      and related trust for the company’s employees and former employees who
      participated in Kerr-McGee’s defined benefit retirement plans at the
      Distribution date. In connection with the assumption of obligations by the
      company, Kerr-McGee will transfer assets from the trust for Kerr-McGee’s defined
      benefit retirement plan to the trust for Tronox’s plan. It is estimated that the
      company’s defined benefit obligation for this plan, determined on a plan
      termination basis as set forth in the employee benefits agreement, will be
      approximately $435.0 million and will be fully funded at the Distribution
      date (unaudited).





The
      company plans to establish a U.S. defined benefit non-qualified deferred
      compensation plan that will assume the obligations of the defined benefit
      portion of the Kerr-McGee Benefits Restoration Plan with respect to the
      company’s current and former employees. The company will assume the benefit
      obligation related to such employees and Kerr-McGee will transfer the related
      assets as set forth in the employee benefits agreement. It is estimated that
      this plan will be underfunded by approximately $3.0 million (unaudited).








The
      company plans to establish appropriate health and welfare benefit plans prior
      to
      the Distribution to provide benefits to the company’s U.S. employees that
      are anticipated to be similar to the health and welfare benefits provided
      currently to the employees by Kerr-McGee. Certain retiree medical benefits
      are
      available to eligible U.S. employees meeting certain age and service
      requirements upon termination of employment. It is estimated that the
      accumulated benefit obligation relating to all eligible retired and active
      vested participants related to the company of approximately $149.0 million
      will be assumed by the company upon completion of the Distribution (unaudited).
      There are no assets associated with this plan that will be transferred. The
      company has also agreed that the Material Features (as defined in the employee
      benefits agreement) of the plan that apply to retirees will not be amended
      before the third anniversary of the Distribution.





The
      estimated defined benefit obligation, the estimated benefit obligation related
      to the non-qualified deferred compensation plan and the estimated postretirement
      health and welfare benefit obligation that the company will assume related
      to
      U.S. plans have been made based primarily on Kerr-McGee plan assumptions as
      of
      December 31, 2005, and participant data as of January 1, 2006. Trust assets
      to
      be transferred were estimated using interest rate and other assumptions as
      of
      February 28, 2006. The assumptions and participant data will be updated as
      of
      the Distribution date and could result in a change in the liability assumed
      and
      trust assets to be transferred.





The
      table below presents estimated benefit payments following the Distribution
      and
      the assumption of the defined benefit retirement obligation and the health
      and
      welfare obligation discussed above for the next five years and, in the aggregate
      for the years 2011 through 2015 (unaudited).





**2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011-2015****(Millions
                of dollars)**Retirement
                benefit payments
            
            $
            27.4
            
            $
            27.7
            
            $
            28.4
            
            $
            28.8
            
            $
            30.2
            
            $
            178.7Retiree
                health and welfarebenefit payments
            
            
            10.1
            
            
            10.3
            
            
            10.4
            
            
            10.4
            
            
            10.4
            
            
            52.6Total
            
            $
            37.5
            
            $
            38.0
            
            $
            38.8
            
            $
            39.2
            
            $
            40.6
            
            $
            231.3





***Foreign
      Plans*** -
      Certain of the foreign subsidiaries of the company are the plan sponsors of
      their respective retirement plans. The company’s employees in Germany and in the
      Netherlands will continue to participate in pension plans in place at the date
      of the Distribution. The company uses a December 31 measurement date for
      its foreign plans. Following are disclosures related to the foreign
      plans.





Changes
      in the total projected benefit obligation for the foreign pension plans during
      2005 and 2004 were as follows:





**2005**
            
            **2004****(Millions
                of dollars)**Benefit
                obligation, beginning of year
            
            $
            82.5
            
            $
            63.4Service
                cost
            
            
            2.0
            
            
            1.9Interest
                cost
            
            
            3.6
            
            
            3.4Plan
                amendments/law changes
            
            
            0.4
            
            
            0.7Net
                actuarial loss
            
            
            5.2
            
            
            7.9Foreign
                exchange rate changes
            
            
            (11.1
            )
            
            6.2Contributions
                by plan participants
            
            
            0.4
            
            
            0.4Benefits
                paid
            
            
            (1.6
            )
            
            (1.4
            )Benefit
                obligation, end of year
            
            $
            81.4
            
            $
            82.5





Expected
      benefit payments for the next five years and, in the aggregate for the years
      2011 through 2015 are $1.9 million in 2006, $2.1 million in 2007,
      $2.4 million in 2008, $2.7 million in 2009, $2.8 million in 2010 and
      $17.2 million in 2011 through 2015.







The
      following summarizes the accumulated and projected benefit obligations and
      the
      funded status of each of the company’s foreign plans at December 31, 2005
      and 2004 :





**At
                December 31, 2005**
            
            **At
                December 31, 2004****The**
              **Netherlands**
              **Retirement**
              **Plan**
            
            **Germany**
              **Retirement**
              **Plans**
            
            **The**
              **Netherlands**
              **Retirement**
              **Plan**
            
            **Germany**
              **Retirement**
              **Plans****(Millions
                of dollars)**Accumulated
                benefit obligation
            
            $
            59.3
            
            $
            13.0
            
            $
            60.9
            
            $
            12.2Projected
                benefit obligation
            
            $
            67.7
            
            $
            13.7
            
            $
            69.9
            
            $
            12.6Market
                value of plan assets
            
            
            62.2
            
            
            —
            
            
            59.2
            
            
            —Funded
                status - underfunded
            
            $
            (5.5
            )
            $
            (13.7
            )
            $
            (10.7
            )
            $
            (12.6
            )







Changes
      in the fair value of plan assets during 2005 and 2004 and the reconciliation
      of
      the plans’ funded status to the amounts recognized in the financial statements
      for the foreign retirement plans at December 31, 2005 and 2004 were as
      follows:





**2005**
            
            **2004****(Millions
                of dollars)**Fair
                value of plan assets, beginning of year
            
            $
            59.2
            
            $
            51.3Actual
                return on plan assets
            
            
            5.1
            
            
            2.4Employer
                contributions
            
            
            7.0
            
            
            1.9Participant
                contributions
            
            
            0.4
            
            
            0.4Foreign
                exchange rate changes
            
            
            (8.2
            )
            
            4.4Benefits
                paid
            
            
            (1.3
            )
            
            (1.2
            )Fair
                value of plan assets, end of year
            
            
            62.2
            
            
            59.2Benefit
                obligation
            
            
            (81.4
            )
            
            (82.5
            )Funded
                status of plans
            
            
            (19.2
            )
            
            (23.3
            )Amounts
                not recognized in the Consolidated and Combined Balance Sheet:Prior
                service cost
            
            
            (1.4
            )
            
            (2.3
            )Net
                actuarial loss
            
            
            21.0
            
            
            22.1Prepaid
                expense (accrued liability)
            
            $
            0.4
            
            $
            (3.5
            )




Classification
      of the amounts recognized in the Consolidated and Combined Balance Sheet for
      the
      foreign retirement plans at December 31, 2005 and 2004 is shown
      below:




**2005**
            
            **2004****(Millions
                of dollars)**Prepaid
                pension cost
            
            $
            11.7
            
            $
            —Accrued
                benefit liability
            
            
            (14.5
            )
            
            (14.0
            )Accumulated
                other comprehensive income (before tax)
            
            
            3.2
            
            
            10.5Total
            
            $
            0.4
            
            $
            (3.5
            )





For
      2005, 2004 and 2003, the company had after-tax income of $4.9 million and
      after-tax losses of $6.1 million and $0.6 million, respectively,
      included in other comprehensive income (loss) resulting from changes in the
      additional minimum pension liability.








Net
      periodic pension cost components for the foreign retirement plans for the years
      ended December 31, 2005, 2004 and 2003 were as follows:








**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)**Net
                periodic cost—Service
                cost
            
            $
            2.0
            
            $
            1.9
            
            $
            1.7Interest
                cost
            
            
            3.6
            
            
            3.4
            
            
            3.1Expected
                return on plan assets
            
            
            (3.1
            )
            
            (3.0
            )
            
            (2.4
            )Net
                amortization—Prior
                service cost
            
            
            (0.3
            )
            
            (0.2
            )
            
            —Net
                actuarial loss
            
            
            1.1
            
            
            0.5
            
            
            0.7Total
            
            $
            3.3
            
            $
            2.6
            
            $
            3.1





Assumptions
      used in estimating the net periodic pension cost for the foreign plans were
      as
      follows:





**2005**
            
            **2004**
            
            **2003****Germany**
              **Plans**
            
            **The**
              **Netherlands**
              **Plan**
            
            **Germany**
              **Plans**
            
            **The**
              **Netherlands**
              **Plan**
            
            **Germany**
              **Plans**
            
            **The**
              **Netherlands**
              **Plan**Discount
                rate
            
            
            4.75
            %
            
            4.75
            %
            
            5.5
            %
            
            5.25
            %
            
            5.75
            %
            
            5.50
            %Expected
                return on plan assets
            
            
            N/A
            
            
            5.5
            
            
            N/A
            
            
            5.75
            
            
            N/A
            
            
            5.75Rate
                of compensation increases
            
            
            3.0
            
            
            3.5
            
            
            2.75
            
            
            2.82
            
            
            2.75
            
            
            5.0





The
      following presents assumptions used in estimating the actuarial present value
      of
      the foreign plans’ benefit obligations:





**2005**
            
            **2004**
            
            **2003****Germany**
              **Plans**
            
            **The**
              **Netherlands**
              **Plan**
            
            **Germany**
              **Plans**
            
            **The**
              **Netherlands**
              **Plan**
            
            **Germany**
              **Plans**
            
            **The**
              **Netherlands**
              **Plan**Discount
                rate
            
            
            4.25
            %
            
            4.25
            %
            
            4.75
            %
            
            4.75
            %
            
            5.5
            %
            
            5.25
            %Rate
                of compensation increases
            
            
            3.0
            
            
            3.5
            
            
            3.0
            
            
            3.5
            
            
            2.75
            
            
            2.82





The
      company based the discount rate assumptions for the foreign plans on local
      corporate bond index rates. Long-term rate of return assumption for the
      Netherlands plan is developed considering the portfolio mix and country-specific
      economic data that includes the rates of return on local government and
      corporate bonds.





Asset
      categories for the funded retirement plan of employees in the Netherlands and
      the associated asset allocations by category at December 31, 2005 and 2004,
      are as follows:





**December 31,****2005**
            
            **2004**Equity
                securities
            
            
            28
            %
            
            24
            %Debt
                securities
            
            
            63
            %
            
            76
            %Other
            
            
            9
            %
            
            —Total
            
            
            100
            %
            
            100
            %





The
      Netherlands plan is administered by a pension committee representing the
      employer, the employees and the pensioners, each with one equal vote. The
      pension committee members are approved by the state’s lead pension agency based
      upon experience and character. The pension committee meets at least quarterly
      to
      discuss regulatory changes, asset performance and asset allocation. The plan
      assets are managed by one Dutch fund manager against a mandate set at least
      annually by the pension committee. Annually the plan assets are evaluated by
      a
      multinational benefits consultant against state defined actuarial tests to
      determine funding requirements.








