**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  **FORM 10-Q**
 
 
 þ  **QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF**
 **THE
        SECURITIES EXCHANGE ACT OF 1934**
 
 **For
        the Quarterly Period Ended June 30, 2006**
 
 **OR**
 
 o  **TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF**
 **THE
        SECURITIES EXCHANGE ACT OF 1934**
 
 **For
        the Transition Period from _____ to ______**
 
 
 **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**
 
 
 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 whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of 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
 
 As
        of
        July 31, 2006, 18,351,996 shares of the company’s Class A, $0.01 par value
        common stock and 22,889,431 shares of the company’s Class B, $0.01 par value
        common stock were outstanding.
  
  
 **TRONOX
        INCORPORATED**
 
 **INDEX**
 
 
 **Page****Part
                  I**
              
              **FINANCIAL
                  INFORMATION**Item
                  1.
              
              Financial
                  Statements (Unaudited)Condensed
                  Consolidated and Combined Statement of Operations for the Three
                  and Six
                  Months Ended June 30, 2006 and 2005
              
              1Condensed
                  Consolidated Balance Sheet at June 30, 2006 and December 31,
                  2005
              
              2Condensed
                  Consolidated and Combined Statement of Cash Flows for the Six Months
                  Ended
                  June 30, 2006 and 2005
              
              3Notes
                  to Condensed Consolidated and Combined Financial
                  Statements
              
              4Item
                  2.
              
              Management’s
                  Discussion and Analysis of Financial Condition and Results of Operations
              
              36Item
                  3.
              
              Quantitative
                  and Qualitative Disclosures About Market Risk
              
              47Item
                  4.
              
              Controls
                  and Procedures
              
              47Forward-Looking
                  Statements
              
              47**Part
                  II**
              
              **OTHER
                  INFORMATION**Item
                  1.
              
              Legal
                  Proceedings
              
              48Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              
              49Item
                  6.
              
              Exhibits
              
              49SIGNATURES
              
              50
 
   
   **PART
        I - FINANCIAL INFORMATION**
  
  **Item
        1. Financial Statements**
 
  **TRONOX
        INCORPORATED**
  **CONDENSED
        CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS**
 **(UNAUDITED)**
 
 **Three
                  Months Ended**
              
              **Six
                  Months Ended****June
                  30,**
              
              **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(Millions
                  of dollars, except per share data)****Net
                  sales**
              
              $
              372.9
              
              $
              355.9
              
              $
              709.1
              
              $
              690.1Cost
                  of goods sold
              
              
              341.9
              
              
              291.6
              
              
              617.9
              
              
              563.9**Gross
                  margin**
              
              
              31.0
              
              
              64.3
              
              
              91.2
              
              
              126.2Selling,
                  general and administrative expenses
              
              
              25.5
              
              
              29.3
              
              
              61.2
              
              
              57.5Provision
                  for environmental remediation and restoration, net of
                reimbursements
              
              
              —
              
              
              5.8
              
              
              (20.5
              )
              
              16.75.5
              
              
              29.2
              
              
              50.5
              
              
              52.0Interest
                  and debt expense - third parties
              
              
              (12.3
              )
              
              —
              
              
              (24.3
              )
              
              —Other
                  income (expense)
              
              
              5.3
              
              
              (10.2
              )
              
              9.7
              
              
              (15.2
              )**Income
                  (Loss) from Continuing Operations before Income
                  Taxes**
              
              
              (1.5
              )
              
              19.0
              
              
              35.9
              
              
              36.8Income
                  Tax Provision
              
              
              (4.2
              )
              
              (10.7
              )
              
              (18.0
              )
              
              (16.1
              )**Income
                  (Loss) from Continuing Operations**
              
              
              (5.7
              )
              
              8.3
              
              
              17.9
              
              
              20.7Loss
                  from Discontinued Operations, net of income tax benefit of $5.1,
                  $6.4,
                  $6.9 and $10.9, respectively
              
              
              (8.7
              )
              
              (11.9
              )
              
              (11.7
              )
              
              (20.3
              )**Net
                  Income (Loss)**
              
              $
              (14.4
              )
              $
              (3.6
              )
              $
              6.2
              
              $
              0.4**Income
                  (Loss) per Common Share**Basic -Continuing operations
              
              $
              (0.14
              )
              $
              0.36
              
              $
              0.44
              
              $
              0.90Discontinued operations
              
              
              (0.22
              )
              
              (0.52
              )
              
              (0.29
              )
              
              (0.88
              )Net income (loss)
              
              $
              (0.36
              )
              $
              (0.16
              )
              $
              0.15
              
              $
              0.02Diluted
                  -Continuing
                  operations
              
              $
              (0.14
              )
              $
              0.36
              
              $
              0.44
              
              $
              0.90Discontinued operations
              
              
              (0.22
              )
              
              (0.52
              )
              
              (0.29
              )
              
              (0.88
              )Net income (loss)
              
              $
              (0.36
              )
              $
              (0.16
              )
              $
              0.15
              
              $
              0.02**Dividends
                  Declared per Common Share**
              
              $
              —
              
              $
              —
              
              $
              0.05
              
              $
              —**Weighted
                  Average Shares Outstanding (in thousands)**Basic
              
              
              40,370
              
              
              22,889
              
              
              40,369
              
              
              22,889Diluted
              
              
              40,370
              
              
              22,889
              
              
              40,885
              
              
              22,889
 
 The
        accompanying notes are an integral part of these statements.
  1
  **TRONOX
        INCORPORATED**
 **CONDENSED
        CONSOLIDATED BALANCE SHEET**
 **(UNAUDITED)**
 
 **June
                  30,**
              
              **December
                  31,****2006**
              
              **2005****(Millions
                  of dollars)****ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              25.9
              
              $
              69.0Accounts
                  receivable, net of allowance for doubtful accounts of
                $12.1 in 2006 and $11.3 in 2005
              
              
              351.4
              
              
              331.6Inventories
              
              
              333.3
              
              
              312.3Prepaid
                  and other assets
              
              
              25.7
              
              
              28.5Income
                  tax receivable
              
              
              6.6
              
              
              2.4Deferred
                  income taxes
              
              
              38.1
              
              
              35.6**Total
                  Current Assets**
              
              
              781.0
              
              
              779.4**Property,
                  Plant and Equipment — Net**
              
              
              859.2
              
              
              839.7**Long-Term
                  Receivables, Investments and Other Assets**
              
              
              199.5
              
              
              78.8**Goodwill
                  and Other Intangible Assets**
              
              
              63.0
              
              
              60.4**Total
                  Assets**
              
              $
              1,902.7
              
              $
              1,758.3**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  Liabilities**Accounts
                  payable
              
              $
              193.8
              
              $
              195.3Accrued
                  liabilities
              
              
              157.5
              
              
              168.9Long-term
                  debt due within one year
              
              
              2.0
              
              
              2.0Income
                  taxes payable
              
              
              7.5
              
              
              8.8**Total
                  Current Liabilities**
              
              
              360.8
              
              
              375.0**Noncurrent
                  Liabilities**Deferred
                  income taxes
              
              
              86.2
              
              
              79.0Environmental
                  remediation and/or restoration
              
              
              140.0
              
              
              145.9Long-term
                  debt
              
              
              547.0
              
              
              548.0Other
              
              
              245.6
              
              
              121.4**Total
                  Noncurrent Liabilities**
              
              
              1,018.8
              
              
              894.3**Commitments
                  and Contingencies (Notes 12 and 13)****Stockholders’
                  Equity**Class
                  A common stock, par value $0.01 - 100,000,000 shares authorized,
                18,358,133 and 17,886,640 shares issued and outstanding at June
                  30,
                  2006
                and December 31, 2005, respectively
              
              
              0.2
              
              
              0.2Class
                  B common stock, par value $0.01 - 100,000,000 shares authorized,
                22,889,431 shares issued and outstanding at June 30, 2006 and
                December
                  31, 2005
              
              
              0.2
              
              
              0.2Capital
                  in excess of par value
              
              
              468.6
              
              
              461.5Accumulated deficit
              
              
              (0.1
              )
              
              (2.9
              )Deferred compensation
              
              
              —
              
              
              (5.4
              )Accumulated
                  other comprehensive income
              
              
              54.4
              
              
              35.4****Treasury
                  stock
              
              
              (0.2
              )
              
              —**Total
                  Stockholders’ Equity**
              
              
              523.1
              
              
              489.0**Total
                  Liabilities and Stockholders’ Equity**
              
              $
              1,902.7
              
              $
              1,758.3
 
 The
        accompanying notes are an integral part of these statements.
  2
  
  
  **TRONOX
        INCORPORATED**
  **CONDENSED
        CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS**
 **(UNAUDITED)**
 