**20.
      Employee Stock-Based Compensation**





Under
      Kerr-McGee’s incentive compensation plans, the company’s employees were granted
      stock options, restricted stock, stock opportunity grants and performance unit
      awards. Prior
      to the IPO, the company established its own Long-Term Incentive Plan (the
“Plan”). The Plan authorizes the issuance of shares of the company’s Class A
      common stock to certain employees and non-employee directors any time prior
      to
      November 16, 2015, in the form of fixed-price stock options, restricted stock,
      stock appreciation rights or performance awards. A total of 6,060,000 shares
      of
      the company’s Class A common stock are authorized to be issued under the Plan,
      of which a maximum of 1.5 million shares of Class A common stock is authorized
      for issuance in connection with awards of restricted stock and performance
      awards to employees. The Plan also includes certain limitations on the size
      of
      awards to an individual employee and to non-employee directors as a group.
      Subject to these limits, a committee of the Board of Directors administering
      the
      Plan (the “Committee”) determines the size and types of awards to be
      issued.





The
      maximum period for exercise of an option granted under the Plan may not be
      more
      than ten years from the date the grant is authorized by the Committee and the
      exercise price may not be less than the fair market value of the Class A common
      stock on the date the option is granted. The Committee will determine the nature
      and extent of the restrictions on grants of restricted stock, the duration
      of
      such restrictions, and any circumstances under which restricted shares will
      be
      forfeited.





In
      the
      fourth quarter of 2005, the company granted 345,700 stock option awards and
      406,640 restricted stock awards to its employees and non-employee directors
      with
      the following terms:





**Contractual
                Life****(Years)**
            **Vesting
                Period****(Years)**
            **Vesting**
              **Term**
            **Cash-
                or Stock-****Settled**
            **Vesting
                and Other****Conditions**Stock
                options
            10
            3
            Graded(1)
            Stock
            Employee
                serviceRestricted
              stock
            Not
                applicable
            3
            Cliff(2)
            Stock
            Employee
                service





(1)  An
      employee vests in one-third of the award at the end of each year of
      service.





(2)  An
      employee vests in the entire award at the end of the three-year service
      period.








***Restricted
      Stock*** -
      Following the IPO in 2005, the company granted 406,640 shares of Class A
      restricted stock with a weighted average grant-date fair market value of $13.77
      and all such unvested shares of restricted stock were outstanding at December
      31, 2005. The company recognized pretax stock-based compensation expense of
      $0.2
      million related to the restricted stock issued under the Plan in income from
      continuing operations for the year ended December 31, 2005.





***Stock
      Options*** -
      Following the IPO in 2005, the company granted 345,700 of options to purchase
      Class A common stock with an exercise price of $14.00 per share and a grant
      date
      fair value of $5.01 per option. All such options were outstanding at December
      31, 2005, and none were exercisable as of that date.





***Kerr-McGee
      Stock Options*** -
      Kerr-McGee stock options held by the company’s employees are fixed-price options
      granted at the fair market value of the underlying common stock on the date
      the
      grant was approved by the committee of Kerr-McGee’s Board of Directors
      administering the Kerr-McGee long-term incentive plan. Generally, one-third
      of
      each grant vests and becomes exercisable over a three-year period immediately
      following the grant date and expires 10 years after the grant
      date.








The
      following table summarizes transactions in Kerr-McGee stock options during
      2005,
      2004 and 2003 held by the company’s employees, including employees performing
      corporate and administrative functions for the company that became employees
      of
      the company at the time of the IPO.





**2005**
            **2004**
            **2003****Options**
            **Weighted-**
              **Average**
              **Exercise**
              **Price
                per**
              **Option
                (1)**
            **Options**
            **Weighted-**
              **Average**
              **Exercise**
              **Price
                per**
              **Option
                (1)**
            **Options**
            **Weighted-**
              **Average**
              **Exercise**
              **Price
                per**
              **Option
                (1)**Outstanding,
                beginning of year
            1,378,022
            $56.35
            1,391,837
            $56.52
            1,221,701
            $59.25Options
                granted
            228,950
            56.57
            206,834
            49.45
            246,105
            42.95Options
                exercised
            (1,071,470)
            57.77
            (135,216)
            47.02
            (1,500)
            43.72Options
                forfeited
            (4,399)
            50.88
            (26,438)
            50.41
            (42,306)
            55.56Options
                expired
            (3,888)
            59.27
            (58,995)
            60.24
            (32,163)
            58.29Outstanding,
                end of year
            527,215
            53.59
            1,378,022
            56.35
            1,391,837
            56.52Exercisable,
                end of year
            138,102
            56.34
            965,246
            59.16
            783,621
            59.74







The
      following table summarizes information about stock options described above
      that
      are outstanding and exercisable at December 31, 2005:





**Options
                Outstanding**
            **Options
                Exercisable****Options**
            
            
            **Range
                of Exercise**
              **Prices
                per Option (1)**
            **Weighted-**
              **Average**
              **Remaining**
              **Contractual**
              **Life
                (years)**
            **Weighted-**
              **Average**
              **Exercise**
              **Price
                per**
              **Option
                (1)**
            **Options**
            **Weighted-**
              **Average**
              **Exercise**
              **Price
                per**
              **Option
                (1)**197,142
            
            $42.95—49.99
            7.5
            $42.95
            32,879
            $45.2332,915
            
            50.00—54.99
            4.3
            54.15
            32,915
            54.15235,037
            
            55.00—59.99
            8.7
            56.65
            10,187
            58.4544,771
            
            60.00—64.99
            4.7
            62.20
            44,771
            62.2017,350
            
            65.00—69.99
            4.3
            65.19
            17,350
            65.19527,215
            
            
            7.5
            53.59
            138,102
            56.34





( 1)  Exercise
      price per option based on Kerr-McGee’s stock price.





Compensation
      expense allocated to the company associated with Kerr-McGee stock option awards
      made to the company employees was $0.8 million in 2005 and nil in 2004 and
      2003.





As
      provided in the employee benefits agreement between the company and Kerr-McGee,
      unvested options to purchase Kerr-McGee common stock held by the company’s
      employees not eligible to retire and outstanding on the effective date of the
      Distribution will be forfeited and replaced with options to acquire the
      company’s stock. As of February 28, 2006, options to purchase 161,500 shares of
      Kerr-McGee stock were held by such Tronox employees (unaudited). The stock
      options issued by the company will have the same vesting provisions, contractual
      life and other terms and conditions as the Kerr-McGee options they replaced.
      The
      number of shares and exercise price of each stock option will be adjusted so
      that each company option will have the same ratio of the exercise price per
      share to the market value per share and the same aggregate difference between
      market value and exercise price as the Kerr-McGee stock options prior to their
      cancellation. Employees who hold vested options to purchase Kerr-McGee common
      stock as of the date of the Distribution may exercise such options for the
      lesser of three months after the effective date of the Distribution or the
      remaining term of the option award. However, employees who are eligible for
      retirement on the effective date of the Distribution may exercise their vested
      stock options for the lesser of four years after the effective date of the
      Distribution or the remaining term of the option award. Vested options not
      exercised during the specified time period will expire.








***Kerr-McGee
      Restricted Stock and Stock Opportunity Grants*** *-* Restricted
      stock under Kerr-McGee’s plans was awarded in the name of the employee and,
      except for the right of disposal, holders have full stockholders’ rights during
      the period of restriction, including voting rights and the right to receive
      dividends. Certain key employees in Europe and Australia have received stock
      opportunity grants giving them the opportunity to earn unrestricted stock in
      the
      future, provided that certain conditions are met. These stock opportunity grants
      do not carry voting privileges or dividend rights since the related shares
      are
      not issued until vested. Restricted stock and stock opportunity grants generally
      vest between three and five years. The following table summarizes certain
      information with respect to restricted stock and stock opportunity grants made
      by Kerr-McGee in 2005, 2004 and 2003 to the company’s employees. This grant
      information includes shares associated with certain employees performing
      corporate and administrative functions for the company that became employees
      of
      Tronox at the IPO date.





**2005**
            
            **2004**
            
            **2003****Restricted**
              **Stock**
            
            **Stock**
              **Opportunity**
              **Awards**
            
            **Restricted**
              **Stock**
            
            **Stock**
              **Opportunity**
              **Awards**
            
            **Restricted**
              **Stock**
            
            **Stock**
              **Opportunity**
              **Awards**Shares
                granted
            
            
            45,845
            
            
            6,265
            
            
            61,224
            
            
            6,616
            
            
            80,305
            
            
            8,350Weighted
                average grant-date fair value
            
            $
            73.54
            
            $
            73.54
            
            $
            49.45
            
            $
            49.45
            
            $
            43.19
            
            $
            43.19





Compensation
      expense allocated to the company associated with restricted stock and stock
      opportunity awards made to the company’s employees was $1.8 million,
      $2.2 million and $1.2 million in 2005, 2004, and 2003,
      respectively.





On
      the
      effective date of the Distribution, unvested Kerr-McGee restricted stock and
      stock opportunity awards held by the company’s employees, except for
      retirement-eligible employees, are expected to be forfeited and replaced with
      comparable value awards of the company’s stock with the same terms and
      conditions, except that the number of shares covered by the awards will be
      adjusted using a ratio of Kerr-McGee share price to the company’s share price,
      as defined in the employee benefits agreement between the company and
      Kerr-McGee. As of February 28, 2006, approximately 81,700 shares of Kerr-McGee
      restricted stock and stock opportunity awards held by Tronox employees are
      expected to be forfeited and replaced with Tronox restricted stock (unaudited).
      Kerr-McGee restricted stock awards held by employees who are eligible for
      retirement on the effective date of the Distribution will fully vest.





***Kerr-McGee
      Performance Units*** -
      Performance units provided for cash awards that were based on Kerr-McGee’s total
      stockholder return over a stated period as compared to selected peer companies.
      At December 31, 2005 and 2004, the company’s employees held 4,370,449 and
      2,356,215 performance units, respectively. Compensation expense allocated to
      the
      company associated with performance units was $1.5 million in 2005 and $0.2
      million in 2004.





Performance
      units that had vested as of January 2006 were paid by Kerr-McGee in accordance
      with the terms of its plan. Unvested performance unit awards held by the
      company’s employees as of the date of the Distribution will be forfeited and
      replaced with a stock option or restricted stock grant equal to the value of
      the
      forfeited awards. The value will be determined by calculating total stockholder
      return and associated payout as if the entire performance cycle ended on the
      IPO
      date. It is
      estimated that approximately $3.1 million in value of Kerr-McGee performance
      unit awards held by the company’s employees at February 28, 2006, will be
      forfeited and replaced with Tronox awards (unaudited).





***Kerr-McGee
      Employee Stock Ownership Plan*** - The
      company’s employees participate in the Kerr-McGee Corporation Savings Investment
      Plan (“SIP”), a defined contribution plan sponsored by Kerr-McGee. Kerr-McGee
      makes matching contributions to a leveraged Employee Stock Ownership Plan
      (“ESOP”), which is a part of the SIP. Shares held in the ESOP trust are
      allocated to participant’s accounts in the SIP in satisfaction of the matching
      contribution. Compensation expense associated with the Kerr-McGee SIP allocated
      to the company was $3.5 million in both 2005 and 2004 and $9.8 million in
      2003. The company will establish, effective on the date of the Distribution,
      its
      own defined contribution plan that will have similar terms to the Kerr-McGee
      plan except that the company’s match will be in cash.