 **Six
                  Months Ended June 30,****2006**
              
              **2005****(Millions
                  of dollars)****Cash
                  Flows from Operating Activities**Net
                  income
              
              $
              6.2
              
              $
              0.4Adjustments
                  to reconcile net income to net cash provided by operating activities—Depreciation
                  and amortization
              
              
              49.3
              
              
              53.6Deferred
                  income taxes
              
              
              5.6
              
              
              (29.3
              )Asset
                  write-downs and impairments
              
              
              —
              
              
              2.9Provision
                  for environmental remediation and restoration, net of
                  reimbursements
              
              
              (10.3
              )
              
              42.7Allocations
                  from Kerr-McGee
              
              
              —
              
              
              25.5Other
                  noncash items affecting net income
              
              
              18.5
              
              
              8.4Changes
                  in assets and liabilities
              
              
              (55.9
              )
              
              (142.7
              )Net
                  cash provided by (used in) operating activities
              
              
              13.4
              
              
              (38.5
              )**Cash
                  Flows from Investing Activities**Capital
                  expenditures
              
              
              (43.3
              )
              
              (31.4
              )Collection
                  on repurchased receivables
              
              
              —
              
              
              165.0Other
                  investing activities
              
              
              0.5
              
              
              0.9Net
                  cash provided by (used in) investing activities
              
              
              (42.8
              )
              
              134.5**Cash
                  Flows from Financing Activities**Repayment
                  of debt
              
              
              (1.0
              )
              
              —Debt
                  issuance costs
              
              
              (2.4
              )
              
              —Dividends
                  paid
              
              
              (2.0
              )
              
              —Net
                  transfers with affiliates
              
              
              —
              
              
              (30.7
              )Net
                  cash used in financing activities
              
              
              (5.4
              )
              
              (30.7
              )**Effects
                  of Exchange Rate Changes on Cash and Cash
                  Equivalents**
              
              
              (8.3
              )
              
              3.6**Net
                  Increase (Decrease) in Cash and Cash Equivalents**
              
              
              (43.1
              )
              
              68.9**Cash
                  and Cash Equivalents at Beginning of Period**
              
              
              69.0
              
              
              23.8**Cash
                  and Cash Equivalents at End of Period**
              
              $
              25.9
              
              $
              92.7**Noncash
                  Investing Activities**
                Receivables
                  repurchased and contributed by Kerr-McGee
              
              $
              —
              
              $
              165.0**Noncash
                  Financing Activities**
                Contribution
                  of repurchased receivables by Kerr-McGee
              
              
              —
              
              
              (165.0
              )
 
 The
        accompanying notes are an integral part of these statements.
  3
  **TRONOX
        INCORPORATED**
 **NOTES
        TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL
        STATEMENTS**
 **JUNE
        30, 2006**
 
 
 **1.
        The Company, Basis of Presentation and Accounting Policies**
 
 Tronox
        Incorporated is an inorganic chemical company with worldwide operations. Our
        business has two reportable segments: pigment and electrolytic and other
        chemical products. Our pigment segment primarily produces and markets titanium
        dioxide pigment, TiO 2 ,
        a white
        pigment used in a wide range of products for its exceptional ability to impart
        whiteness, brightness and opacity. The
        pigment segment 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 electrolytic and other chemical products segment produces
        chemicals for both rechargeable and non-rechargeable batteries, sodium chlorate
        for pulp bleaching used in the paper industry and boron-based specialty
        chemicals used in pharmaceuticals, high-performance fibers and other specialty
        products. Also,
        t he
        company has in the past operated or held businesses or properties, or currently
        holds properties, that do not relate to the current chemical business. The
        terms
“Tronox” or “the company” are used interchangeably in these condensed
        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.
 
 Tronox
        Incorporated was formed in May 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 and an initial public offering (“IPO”) were
        completed during November 2005 resulting in approximately 43.3% of the total
        outstanding common stock of Tronox being held by the general public and 56.7%
        being held by Kerr-McGee. A Master Separation Agreement (“MSA”), dated November
        28, 2005, among Kerr-McGee, Kerr-McGee Worldwide Corporation and the company
        governs the relationship between the company and the Kerr-McGee group of
        companies throughout a transition period. On March 30, 2006, the company’s
        shares owned by Kerr-McGee were distributed as a dividend to its shareholders
        (the “Distribution”). As a result, Kerr-McGee no longer has any ownership or
        voting interest in the company.
 