**21.
      Other Income (Expense)**





Components
      of other income (expense) in 2005, 2004 and 2003 were as follows:





**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)**Net
                foreign currency transaction loss
            
            $
            (3.0
            )
            $
            (5.4
            )
            $
            (3.7
            )Equity
                in net earnings of equity method investees
            
            
            2.0
            
            
            2.4
            
            
            0.8Net
                interest expense on borrowings with affiliates and interest
                income
            
            
            (11.9
            )
            
            (9.5
            )
            
            (8.8
            )Gain
                (loss) on accounts receivables sales
            
            
            0.1
            
            
            (8.2
            )
            
            (4.8
            )Other
                expense
            
            
            (2.4
            )
            
            (4.5
            )
            
            (4.0
            )Total
            
            $
            (15.2
            )
            $
            (25.2
            )
            $
            (20.5
            )





**22.
      Contingencies**





The
      following table summarizes the contingency reserve balances, provisions,
      payments and settlements for 2003, 2004 and 2005, as well as balances, accruals
      and receipts of reimbursements of environmental costs from other
      parties.





**Reserves
                for**
              **Litigation
                (1)**
            
            **Reserves
                for**
              **Environmental**
              **Remediation
                (2)**
            
            **Reimbursements**
              **Receivable(3)****(Millions
                of dollars)**Balance
                at December 31, 2002
            
            $
            42.9
            
            $
            229.3
            
            $
            112.7Provisions
                / Accruals
            
            
            1.3
            
            
            88.2
            
            
            32.2Payments
                / Settlements
            
            
            (38.4
            )
            
            (97.9
            )
            
            (14.8
            )Balance
                at December 31, 2003
            
            
            5.8
            
            
            219.6
            
            
            130.1Provisions
                / Accruals
            
            
            0.2
            
            
            81.4
            
            
            14.2Payments
                / Settlements
            
            
            (3.4
            )
            
            (85.2
            )
            
            (50.5
            )Balance
                at December 31, 2004
            
            
            2.6
            
            
            215.8
            
            
            93.8Provisions
                / Accruals
            
            
            8.7
            
            
            69.0
            
            
            34.3Payments
                / Settlements
            
            
            (2.1
            )
            
            (61.1
            )
            
            (71.4
            )Balance
                at December 31, 2005
            
            $
            9.2
            
            $
            223.7
            
            $
            56.7





(1)
            Provisions
                for litigation in 2003, 2004 and 2005 include $1.2 million, nil and
                $8.7 million, respectively, related to the company’s former forest
                products operations, thorium compounds manufacturing and refining
                operations and, therefore, are reflected in loss from discontinued
                operations (net of tax) in the Consolidated and Combined Statement
                of
                Operations.





(2)
            Provisions
                for environmental remediation and restoration in 2003, 2004 and 2005
                include $52.3 million, $75.7 million and $29.9 million,
                respectively, related to the company’s former forest products operations,
                thorium compounds manufacturing, uranium and refining operations.
                These
                charges are reflected in the Consolidated and Combined Statement
                of
                Operations as a component of loss from discontinued operations (net
                of
                tax).





(3)
            Reimbursements
                for environmental remediation and restoration in 2003, 2004 and 2005
                include $11.2 million, $14.2 million and $12.3 million,
                respectively, related to the company’s former thorium compounds
                manufacturing operations, which are reflected in the Consolidated
                and
                Combined Statement of Operations as a component of loss from discontinued
                operations (net of tax).





Management
      believes, after consultation with its internal legal counsel, that currently
      the
      company has reserved adequately for the reasonably estimable costs of known
      environmental matters and other contingencies. However, additions to the
      reserves may be required as additional information is obtained that enables
      the
      company to better estimate its liabilities, including liabilities at sites
      now
      under review. At this time, however, the company cannot reliably estimate a
      range of future additions to the reserves for any individual site or for all
      sites collectively. Following are discussions regarding certain environmental
      sites and litigation. Reserves for each environmental site are based on
      assumptions regarding the volumes of contaminated soils and groundwater
      involved, as well as associated excavation, transportation and disposal
      costs.








The
      company provides for costs related to contingencies when a loss is probable
      and
      the amount is reasonably estimable. It is not possible for the company to
      reliably estimate the amount and timing of all future expenditures related
      to
      environmental and legal matters and other contingencies because, among other
      reasons:





·
            Some
                sites are in the early stages of investigation, and other sites may
                be
                identified in the future.


·
            Remediation
                activities vary significantly in duration, scope and cost from site
                to
                site depending on the mix of unique site characteristics, applicable
                technologies and regulatory agencies
                involved.


·
            Remediation
                requirements are difficult to predict at sites where remedial
                investigations have not been completed or final decisions have not
                been
                made regarding remediation requirements, technologies or other factors
                that bear on remediation costs.


·
            Environmental
                laws frequently impose joint and several liability on all potentially
                responsible parties, and it can be difficult to determine the number
                and
                financial condition of other potentially responsible parties and
                their
                respective shares of responsibility for cleanup
                costs.


·
            Environmental
                laws and regulations, as well as enforcement policies, are continually
                changing, and the outcome of court proceedings and discussions with
                regulatory agencies are inherently
                uncertain.


·
            Unanticipated
                construction problems and weather conditions can hinder the completion
                of
                environmental remediation.


·
            Some
                legal matters are in the early stages of investigation or proceeding
                or
                their outcomes otherwise may be difficult to predict, and other legal
                matters may be identified in the
                future.


·
            The
                inability to implement a planned engineering design or use planned
                technologies and excavation methods may require revisions to the
                design of
                remediation measures, which delay remediation and increase costs.


·
            The
                identification of additional areas or volumes of contamination and
                changes
                in costs of labor, equipment and technology generate corresponding
                changes
                in environmental remediation costs.





Current
      and former operations of the company require the management of regulated
      materials and are subject to various environmental laws and regulations. These
      laws and regulations will obligate the company to clean up various sites at
      which petroleum, chemicals, low-level radioactive substances and/or other
      materials have been contained, disposed of or released. Some of these sites
      have
      been designated Superfund sites by the U.S. Environmental Protection Agency
      (“EPA”), pursuant to the Comprehensive Environmental Response, Compensation, and
      Liability Act of 1980 (“CERCLA”) or state equivalents. Similar environmental
      laws and regulations and other requirements exist in foreign countries in which
      the company operates. Following are discussions regarding certain environmental
      sites and litigation of the company.





**Environmental**





**Henderson,
      Nevada**





In
      1998, Tronox LLC (formerly Kerr-McGee Chemical LLC) decided to exit the ammonium
      perchlorate business. At that time, Tronox LLC curtailed operations and began
      preparation for the shutdown of the associated production facilities in
      Henderson, Nevada, that produced ammonium perchlorate and other related
      products. Manufacture of perchlorate compounds began at Henderson in 1945 in
      facilities owned by the U.S. government. The U.S. Navy expanded production
      significantly in 1953 when it completed construction of a plant for the
      manufacture of ammonium perchlorate. The U.S. Navy continued to own the ammonium
      perchlorate plant, as well as other associated production equipment at
      Henderson, until 1962, when the plant was purchased by a predecessor of the
      company. The ammonium perchlorate produced at the Henderson facility was used
      primarily in federal government defense and space programs. Perchlorate that
      may
      have originated, at least in part, from the Henderson facility has been detected
      in nearby Lake Mead and the Colorado River, which contribute to municipal water
      supplies in Arizona, Southern California and Southern Nevada.








Tronox
      LLC began decommissioning the facility and remediating associated perchlorate
      contamination, including surface impoundments and groundwater, when it decided
      to exit the business in 1998. In 1999 and 2001, Tronox LLC entered into consent
      orders with the Nevada Division of Environmental Protection (“NDEP”) that
      require it to implement both interim and long-term remedial measures to capture
      and remove perchlorate from groundwater. In April 2005, Tronox LLC entered
      into an amended consent order with NDEP that requires, in addition to the
      capture and treatment of groundwater, the closure of a certain impoundment
      related to the past production of ammonium perchlorate, including treatment
      and
      disposal of solution and sediment contained in the impoundment. The agreement
      with the NDEP also requires Tronox LLC to test for various potential
      contaminants at the site, which is ongoing.





In
      1999, Tronox LLC initiated the interim measures required by the consent orders.
      A long-term remediation system is operating in compliance with the consent
      orders. Initially, the remediation system was projected to operate through
      2007.
      However, studies of the decline of perchlorate levels in the groundwater
      indicate that Tronox LLC may need to operate the system through 2011. The scope,
      duration and cost of groundwater remediation likely will be driven in the long
      term by drinking water standards regarding perchlorate, which to date have
      not
      been formally established by applicable state or federal regulatory authorities.
      The EPA and other federal and state agencies continue to evaluate the health
      and
      environmental risks associated with perchlorate as part of the process for
      ultimately setting drinking water standards. One state agency, the California
      Environmental Protection Agency (“CalEPA”), has set a public health goal for
      perchlorate, and the federal EPA has established a reference dose for
      perchlorate, which are preliminary steps to setting drinking water standards.
      The establishment of drinking water standards could materially affect the scope,
      duration and cost of the long-term groundwater remediation that Tronox LLC
      is
      required to perform.





***Financial
      Reserves*** *-* As of
      December 31, 2005, reserves for environmental remediation at Henderson totaled
      $36.7 million. This includes $32.3 million added to the reserve in 2005
      because of increased costs for removing and treating ammonium perchlorate solids
      contained in a lined pond, purchasing additional equipment to perform clean-up
      and extending the projected operating period of the groundwater remediating
      system through 2011. As noted above, the long-term scope, duration and cost
      of
      groundwater remediation and impoundment closure are uncertain and, therefore,
      additional costs beyond those accrued may be incurred in the future. However,
      the amount of any additional costs cannot be reasonably estimated at this
      time.





***Litigation*** - In
      2000, Tronox LLC initiated litigation against the United States seeking
      contribution for its Henderson response costs. The suit was based on the fact
      that the government owned the plant in the early years of its operation,
      exercised significant control over production at the plant and the sale of
      products produced at the plant, even while not the owner, and was the largest
      consumer of products produced at the plant. Before trial, the parties agreed
      to
      a settlement of the claims against the United States. The settlement was
      memorialized in a consent decree approved by the court on January 13, 2006.
      Under the consent decree, the United States will pay Tronox LLC $20.5 million
      in
      contribution for past costs and, commencing January 1, 2011, the United States
      will be obligated to pay 21% of Tronox LLC’s remaining response costs at
      Henderson, if any, related to perchlorate. In the first quarter of 2006, Tronox
      LLC recognized a receivable for environmental cost reimbursement of $20.5
      million pursuant to the consent decree provisions. The receivable was collected
      in February 2006.





***Insurance*** - In
      2001, Tronox LLC purchased a 10-year, $100 million environmental cost cap
      insurance policy for groundwater and other remediation at Henderson. The
      insurance policy provides coverage only after Tronox LLC exhausts a self-insured
      retention of approximately $61.3 million and covers only those costs
      incurred to achieve a cleanup level specified in the policy. As noted above,
      federal and state agencies have not established a drinking water standard and,
      therefore, it is possible that Tronox LLC may be required to achieve a cleanup
      level more stringent than that covered by the policy. If so, the amount
      recoverable under the policy may be less than the ultimate cleanup
      cost.





At
      December 31, 2005, the company had received $5.8 million of cost
      reimbursement under the insurance policy, and expects additional estimated
      aggregate cleanup cost of $92.5 million less the $61.3 million self-insured
      retention to be covered by the policy (for a net amount of $31.2 million in
      additional reimbursement, including $22.0 million accrued in 2005). The company
      believes that additional reimbursement of approximately $31.2 million is
      probable, and, accordingly, the company has recorded a receivable in the
      financial statements for that amount.








**West
      Chicago, Illinois**





In
      1973, Tronox LLC closed a facility in West Chicago, Illinois, that processed
      thorium ores for the federal government and for certain commercial purposes.
      Historical operations had resulted in low-level radioactive contamination at
      the
      facility and in surrounding areas. The original processing facility is regulated
      by the State of Illinois (the State), and four vicinity areas are designated
      as
      Superfund sites on the National Priorities List (“NPL”).





***Closed
      Facility*** -
      Pursuant to agreements reached in 1994 and 1997 among Tronox LLC, the City
      of
      West Chicago and the State regarding the decommissioning of the closed West
      Chicago facility, Tronox LLC has substantially completed the excavation of
      contaminated soils and has shipped those soils to a licensed disposal facility.
      Surface restoration was completed in 2004, except for areas designated for
      use
      in connection with the Kress Creek and Sewage Treatment Plant remediation
      discussed below. Groundwater monitoring and remediation is expected to continue
      for approximately ten years.





***Vicinity
      Areas*** - EPA
      has listed four areas in the vicinity of the closed West Chicago facility on
      the
      NPL and has designated Tronox LLC as a Potentially Responsible Party (“PRP”) in
      these four areas. Tronox LLC has substantially completed remedial work for
      two
      of the areas (known as the Residential Areas and Reed-Keppler Park). The other
      two NPL sites, known as Kress Creek and the Sewage Treatment Plant, are
      contiguous and involve low levels of insoluble thorium residues, principally
      in
      streambanks and streambed sediments, virtually all within a floodway. Tronox
      LLC
      has reached an agreement with the appropriate federal and state agencies and
      local communities regarding the characterization and cleanup of the sites,
      past
      and future government response costs, and the waiver of natural resource damages
      claims. The agreement is incorporated in consent decrees, which were approved
      and entered by the federal court in August 2005. The cleanup work, which began
      in the third quarter of 2005, is expected to take about four to five years
      to
      complete, will require excavation of contaminated soils and stream sediments,
      shipment of excavated materials to a licensed disposal facility and restoration
      of affected areas.





***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of $86.6 million for costs
      related to the West Chicago facility and vicinity properties. This includes
      $9.9
      million added to the reserve in 2005 as a result of additional volumes of
      contaminated materials being identified at the Kress Creek site and the
      agreement described above requiring the company to reimburse local communities
      for certain cleanup costs. Although actual costs may differ from current
      estimates, the amount of any revisions in remediation costs cannot be reasonably
      estimated at this time. The amount of the reserve is not reduced by
      reimbursements expected from the federal government under Title X of the Energy
      Policy Act of 1992 (Title X) (discussed below).





***Government
      Reimbursement*** -
      Pursuant to Title X, the U.S. Department of Energy (“DOE”) is obligated to
      reimburse the company for certain decommissioning and cleanup costs incurred
      in
      connection with the West Chicago sites in recognition of the fact that about
      55%
      of the facility’s production was dedicated to U.S. government contracts. The
      amount authorized for reimbursement under Title X is $365 million plus
      inflation adjustments. That amount is expected to cover the government’s full
      share of West Chicago cleanup costs. Through December 31, 2005, the company
      had been reimbursed approximately $280.6 million under Title X.





Reimbursements
      under Title X are provided by congressional appropriations. Historically,
      congressional appropriations have lagged the company’s cleanup expenditures. As
      of December 31, 2005, the government’s share of costs incurred by the
      company but not yet reimbursed by the DOE totaled approximately
      $25.5 million, which includes $12.3 million accrued in 2005. The company
      believes receipt of the $25.5 million government share in due course
      following additional congressional appropriations is probable and has reflected
      that amount as a receivable in the financial statements. The company will
      recognize recovery of the government’s share of future remediation costs for the
      West Chicago sites as it incurs the cash expenditures.








**Ambrosia
      Lake, New Mexico**





From
      the late 1950s until 1988, the company operated a uranium mining and milling
      operation at Ambrosia Lake near Grants, New Mexico pursuant to a license issued
      by the Atomic Energy Commission (“AEC”), now the Nuclear Regulatory Commission
      (“NRC”). When the operation was sold, the company retained responsibility for
      certain environmental conditions existing at the site, including mill tailings,
      selected ponds and groundwater contamination related to the mill tailings and
      unlined ponds. Since 1989, the unaffiliated current owner of the site, Rio
      Algom
      Mining LLC (Rio Algom), has been decommissioning the site pursuant to the
      license issued by NRC. Mill tailings, certain impacted surface soils, and
      selected pond sediments have been consolidated in an onsite containment unit,
      and groundwater treatment has been ongoing. Under terms of the sales agreement,
      which included provisions capping the liability of Rio Algom, the company became
      obligated to solely fund the remediation for the items described above when
      total expenditures exceeded $30 million, which occurred in late 2000. A request
      to cease groundwater treatment has been under review by the NRC since 2001.
      In
      addition, a decommissioning plan for remaining impacted soil was submitted
      by
      Rio Algom to the NRC in January 2005 and is currently under review. If approved,
      the soil decommissioning plan would take about two to three years to complete.
      The state of New Mexico has recently raised issues about certain
      non-radiological constituents in the groundwater at the site. The request to
      cease groundwater treatment, which is being reviewed by the NRC, was amended
      to
      address these non-radiological constituents. Discussions regarding these issues
      are ongoing, and resolution of them could affect remediation costs and/or delay
      ultimate site closure.





In
      addition to those remediation activities described above for which reserves
      have
      been established as described below, Rio Algom is investigating soil
      contamination potentially caused by past discharge of mine water from the site,
      for which no reserve has been established.





***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of $11.1 million for the
      costs of the remediation activities described above, including groundwater
      remediation. This includes $8.0 million added to the reserve in 2005 as a result
      of the discussions between Rio Algom and the NRC, primarily to cover additional
      costs associated with pond closure, rock placement and surface water channels.
      Although actual costs may differ from current estimates, the amount of any
      revisions in remediation costs cannot be reasonably estimated at this
      time.





***Litigation*** - On
      January 18, 2006, Rio Algom filed suit against Tronox Worldwide LLC in the
      U.S.
      District Court for the District of New Mexico. The suit seeks a determination
      regarding responsibility for certain labor-related and environmental remediation
      costs. The company has not provided a reserve for this lawsuit because at this
      time it cannot reasonably determine the probability of a loss, and the amount
      of
      loss, if any, cannot be reasonably estimated. The company and Rio Algom have
      tentatively agreed to submit the matter to arbitration and an arbitration
      agreement is currently being negotiated. The company currently believes that
      the
      ultimate resolution of the litigation is not likely to have a material adverse
      affect on the company.





**Crescent,
      Oklahoma**





Beginning
      in 1965, Cimarron Corporation (“Cimarron”) operated a facility near Crescent,
      Oklahoma at which it produced uranium and mixed oxide nuclear fuels pursuant
      to
      licenses issued by AEC (now NRC). Operations at the facility ceased in 1975.
      Since that time, buildings and soils were decommissioned in accordance with
      the
      NRC licenses. In limited areas of the site, groundwater is contaminated with
      radionuclides, and, in 2003, Cimarron submitted to the NRC and the Oklahoma
      Department of Environmental Quality (“ODEQ”) a draft remediation work plan
      addressing the groundwater contamination. In 2005 the company began evaluating
      available technologies to address remaining groundwater issues. The company
      will
      submit a plan to the NRC and the ODEQ addressing those issues following the
      evaluation. Duration of remedial activities currently cannot be
      estimated.





***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of $6.8 million for the
      costs of the remediation activities, including those currently under evaluation
      by the NRC and the ODEQ, described above. This includes $2.0 million added
      to
      the reserve in 2005, due to additional costs resulting from delays in review
      and
      approval by regulatory agencies. Although actual costs may differ from current
      estimates, the amount of any revisions in remediation costs cannot be reasonably
      estimated at this time.








**Lakeview,
      Oregon**





A
      predecessor of Tronox Worldwide LLC operated two uranium mines near Lakeview,
      Oregon from 1958 to 1960. The mines are currently designated as a Superfund
      site. In 2001, EPA issued a Record of Decision (“ROD”) requiring consolidation
      and capping of contaminated soils and continued neutralization of acidic waters
      in one of the two mines. It is anticipated that required work, which began
      in
      the second quarter of 2005, will take about one to two more years to
      complete.





***Litigation*** - In
      April 2005, Tronox Worldwide LLC and two other parties reached an agreement
      with the federal government to settle a lawsuit filed by the government with
      respect to the remediation of contaminated materials at the site and to settle
      related claims by the parties. The suit sought reimbursement of Forest Service
      response costs, an injunction requiring compliance with a Unilateral
      Administrative Order issued to the private parties regarding cleanup of the
      site, and civil penalties for alleged noncompliance with the administrative
      order. The court approved the agreement in January 2006. As a result of the
      settlement, the parties have resolved their respective claims and agreed to
      apportion responsibility for the cleanup.





***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of $4.3 million for its
      share of the remediation activities described above. Although actual costs
      may
      differ from current estimates, the amount of any revisions in remediation costs
      cannot be reasonably estimated at this time.





**Soda
      Springs, Idaho**





From
      1963 to 2000, Tronox LLC owned and operated a vanadium processing facility
      near
      Soda Springs, Idaho. In 1989, EPA designated this site as a Superfund site
      under
      CERCLA, listed the site on the NPL and named Tronox LLC as a PRP. In 2000,
      EPA
      amended a ROD previously issued by it, requiring Tronox LLC to address the
      presence of calcine tailings, a byproduct of vanadium processing. The amended
      ROD required the capping of the calcine tailings in place, the closure of
      certain impoundments and groundwater monitoring.





Since
      2000, the vanadium processing facility plant and a fertilizer plant on the
      site
      have been closed, dismantled and removed from the site. All former impoundments
      included in the amended ROD have been closed. A ten-acre pond not covered by
      the
      ROD is scheduled for closure within the next two years. Tronox LLC anticipates
      constructing a landfill onsite as part of the closure. The duration of
      groundwater monitoring is not known.





***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of $2.7 million for the
      costs of the remediation required by the ROD as well as closure of the above
      mentioned ten-acre pond. Although actual costs may differ from current
      estimates, the amount of any revisions in remediation costs cannot be reasonably
      estimated at this time.





**Milwaukee,
      Wisconsin**





In
      1976, Tronox LLC closed a wood-treatment facility it had operated in Milwaukee,
      Wisconsin. Operations at the facility prior to its closure had resulted in
      the
      contamination of soil and groundwater at and around the site with creosote
      and
      other substances used in wood treating. In 1984, EPA designated the Milwaukee
      wood-treatment facility as a Superfund site under CERCLA, listed the site on
      the
      NPL and named Tronox LLC as a PRP. Tronox LLC executed a consent decree in
      1991
      that required it to perform soil and groundwater remediation at and below the
      former wood-treatment area and to address a tributary creek of the Menominee
      River that had become contaminated as a result of the wood-treatment operations.
      Actual remedial activities were deferred until after the decree was finally
      entered in 1996 by a federal court in Milwaukee.





Groundwater
      treatment was initiated in 1996 to remediate groundwater contamination below
      and
      in the vicinity of the former wood-treatment area. It is not possible to
      reliably predict how groundwater conditions will be affected by soil removal
      in
      the vicinity of the former wood-treatment area, which has been completed, and
      by
      ongoing groundwater treatment. It is unknown, therefore, how long groundwater
      treatment will continue. Soil cleanup of the former wood-treatment area began
      in
      2000 and was completed in 2002. Also in 2002, remedial designs for the upper
      portion of the tributary creek were agreed to with EPA, after which Tronox
      LLC
      began the implementation of a remedy to reroute the creek and to remediate
      associated sediment and stream bank soils. Remediation of the upper portion
      of
      the creek is expected to take about three more years. Tronox LLC has not yet
      agreed with relevant regulatory authorities regarding remedial designs for
      the
      lower portion of the tributary creek.








***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of $4.4 million for the
      costs of the remediation work described above. Although actual costs may differ
      from current estimates, the amount of any revisions in remediation costs cannot
      be reasonably estimated at this time. The costs associated with remediation,
      if
      any, of the lower portion of the tributary creek are not reasonably estimable
      at
      this time and, thus, no reserve has been recorded.





**New
      Jersey Wood-Treatment Site**





Tronox
      LLC was named in 1999 as a PRP under CERCLA at a former wood-treatment site
      in
      New Jersey at which EPA is conducting a cleanup. On April 15, 2005, Tronox
      LLC and Tronox Worldwide LLC received a letter from EPA asserting they are
      liable under CERCLA as a former owner or operator of the site and demanding
      reimbursement of costs expended by EPA at the site. The letter made demand
      for
      payment of past costs in the amount of approximately $179 million, plus
      interest though EPA has informed Tronox LLC that it expects final project costs
      will be approximately $236 million, plus possible other costs and interest.
      Tronox LLC did not operate the site, which had been sold to a third party before
      Tronox LLC succeeded to the interests of a predecessor owner in the 1960s.
      The
      predecessor also did not operate the site, which had been closed down before
      it
      was acquired by the predecessor. Based on historical records, there are
      substantial uncertainties about whether or under what terms the predecessor
      assumed liabilities for the site. In addition, although it appears there may
      be
      other PRPs, the company does not know whether the other PRPs have received
      similar letters from EPA, whether there are any defenses to liability available
      to the other PRPs or whether the other PRPs have the financial resources
      necessary to meet their obligations. The company intends to vigorously defend
      against EPA’s demand, though the company expects to have discussions with EPA
      that could lead to a settlement or resolution of EPA’s demand. No reserve for
      reimbursement of cleanup costs at the site has been recorded because it is
      not
      possible to reliably estimate the liability, if any, the company may have for
      the site because of the aforementioned defenses and uncertainties.





**Sauget,
      Illinois**





From
      1927 to 1969, Tronox LLC operated a wood-treatment plant on a 60-acre site
      in
      the Village of Sauget (formerly known as Monsanto) in St. Clair County,
      Illinois. Operations on the property resulted in the contamination of soil,
      surface water, and groundwater at the site with creosote and other substances
      used in wood treating. In 1988, Tronox LLC entered into a court-approved consent
      order with the Illinois Attorney General and Illinois Environmental Protection
      Agency. The consent order requires Tronox LLC to perform an environmental
      investigation and remediation feasibility study, and this work is ongoing.
      Soil
      remediation and groundwater monitoring are being conducted, and further
      remediation options to address sediment and surface water are being evaluated.
      Duration of remedial activities currently cannot be estimated.





***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of approximately
      $8.5 million for the remediation activities, including those currently
      under evaluation, described above. This includes $4.9 million added to the
      reserve in 2005 because additional soil volumes requiring excavation and
      disposal had been identified. Although actual costs may differ from current
      estimates, the amount of any revisions in remediation costs cannot be reasonably
      estimated at this time.





**Hattiesburg,
      Mississippi**





In
      January 2003, Tronox LLC entered into a consent order with the Mississippi
      Department of Environmental Quality to implement a remedy pursuant to an
      approved remediation work plan for a wood-treatment site in Hattiesburg,
      Mississippi. Components of the work plan included excavation of certain
      materials from the former processing areas and off-site sediments and
      containment of other on-site and off-site materials. Remediation of the former
      processing and certain off-site areas was completed in 2003. Some off-site
      remediation required by the work plan has not been completed where access by
      current leaseholders has been denied. Efforts to obtain necessary access are
      ongoing, and remedial activities are expected to take about one to two more
      years once access is obtained.








***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of approximately
      $2.7 million for the remediation activities described above. Although
      actual costs may differ from current estimates, the amount of any revisions
      in
      remediation costs cannot be reasonably estimated at this time.





**Cleveland,
      Oklahoma**





Triple
      S Refining Corporation (“Triple S”), formerly known as Kerr-McGee Refining
      Corporation, owned and operated a petroleum refinery near Cleveland, Oklahoma
      until the facility was closed in 1972. In 1992, Triple S entered into a Consent
      Order with the Oklahoma Department of Health (later, the ODEQ), which addresses
      the remediation of air, soil, surface water and groundwater contaminated by
      hydrocarbons and other refinery related materials. Facility dismantling and
      several interim remedial measures have been completed. In 2004, ODEQ approved
      the soil and waste feasibility study, which includes construction of an on-site
      disposal cell. Design of the cell is in process. In addition, a feasibility
      study of surface and groundwater remedial measures has been submitted to ODEQ
      and currently is under review. Duration of remedial activities currently cannot
      be estimated.





***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of approximately $4.4
      million for the remediation activities described above, including the remedial
      measures recommended in the feasibility study currently under review. This
      includes $1.4 million added to the reserve in 2005, as studies indicated that
      groundwater remediation would be more costly than previously estimated. Although
      actual costs may differ from current estimates, the amount of any revisions
      in
      remediation costs cannot be reasonably estimated at this time.





**Cushing,
      Oklahoma**





In
      1972, Triple S closed a petroleum refinery it had operated near Cushing,
      Oklahoma. Prior to closing the refinery, Triple S also had produced uranium
      and
      thorium fuel and metal at the site pursuant to licenses issued by the AEC.




In
      1990, Triple S entered into a consent agreement with the State of Oklahoma
      to
      investigate the site and take appropriate remedial actions related to petroleum
      refining and uranium and thorium residuals. Investigation and remediation of
      hydrocarbon contamination is being performed under the oversight of the ODEQ.
      Remediation to address hydrocarbon contamination in soils is expected to take
      about four more years. The long-term scope, duration and cost of groundwater
      remediation are uncertain and, therefore, additional costs beyond those accrued
      may be incurred in the future.




In
      1993, Triple S received a decommissioning license from the NRC, the successor
      to
      AEC’s licensing authority, to perform certain cleanup of uranium and thorium
      residuals. All
      known radiological contamination has been removed from the site and shipped
      to a
      licensed disposal facility, substantially completing the license requirements.




***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of $11.9 million for
      the costs of the ongoing remediation and decommissioning work described above.
      Although actual costs may differ from current estimates, the amount of any
      revisions in remediation costs cannot be reasonably estimated at this
      time.





**Calhoun,
      Louisiana**





From
      1973 until 1988, Triple S owned and operated a gas condensate stripping facility
      located near Calhoun, Louisiana. When the facility was sold in 1988, Triple
      S
      retained responsibility for environmental conditions existing prior to the
      date
      of closing. Operations at the facility prior to the sale had resulted in the
      contamination of soil and groundwater with petroleum hydrocarbons. The Louisiana
      Department of Environmental Quality has approved a Corrective Action Plan for
      remediating the soil and groundwater contamination. Remediation is ongoing
      and
      expected to take about three more years.





***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of $4.5 million for the
      costs of the remediation activities described above. Although actual costs
      may
      differ from current estimates, the amount of any revisions in remediation costs
      cannot be reasonably estimated at this time.







**Jacksonville,
      Florida**




In
      1970, Tronox LLC purchased a facility in Jacksonville, Florida that manufactured
      and processed fertilizers, pesticides and herbicides. Tronox LLC closed the
      facility in 1978. In 1988, all structures were removed and Tronox LLC began
      site
      characterization studies. In 2000, Tronox LLC entered into a consent order
      with
      EPA to conduct a remedial investigation and a feasibility study. The remedial
      investigation was completed and submitted to EPA in August 2005. It is
      anticipated that the feasibility study will be submitted to EPA in early 2006
      and that it will recommend soil remediation and excavation at the site as well
      as site capping.




***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of $5.5 million to complete
      the feasibility study and to conduct the cleanup and remediation activities
      the
      company expects to recommend to EPA, $5.6 million of which was added in 2005.
      Although actual costs may differ from the current estimates, the amount of
      any
      revisions in remediation costs cannot be reasonably estimated at this time.




**Other
      Sites**





In
      addition to the sites described above, the company is responsible for
      environmental costs related to certain other sites. These sites relate primarily
      to wood-treating, chemical production, landfills, mining, and oil and gas
      refining, distribution and marketing. As of December 31, 2005, the company
      had reserves of $32.5 million for the environmental costs in connection
      with these other sites. Although actual costs may differ from current estimates,
      the amount of any revisions in remediation costs cannot be reasonably estimated
      at this time.




Pursuant
      to the MSA by and among Kerr-McGee Corporation, Kerr-McGee Worldwide Corporation
      and the company, effective November 28, 2005, Kerr-McGee Worldwide Corporation
      will reimburse the company for a portion of the environmental remediation costs
      it incurs and pays (net of any cost reimbursements it recovers or expects to
      recover from insurers, governmental authorities or other parties). The
      reimbursement obligation extends to costs incurred at any site associated with
      any of the company’s former businesses or operations.




With
      respect to any site for which the company has established a reserve as of the
      effective date of the MSA, 50% of the remediation costs the company incurs
      in
      excess of the reserve amount (after meeting a $200,000 minimum threshold amount)
      will be reimbursable by Kerr-McGee, net of any amounts recovered or, in the
      company’s reasonable and good faith estimate, that will be recovered from third
      parties. With respect to any site for which the company has not established
      a
      reserve as of the effective date of the MSA, 50% of the amount of the
      remediation costs the company incurs and pays (after meeting a $200,000 minimum
      threshold amount) will be reimbursable by Kerr-McGee, net of any amounts
      recovered or, in the company’s reasonable and good faith estimate, that will be
      recovered from third parties.




Kerr-McGee’s
      aggregate reimbursement obligation to the company cannot exceed
      $100 million and is subject to various other limitations and restrictions.
      For example, Kerr-McGee is not obligated to reimburse the company for amounts
      it
      pays to third parties in connection with tort claims or personal injury
      lawsuits, or for administrative fines or civil penalties that the company is
      required to pay. Kerr-McGee’s reimbursement obligation also is limited to costs
      that the company actually incurs and pays within seven years following the
      completion of the IPO .







**Litigation
      and Claims**





**Coal
      Supply Contract**





A
      predecessor of Tronox Worldwide LLC entered into a coal supply contract with
      Peabody Coaltrade, Inc. (“PCI”) in February 1998. In 1998, the
      predecessor exited the coal business and assigned its rights and obligations
      under the coal supply contract to a third party. In connection with the
      assignment, the predecessor agreed to guarantee performance under the contract.
      PCI has notified Tronox Worldwide LLC of a threatened default by the assignee
      under the coal supply contract and that PCI may seek to hold Tronox Worldwide
      LLC liable under the 1998 guaranty in the event of a default. In addition to
      other defenses to the enforceability of the guaranty, the company believes
      the
      guaranty expired in January 2003 when the primary term of the coal supply
      contract expired. No reserve has been provided for performance under the
      guaranty because the company does not believe a loss is probable and the amount
      of any loss is not reasonably estimable.





**Western
      Fertilizer Contract**





In
      1995, Tronox LLC executed an exclusive agreement with Western
      Fertilizer, Inc. (“Western Fertilizer”) for the storage and distribution of
      fertilizer produced by the company. In May 2000, the company terminated the
      agreement because the owner, operator and the key person of Western Fertilizer,
      had been sentenced to serve 17 years in prison for federal crimes involving
      activities unrelated to the company, thus rendering Western Fertilizer unable
      to
      perform its duties under the agreement. In June 2000, Western Fertilizer
      filed for bankruptcy, and its trustee alleged that the company did not have
      the
      right to terminate the agreement. In May 2003, Western Fertilizer’s
      bankruptcy claim against Tronox LLC was transferred to a litigation trust,
      and,
      in October 2004, the litigation trust filed an amended complaint in a
      pending federal lawsuit in the U.S. District Court in Idaho, seeking monetary
      damages of approximately $13 million for alleged breaches of contract.
      Discovery in the litigation was completed in February 2006. On March 1, 2006,
      both parties filed motions for summary judgment. A trial date will be set after
      the court rules on the motions for summary judgment. The company believes that
      the claims made in the complaint are without substantial merit and is vigorously
      defending against them and, thus, no reserve has been recorded. The company
      currently believes that damages, if any, related to the claims are not likely
      to
      have a material adverse effect on the company.





**Birmingham,
      Alabama**




Until
      1995, Triple S operated a petroleum terminal in Birmingham, Alabama. In late
      2005, a local church, which is located on property adjacent to the site,
      demanded payment for damages of approximately $25 million in connection with
      a
      release of petroleum alleged to have occurred at the terminal and threatened
      litigation. In March 2006, the company filed a lawsuit seeking a declaration
      of
      the parties’ rights and injunctive relief. The company has not provided a
      reserve for the litigation because at this time it cannot reasonably determine
      the probability of a loss, and the amount of loss, if any, cannot be reasonably
      estimated. The company currently believes that the ultimate resolution of the
      litigation is not likely to have a material adverse effect on the
      company.




**Forest
      Products Litigation**




Between
      December 31, 2002, and May 2, 2005, approximately 250 lawsuits (filed
      on behalf of approximately 5,100 claimants) were filed against Tronox LLC in
      connection with the former wood-treatment plant in Columbus, Mississippi.
      Substantially all of these lawsuits are pending in the U.S. District Court
      for
      the Northern District of Mississippi and have been consolidated for pretrial
      and
      discovery purposes. In addition, a suit filed by the Maranatha Faith Center
      against Tronox LLC and Tronox Worldwide LLC on February 18, 2000, relates to
      the
      former wood-treatment plant in Columbus and is pending in the Circuit Court
      of
      Lowndes County, Mississippi. Between December 31, 2002, and June 25,
      2004, three lawsuits (filed on behalf of approximately 3,300 claimants) were
      filed against Tronox LLC in connection with a former wood-treatment plant
      located in Hattiesburg, Mississippi. These lawsuits were removed to the U.S.
      District Court for the Southern District of Mississippi. Between
      September 9, 2004, and December 28, 2005, four lawsuits (filed on behalf of
      69 claimants) were filed against Tronox LLC in connection with a former
      wood-treatment plant located in Texarkana, Texas. Two of the Texarkana lawsuits
      that were filed in Oklahoma (on behalf of 30 claimants) have been dismissed
      on
      jurisdictional grounds. Between January 3, 2005, and July 26, 2005, 35
      lawsuits (filed on behalf of approximately 4,600 claimants) were filed against
      Tronox LLC and Tronox Worldwide LLC in connection with the former wood-treatment
      plant in Avoca, Pennsylvania. All of these lawsuits seek recovery under a
      variety of common law and statutory legal theories for personal injuries and/or
      property damages allegedly caused by exposure to and/or release of creosote,
      a
      chemical used in the wood-treatment process.









In
      2003, Tronox LLC entered into a settlement agreement that resolved approximately
      1,490 of the Hattiesburg claims, which resulted in aggregate payments by Tronox
      LLC of approximately $0.6 million. In December 2005, Tronox LLC entered
      into settlement agreements to resolve up to 1,335 of the remaining Hattiesburg
      claims and up to 879 of the Columbus claims. The December 2005 settlement
      agreements require Tronox LLC to pay up to $2.5 million, of which $1.8 million
      was paid in December 2005. In addition, all of the remaining Hattiesburg claims
      have been dismissed without prejudice on the bases of failure to pay filing
      fees
      and failure to disclose information in compliance with court orders. The company
      currently believes that the unresolved claims relating to the Columbus,
      Hattiesburg, Texarkana and Avoca plants are without substantial merit and is
      vigorously defending against them.




***Financial
      Reserves*** - As
      of December 31, 2005, the company had reserves of $7.3 million related to
      forest products litigation. This reflects an increase of $2.5 million taken
      as a
      result of the December 2005 settlement noted above and information developed
      with respect to pending claims during negotiation of the December settlement.
      Although actual costs may differ from the current reserves, the amount of any
      revisions in litigation costs cannot be reasonably estimated at this time.
      The
      company currently believes that the ultimate resolution of the forest products
      litigation is not likely to have a material adverse effect on the company.




**Kemira**





In
      2000, the company acquired its titanium dioxide production facility in Savannah,
      Georgia, from Kemira Pigments Oy, a Finnish company, and its parent, Kemira
      Oyj
      (together, “the Sellers”). After acquiring the facility, the company discovered
      that certain matters associated with environmental conditions and plant
      infrastructure were not consistent with representations made by the Sellers.
      The
      company sought recovery for breach of representations and warranties in a
      proceeding before the London Court of International Arbitration (“LCIA”). On
      May 9, 2005, the company received notice from the LCIA that the LCIA had
      found in favor of the company as to liability with respect to certain of the
      claims. The LCIA still must determine the amount of damages, a hearing with
      respect to which has been scheduled for late May 2006. The company currently
      cannot reasonably estimate the amount of damages that will be awarded. The
      company will recognize a receivable, if and when damages are awarded and all
      contingencies associated with any recovery are resolved.





**Other
      Matters**





The
      company is party to a number of legal and administrative proceedings involving
      environmental and/or other matters pending in various courts or agencies. These
      proceedings, individually and in the aggregate, are not expected to have a
      material adverse effect on the company. These proceedings are also associated
      with facilities currently or previously owned, operated or used by the company
      and/or its predecessors, some of which include claims for personal injuries,
      property damages, cleanup costs and other environmental matters. Current and
      former operations of the company also involve management of regulated materials
      and are subject to various environmental laws and regulations. These laws and
      regulations will obligate the company to clean up various sites at which
      petroleum and other hydrocarbons, chemicals, low-level radioactive substances
      and/or other materials have been contained, disposed of or released. Some of
      these sites have been designated Superfund sites by EPA pursuant to CERCLA
      or
      state equivalents. Similar environmental laws and regulations and other
      requirements exist in foreign countries in which the company
      operates.





**23.
      Commitments**





**Lease
      and Purchase Obligations**





The
      company has various commitments under noncancelable operating lease agreements,
      principally for railcars and production equipment. Aggregate minimum annual
      rentals under all operating leases at December 31, 2005, are shown in the
      table below. Total rental expense was $19.8 million in 2005, $17.4 million
      in 2004 and $16.2 million in 2003.








In
      the
      normal course of business, the company also enters contractual agreements to
      purchase raw materials and utilities. Aggregate future payments under these
      borrowings and contracts are shown in the table below.





**Payments
                due by year****Type
                of Obligation**
            
            **2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **After**
              **2010**
            
            **Total****(Millions
                of dollars)**Operating
                leases
            
            $
            7.7
            
            $
            7.7
            
            $
            6.5
            
            $
            5.1
            
            $
            4.6
            
            $
            16.4
            
            $
            48.0Purchase
                obligations—Ore
                contracts
            
            
            162.3
            
            
            155.3
            
            
            147.9
            
            
            95.2
            
            
            41.8
            
            
            39.4
            
            
            641.9Other
                purchase obligations
            
            
            86.5
            
            
            72.5
            
            
            67.7
            
            
            48.3
            
            
            47.4
            
            
            38.1
            
            
            360.5Total
            
            $
            256.5
            
            $
            235.5
            
            $
            222.1
            
            $
            148.6
            
            $
            93.8
            
            $
            93.9
            
            $
            1,050.4





As
      discussed in Note 19, the company will be obligated under the employee
      benefits agreement with Kerr-McGee to maintain the Material Features (as defined
      in the employee benefits agreement) of the U.S. postretirement plan without
      change for a period of three years following the Distribution date. Based on
      the
      actuarially projected obligations under that plan, the company expects
      contributions to be approximately $10.0 million for each of the next five
      years.





**Letters
      of Credit and Other**





At
      December 31, 2005, the company had outstanding letters of credit in the
      amount of approximately $34.5 million. These letters of credit have been
      granted by financial institutions to support our environmental clean-up costs
      and miscellaneous operational and severance requirements in international
      locations. As of March 15, 2006, outstanding letters of credit totaled $40.3
      million.





The
      company has entered into certain agreements that require it to indemnify third
      parties for losses related to environmental matters, litigation and other
      claims. No material obligations have been recorded in connection with such
      indemnification agreements.





**24.
      Reporting by Business Segments and Geographic Locations**





The
      company has two reportable segments: pigment, and electrolytic and other
      chemical products. The pigment segment primarily produces and markets titanium
      dioxide pigment and has production facilities in the United States, Australia,
      Germany and the Netherlands. The pigment segment also includes heavy minerals
      production operated through our joint venture. The heavy minerals production
      is
      integrated with our Australian pigment plant, but also has sales to third
      parties. Electrolytic and other chemical products segment represents the
      company’s electrolytic manufacturing and marketing operations, all of which are
      located in the United States. Segment performance is evaluated based on
      operating profit (loss), which represents results of segment operations before
      considering general expenses and environmental provisions related to sites
      no
      longer in operation, interest and debt expense, other income (expense) and
      income taxes.







**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)****Net sales**Pigment
            
            $
            1,267.0
            
            $
            1,208.4
            
            $
            1,078.8Electrolytic
                and other chemical products
            
            
            97.0
            
            
            93.4
            
            
            78.9Total
            
            $
            1,364.0
            
            $
            1,301.8
            
            $
            1,157.7**Operating profit (loss)**Pigment
            
            $
            101.5
            
            $
            (86.5
            )
            $
            (15.0
            )Electrolytic
                and other chemical products (1)
            
            
            (5.9
            )
            
            (0.6
            )
            
            (22.0
            )95.6
            
            
            (87.1
            )
            
            (37.0
            )Expenses of nonoperating sites (2)
            
            
            (2.1
            )
            
            (5.5
            )
            
            (3.6
            )Provisions for environmental remediation and restoration (2)
            
            
            (5.6
            )
            
            (2.2
            )
            
            (1.6
            )Total
                operating profit (loss)
            
            
            87.9
            
            
            (94.8
            )
            
            (42.2
            )Interest and debt expense
            
            
            4.5
            
            
            0.1
            
            
            0.1Other income (expense) (3)
            
            
            (15.2
            )
            
            (25.2
            )
            
            (20.5
            )Income
                tax benefit (provision)
            
            
            (21.8
            )
            
            38.3
            
            
            15.1Income
                (loss) from continuing operations
            
            $
            46.4
            
            $
            (81.8
            )
            $
            (47.7
            )**Depreciation,
                depletion and amortization, including write-downs of property, plant
                and
                equipment**Pigment
            
            $
            99.1
            
            $
            181.3
            
            $
            110.3Electrolytic
                and other chemical products
            
            
            9.9
            
            
            14.5
            
            
            15.0109.0
            
            
            195.8
            
            
            125.3Discontinued
                operations
            
            
            —
            
            
            0.8
            
            
            3.2Total
            
            $
            109.0
            
            $
            196.6
            
            $
            128.5





(1)
            Includes
                $10.3 million, nil and $11.0 million in 2005, 2004 and 2003,
                respectively, of environmental charges, net of reimbursements, related
                to
                ammonium perchlorate at the company’s Henderson
                facility.





(2)
            Includes
                general expenses and environmental provisions related to various
                businesses in which the company’s affiliates are no longer engaged, but
                that have not met the criteria for reporting as discontinued
                operations.





(3)
            Includes
                equity in net earnings of equity method investees of $2.0 million,
                $2.4
                million and $0.8 million in 2005, 2004 and 2003,
                respectively.











**2005**
            
            **2004**
            
            **2003****(Millions
                of dollars)****Capital
                expenditures**Pigment
            
            $
            83.5
            
            $
            82.8
            
            $
            90.5Electrolytic
                and other chemical products
            
            
            4.1
            
            
            9.0
            
            
            6.987.6
            
            
            91.8
            
            
            97.4Other
            
            
            —
            
            
            0.7
            
            
            2.0Total
            
            $
            87.6
            
            $
            92.5
            
            $
            99.4**Total
                assets**Pigment
            
            $
            1,514.2
            
            $
            1,349.8
            
            $
            1,500.0Electrolytic
                and other chemical products
            
            
            108.3
            
            
            115.4
            
            
            140.41,622.5
            
            
            1,465.2
            
            
            1,640.4Corporate
                and other assets
            
            
            135.8
            
            
            127.3
            
            
            164.9Assets
                held for sale
            
            
            —
            
            
            3.4
            
            
            3.8Total
            
            $
            1,758.3
            
            $
            1,595.9
            
            $
            1,809.1**Net
                sales (1)**U.S.
                operations
            
            $
            755.9
            
            $
            716.8
            
            $
            646.7International
                operationsGermany
            
            
            223.5
            
            
            221.9
            
            
            192.0The
                Netherlands
            
            
            145.6
            
            
            137.5
            
            
            120.9Australia
            
            
            238.9
            
            
            225.5
            
            
            198.0Other
            
            
            0.1
            
            
            0.1
            
            
            0.1Total
            
            $
            1,364.0
            
            $
            1,301.8
            
            $
            1,157.7**Net
                property, plant and equipment**U.S.
                operations
            
            $
            475.8
            
            $
            487.3
            
            $
            579.4International
                operationsGermany
            
            
            92.4
            
            
            97.1
            
            
            89.2The
                Netherlands
            
            
            182.1
            
            
            205.6
            
            
            191.4Australia
            
            
            89.4
            
            
            93.0
            
            
            101.6Total
            
            $
            839.7
            
            $
            883.0
            
            $
            961.6





(1)  Based
      on country of production.








**25.
      Quarterly Financial Information (Unaudited)**





A
      summary of quarterly consolidated and combined results for 2005 and 2004 is
      presented below.




**Net
                Sales**
            
            **Gross
                Profit (Loss)**
            
            **Income
                (Loss) from Continuing Operations**
            
            **Net
                Income (Loss)**
            
            **Income
                (Loss) from Continuing Operations per Common Share - Basic and
                Diluted****2005
                Quarter Ended -**
            
            **(Millions
                of dollars, except per share)**March
                31
            
            $
            334.2
            
            $
            61.9
            
            $
            12.4
            
            $
            4.0
            
            $
            0.54June
                30
            
            
            355.9
            
            
            64.3
            
            
            8.3
            
            
            (3.6
            )
            
            0.36September
                30
            
            
            327.4
            
            
            43.7
            
            
            13.7
            
            
            12.2
            
            
            0.60December
                31
            
            
            346.5
            
            
            50.3
            
            
            12.0
            
            
            6.2
            
            
            0.41Total
            
            $
            1,364.0
            
            $
            220.2
            
            $
            46.4
            
            $
            18.8
            
            $
            1.89**2004
                Quarter Ended -**March
                31
            
            $
            274.9
            
            $
            31.0
            
            $
            (2.6
            )
            $
            (4.2
            )
            $
            (0.11
            )June
                30
            
            
            326.1
            
            
            36.3
            
            
            3.9
            
            
            (1.7
            )
            
            0.17September
                30
            
            
            338.9
            
            
            28.6
            
            
            (83.2
            )
            
            (121.3
            )
            
            (3.63
            )December
                31
            
            
            361.9
            
            
            37.0
            
            
            0.1
            
            
            (0.4
            )
            
            —Total
            
            $
            1,301.8
            
            $
            132.9
            
            $
            (81.8
            )
            $
            (127.6
            )
            $
            (3.57
            )









**Item
      9.**  **Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure**






None.






**Item
      9A.**  **Controls
      and Procedures**






As
      of
      the end of the period covered by this report, an evaluation was carried out
      under the supervision and with the participation of the company’s management,
      including its Chief Executive Officer and Chief Financial Officer, of the
      effectiveness of the company’s disclosure controls and procedures pursuant to
      Exchange Act Rule 13a-15. Based on that evaluation, the Chief Executive Officer
      and Chief Financial Officer concluded that the company’s disclosure controls and
      procedures are effective in alerting them in a timely manner to material
      information relating to the company (including its consolidated subsidiaries)
      required to be included in the company’s periodic SEC filings. There was no
      change in the company’s internal control over financial reporting that occurred
      during the fourth quarter of 2005 that has materially affected or is reasonably
      likely to materially affect the company’s internal control over financial
      reporting.






**PART
      III**






**Item
      10.**  **Directors
      and Executive Officers of the Registrant**






(a)  Identification
      of directors -






For
      information required under this section, reference is made to the “Director
      Information” section of the company’s proxy statement made in connection with
      its Annual Stockholders’ Meeting to be held on May 11, 2006.






(b)
            Set
                forth below is information regarding our current executive officers
                as of
                December 31, 2005.










Name
            **Age**
            **Office**Thomas
                W. Adams
            45
            Chief
                Executive Officer and Director; President of Tronox LLC since September
                2004; Vice President and General Manager of the Pigment Division
                from May
                to September 2004; Vice President of Strategic Planning and Business
                Development of Kerr-McGee Shared Services from 2003 to 2004; Vice
                President of Acquisitions from March 2003 to September 2003; Vice
                President of Information Management and Technology from 2002 to 2003.
                Joined Sun Oil Co., predecessor of Oryx Energy Company, in 1982.
                Oryx and
                Kerr-McGee Corporation merged in 1999.Marty
                J. Rowland
            48
            Chief
                Operating Officer and Director; Vice President, Global Pigment Operations
                for Tronox LLC since August 2004; Director of North American Operations
                since May 2004; Plant Manager for our Hamilton, Mississippi titanium
                dioxide plant since September 2001. Previously had a career of over
                20
                years with E.I. DuPont, including most recent position of Maintenance
                and
                Engineering Manager.Mary
                Mikkelson
            44
            Senior
                Vice President and Chief Financial Officer; Vice President and Controller
                of Tronox LLC since December 2004; Assistant Corporate Controller
                of
                Kerr-McGee Shared Services from February 2004 to December 2004. Previously
                an independent consultant from January 2003 to January 2004; rose
                to the
                level of Vice President and Controller of Foodbrands America, Inc.,
                where
                she worked from April 1996 until December 2002; spent over nine years
                working for an international public accounting firm.Roger
                G. Addison
            54
            Vice
                President, General Counsel and Secretary; Vice President, Chemical
                Legal
                Services and Assistant General Counsel of Kerr-McGee Shared Services
                since
                April 2002. Previously Assistant General Counsel-Business Transactions
                for
                Kerr-McGee from September 1999 to April
                2002.





Robert
                Y. Brown III
            46
            Vice
                President, Strategic Planning and Development; Vice President, Chemical
                Business Management since August 2004; Vice President, Kerr-McGee
                Planning
                & Development from November 2003; Vice President, Chemical Business
                Management since June 2001. Previously served in various positions
                with
                Kerr-McGee’s oil and gas business since joining Kerr-McGee in February
                1999.Patrick
                S. Corbett
            53
            Vice
                President, Safety and Environmental Affairs; Director, Special
                Environmental Strategy and Technology since May 2003; Director,
                Environmental Affairs, Remediation and Planning since December 2001;
                Plant
                Manager of our Henderson, Nevada facility since 1986. Joined Kerr-McGee
                in
                May 1980.





Robert
                C. Gibney
            43
            Vice
                President, Investor Relations and External Affairs; Vice President
                and
                General Manager, Paper and Specialties since January 2005; Chief
                Marketing
                Officer for Kerr-McGee’s joint venture, Avestor LLC, since January 2002;
                Vice President, Global Pigment Marketing since May 1999; Director,
                Pigment
                Sales and Marketing since June 1997. Joined Kerr-McGee in
                1991.Kelly
                A. Green
            43
            Vice
                President, Market Management; Vice President and General Manager,
                Plastics
                since January 2005; Vice President, Product and Market Management
                since
                October 2004; Vice President, Product Management since November 2003;
                Vice
                President, Technical Sales and Service since January 2002; Director,
                Pigment Technical Sales and Service for the America’s region since June,
                1997. Joined Kerr-McGee in October 1989.







Mark
                S. Meadors
            52
            Vice
                President, Human Resources; Director, Human Resources since May 2001
                when
                he joined Kerr-McGee. Previously served as a human resources consultant
                from February 2000 to May 2001.John
                D. Romano
            41
            Vice
                President, Sales; Vice President, Global Pigment Sales since January
                2005;
                Vice President, Global Pigment Marketing from January 2002; Regional
                Marketing Manager from October 1998. Joined Kerr-McGee in
                1988.Gregory
                E. Thomas
            51
            Vice
                President, Supply Chain and Strategic Sourcing; Vice President and
                General
                Manager, Coatings since January 2005; Vice President, Global Pigment
                Sales
                and Marketing since May 1999. Joined Kerr-McGee in
                1977.




(c)  Compliance
      with Section 16(a) of the 1934 Act -






For
      information required under this section, reference is made to the “Section 16(a)
      Beneficial Ownership Reporting Compliance” section of the company’s proxy
      statement made in connection with its Annual Stockholders’ Meeting to be held on
      May 11, 2006.






(d)  Code
      of
      Ethics for the Chief Executive Officer and Principal Financial Officers
      -






Information
      regarding the Code of Ethics for the Chief Executive Officer and Principal
      Financial Officers can be found in Items 1 and 2 of this annual report on Form
      10-K under “Availability of Reports and Governance Documents.”






**Item
      11.**  **Executive
      Compensation**






For
      information required under this section, reference is made to the executive
      compensation sections of the company’s proxy statement made in connection with
      its Annual Stockholders’ Meeting to be held on May 11, 2006.






**Item
      12.**  **Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder
      Matters**






Information
      regarding Tronox common stock that may be issued under the company’s equity
      compensation plans as of December 31, 2005, is included in the following
      table:




**Number
                of shares of common stock to be issued upon exercise of outstanding
                options, warrants and rights**
            
            **Weighted-average
                exercise price of outstanding options, warrants and
                rights**
            
            **Number
                of shares remaining available for future issuance under equity
                compensation plans (1)**Equity
                compensation plans approved by security holders
            
            
            345,700
            
            $
            14.00
            
            
            5,307,660Equity
                compensation plans not approved by security holders
            
            
            —
            
            
            —
            
            
            —Total
            
            
            345,700
            
            $
            14.00
            
            
            5,307,660




(1)  Excludes
      shares to be issued upon exercise of outstanding options, warrants and
      rights.






For
      Information required under Item 403 of Regulation S-K, reference is made to
      the
“Ownership of Stock of the Company” section of the company’s proxy statement
      made in connection with its Annual Stockholders’ Meeting to be held on May 11,
      2006.









**Item
      13.**  **Certain
      Relationships and Related Transactions**






For
      information required under this section, reference is made to “Transactions with
      Management and Others” section of the company’s proxy statement made in
      connection with its Annual Stockholders’ Meeting to be held on May 11,
      2006.






**Item
      14.**  **Principal
      Accountant Fees and Services**






For
      information required under this section, reference is made to the “Fees Paid to
      the Independent Auditors” section of the company’s proxy statement made in
      connection with its Annual Stockholders’ Meeting to be held on May 11,
      2006.






**PART
      IV**






**Item
      15.**  **Exhibits
      and Financial Statement Schedules**






(a)  1.  Financial
      Statements - See the Index to the Consolidated and Combined


Financial Statements included in Item 8 of this annual report on Form
      10-K.






(a)  2.  Financial
      Statement Schedules - See the Index to the Financial Statement


Schedules included in Item 8 of this annual report on Form 10-K.






(a)  3.  Exhibits
      - The following documents are filed under Commission file number


1-32669 as part of this report.











**Exhibit
      No.**




2.1
            Master
                Separation Agreement, dated as of November 28, 2005, among Kerr-McGee
                Corporation, Kerr-McGee Worldwide Corporation, and Tronox Incorporated
                (incorporated by reference to Exhibit 2.1 of the Registrant’s current
                report on Form 8-K, filed with the Securities and Exchange Commission
                on
                December 7, 2005).3.1
            Amended
                and restated Certificate of Incorporation of Tronox Incorporated
                (incorporated by reference to Exhibit 3.1 of the Registrant’s current
                report on Form 8-K, filed with the Securities and Exchange Commission
                on
                December 7, 2005).3.2
            Amended
                and Restated Bylaws of Tronox Incorporated (incorporated by reference
                to
                Exhibit 3.2 of the Registrant’s current report on Form 8-K, filed with the
                Securities and Exchange Commission on December 7, 2005).4.1
            Rights
                Agreement, dated as of November 28, 2005, between Kerr-McGee Corporation
                and Tronox Incorporated (incorporated by reference to Exhibit 4.1
                of the
                Registrant’s current report on Form 8-K, filed with the Securities and
                Exchange Commission on December 7, 2005).10.1
            Compensation
                arrangements for the named executive officers of Tronox Incorporated
                (incorporated by reference to Exhibit 10.1 of the Registrant’s current
                report on Form 8-K, filed with the Securities and Exchange Commission
                on
                November 30, 2005).10.2
            Continuity
                Agreement, dated as of November 28, 2005, between Tronox Incorporated
                and
                Thomas W. Adams (incorporated by reference to Exhibit 10.2 of the
                Registrant’s current report on Form 8-K, filed with the Securities and
                Exchange Commission on November 30,
                2005).








10.3
            Continuity
                Agreement, dated as of November 28, 2005, between Tronox Incorporated
                and
                Marty J. Rowland (incorporated by reference to Exhibit 10.3 of the
                Registrant’s current report on Form 8-K, filed with the Securities and
                Exchange Commission on November 30, 2005).10.4
            Continuity
                Agreement, dated as of November 28, 2005, between Tronox Incorporated
                and
                Mary Mikkelson (incorporated by reference to Exhibit 10.4 of the
                Registrant’s current report on Form 8-K, filed with the Securities and
                Exchange Commission on November 30, 2005).10.5
            Continuity
                Agreement, dated as of November 28, 2005, between Tronox Incorporated
                and
                Roger G. Addison (incorporated by reference to Exhibit 10.5 of the
                Registrant’s current report on Form 8-K, filed with the Securities and
                Exchange Commission on November 30,
                2005).





10.6
            Continuity
                Agreement, dated as of November 28, 2005, between Tronox Incorporated
                and
                Robert Y. Brown (incorporated by reference to Exhibit 10.6 of the
                Registrant’s current report on Form 8-K, filed with the Securities and
                Exchange Commission on November 30,
                2005).





10.7
            Continuity
                Agreement, dated as of November 28, 2005, between Tronox Incorporated
                and
                Gregory E. Thomas (incorporated by reference to Exhibit 10.7 of the
                Registrant’s current report on Form 8-K, filed with the Securities and
                Exchange Commission on November 30,
                2005).





10.8
            Registration
                Rights Agreement, dated as of November 28, 2005 between Kerr-McGee
                Corporation and Tronox Incorporated (incorporated by reference to
                Exhibit
                10.1 of the Registrant’s current report on Form 8-K, filed with the
                Securities and Exchange Commission on December 7, 2005).10.9
            Transitional
                License Agreement, dated as of November 28, 2005, among Kerr-McGee
                Worldwide Corporation and Tronox Incorporated (incorporated by reference
                to Exhibit 10.2 of the Registrant’s current report on Form 8-K, filed with
                the Securities and Exchange Commission on December 7,
                2005).





10.10
            Tax
                Sharing Agreement, dated as of November 28, 2005, among Kerr-McGee
                Corporation and Tronox Incorporated (incorporated by reference to
                Exhibit
                10.3 of the Registrant’s current report on Form 8-K, filed with the
                Securities and Exchange Commission on December 7, 2005).10.11
            Employee
                Benefits Agreement, dated as of November 28, 2005, among Kerr-McGee
                Corporation and Tronox Incorporated(incorporated by reference to
                Exhibit
                10.4 of the Registrant’s current report on Form 8-K, filed with the
                Securities and Exchange Commission on December 7, 2005).10.12
            Transition
                Services Agreement, dated as of November 28, 2005, among Kerr-McGee
                Corporation, Kerr-McGee Worldwide Corporation and Tronox Incorporated
                (incorporated by reference to Exhibit 10.5 of the Registrant’s current
                report on Form 8-K, filed with the Securities and Exchange Commission
                on
                December 7, 2005).10.13
            Credit
                Agreement, dated as of November 28, 2005, among Tronox Incorporated,
                Tronox Worldwide LLC and Lehman Brothers Inc. and Credit Suisse
                (incorporated by reference to Exhibit 10.6 of the Registrant’s current
                report on Form 8-K, filed with the Securities and Exchange Commission
                on
                December 7, 2005).











10.14
            Indenture,
                dated as of November 28, 2005, among Tronox Worldwide LLC, Tronox
                Finance
                Corp. and Citibank, N.A. (incorporated by reference to Exhibit 10.7
                of the
                Registrant’s current report on Form 8-K, filed with the Securities and
                Exchange Commission on December 7, 2005).10.15
            Exchange
                and Registration Rights Agreement among Tronox Worldwide LLC, Tronox
                Finance Corp. as Issuers, the Guarantors and Lehman Brothers Inc.
                and
                Credit Suisse First Boston LLC, as Representatives of the Several
                Initial
                Purchasers (incorporated by reference to Exhibit 10.8 of the Registrant’s
                current report on Form 8-K, filed with the Securities and Exchange
                Commission on December 7, 2005).10.16
            2006
                Tronox Annual Incentive Plan Performance Measures (incorporated by
                reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K,
                filed with the Securities and Exchange Commission on December 22,
                2005).10.17*
            Long
                Term Incentive Plan21*
            Subsidiaries
                of Tronox Incorporated.23*
            Consent
                of Ernst & Young LLP.24*
            Power
                of Attorney31.1*
            Certification
                Pursuant to 15 U.S.C. Section 7241, asadopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2*
            Certification
                Pursuant to 15 U.S.C. Section 7241, asadopted
                pursuantto
                Section 302 of the Sarbanes-Oxley Act of 200232.1*
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 200232.2*
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002


*
      Each
      document marked with an asterisk is filed herewith.





**SCHEDULE
      II**









**TRONOX
      INCORPORATED**




**VALUATION
      ACCOUNTS AND RESERVES**




**Additions****Balance
                at Beginning**
              **of
                Year**
            
            **Charged
                to Profit****and
                Loss**
            
            **Charged
                to Other****Accounts**
            
            **Deductions
                from****Reserves**
            
            **Balance
                at**
              **End
                of Year****Year
                Ended December 31, 2005**
            
            **(Millions
                of dollars)******Deducted
                from asset accountsAllowance
                for doubtful notes and accounts receivable
            
            $
            19.7
            
            $
            2.2
            
            $
            (0.3
            )
            $
            0.3
            
            $
            21.3Valuation
                allowance for deferred tax assets
            
            
            6.1
            
            
            (0.3
            )
            
            -
            
            
            -
            
            
            5.8Warehouse
                inventory obsolescence
            
            
            11.8
            
            
            2.2
            
            
            -
            
            
            4.0
            
            
            10.0Total
            
            $
            37.6
            
            $
            4.1
            
            $
            (0.3
            )
            $
            4.3
            
            $
            37.1**Year
                Ended December 31, 2004**Deducted
                from asset accountsAllowance
                for doubtful notes and accounts receivable
            
            $
            17.8
            
            $
            3.5
            
            $
            (0.1
            )
            $
            1.5
            
            $
            19.7Valuation
                allowance for deferred tax assets
            
            
            5.0
            
            
            1.1
            
            
            -
            
            
            -
            
            
            6.1Warehouse
                inventory obsolescence
            
            
            7.3
            
            
            5.3
            
            
            0.1
            
            
            0.9
            
            
            11.8Total
            
            $
            30.1
            
            $
            9.9
            
            $
            -
            
            $
            2.4
            
            $
            37.6**Year
                Ended December 31, 2003**Deducted
                from asset accountsAllowance
              for doubtful notes and accounts
              receivable
            
            $
            18.0
            
            $
            0.9
            
            $
            0.2
            
            $
            1.3
            
            $
            17.8Valuation
                allowance for deferred tax assets
            
            
            -
            
            
            5.0
            
            
            -
            
            
            -
            
            
            5.0Warehouse
                inventory obsolescence
            
            
            3.9
            
            
            5.8
            
            
            0.2
            
            
            2.6
            
            
            7.3Total
            
            $
            21.9
            
            $
            11.7
            
            $
            0.4
            
            $
            3.9
            
            $
            30.1











**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act
      of 1934, Tronox Incorporated has duly caused this report to be signed on its
      behalf by the undersigned, thereunto duly authorized, on March 28,
      2006.





Tronox
                IncorporatedBy:
            /s/
                THOMAS W.
                ADAMSName:
                Thomas W. AdamsTitle:
                Chief Executive OfficerBy:
            /s/
                MARY
                MIKKELSONName:
                Mary MikkelsonTitle:
                Senior Vice President and ChiefFinancial
                Officer (Principal Financialand
                Accounting Officer)





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this
      report has
      been signed by the following persons in the capacities indicated on March 28,
      2006.




/s/
                THOMAS W. ADAMSThomas
                W. Adams
            
            Director*Marty
                J. Rowland
            
            Director*Robert
                M. Wohleber
            
            Director*Jerome
                Adams
            
            Director*Peter
                D. Kinnear
            
            Director*J.
                Michael Rauh
            
            Director*Bradley
                C. Richardson
            
            Director*By:
            /s/
                THOMAS W. ADAMSThomas
                W. Adams*Attorney-in-fact*




Thomas
      W. Adams hereby signs this Annual Report on Form 10-K on March 28, 2006, on
      behalf of each of the indicated persons for whom he is attorney-in-fact pursuant
      to a power of attorney filed as an exhibit to this registration
      statement.