 Effective
        with the Distribution, the company established certain employee benefit plans
        to
        replace benefits previously sponsored by Kerr-McGee and issued stock-based
        compensation awards resulting from the conversion of certain Kerr-McGee
        stock-based awards held by company employees. See Notes 10 and 11 for further
        discussion of these events. In connection with the Distribution, Tronox
        consummated several noncash transactions with Kerr-McGee during the six months
        ended June 30, 2006, primarily related to the employee benefit plan transfers,
        contribution of assets, insurance and income taxes that are reflected as
        adjustments to the contribution from Kerr-McGee. These items resulted in
        a net
        increase in capital in excess of par value of $10.3 million.
 
 **Basis
        of Presentation**
 
 The
        accompanying unaudited condensed consolidated and combined financial statements
        have been prepared by the company, pursuant to the rules and regulations
        of the
        Securities and Exchange Commission (“SEC”) and, in the opinion of management,
        include all adjustments, consisting only of adjustments that are normal and
        recurring in nature, necessary to a fair statement of the results for the
        interim periods presented. Certain information and footnote disclosures normally
        included in financial statements prepared in accordance with accounting
        principles generally accepted in the United States have been condensed or
        omitted pursuant to such rules and regulations. Although the company believes
        that the disclosures are adequate to make the information presented not
        misleading, these condensed consolidated and combined financial statements
        should be read in conjunction with the annual consolidated and combined
        financial statements and the notes thereto included in the company’s latest
        annual report on Form 10-K.
   4
  **Accounting
        Policies**
 
 ***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/or restricted stock under the plan to its employees and non-employee
        directors.
 
 *Fair-Value
        Method.* In
        December 2004, the Financial Accounting Standards Board (“ FASB”)
        issued Statement No. 123 (revised 2004), “Share-Based Payment” (“FAS No. 123R”),
        which replaces the previously issued Statement No. 123, “Accounting for
        Stock-Based Compensation” (“FAS No. 123”), and supersedes Accounting Principles
        Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees.” FAS
        No. 123R requires all share-based payments to employees to be recognized
        in the
        financial statements based on their fair values. The company adopted ** FAS
        No.
        123R effective January 1, 2006, using the modified prospective method. Under
        this method, stock-based compensation cost recognized in income from continuing
        operations for the three and six months ended June 30, 2006, includes: 1)
        compensation cost for all stock option and stock awards that were unvested
        as of
        January 1, 2006, based on the grant-date fair value estimated in accordance
        with
        the original provisions of FAS No. 123 and 2) compensation cost for all stock
        options and nonvested stock awards granted subsequent to January 1, 2006,
        based
        on the grant-date fair value estimated in accordance with the provisions
        of FAS
        No. 123R. Stock-based compensation expense recognized in the Condensed
        Consolidated Statement of Operations will be higher in the future (compared
        with
        periods prior to 2006), 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.
 
 *Pro
        Forma Fair-Value Method.* Prior
        to
        January 1, 2006, the company accounted for its stock-based awards under the
        intrinsic-value method permitted by APB No. 25 and disclosed compensation
        expense under the Pro Forma Fair-Value Method in accordance with provisions
        of
        FAS No. 123. Following this method, compensation expense for stock-based
        awards
        was measured based on the estimated grant-date fair value. If compensation
        expense for stock-based awards had been determined using the fair value-based
        method, net income for the three-month and six-month periods ending June
        30,
        2005, would have been lower, 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
        prescribed by FAS No. 123R.
  **Three
                  Months**
                **Ended**
              
              **Six
                  Months**
                **Ended****June
                  30, 2005****(Millions
                  of dollars, except per share)**Net
                  income (loss), as reported
              
              $
              (3.6
              )
              $
              0.4Add:
                  stock-based employee compensation expense included in reported
                  net income
                  (loss), net of taxes
              
              
              0.3
              
              
              0.9Deduct:
                  stock-based employee compensation expense determined using a fair-value
                  method, net of taxes
              
              
              (0.5
              )
              
              (1.5
              )Pro
                  forma net loss
              
              $
              (3.8
              )
              $
              (0.2
              )Basic
                  and diluted net income (loss) per common share:As
                  reported
              
              $
              (0.16
              )
              $
              0.02Pro
                  forma
              
              
              (0.17
              )
              
              (0.01
              )
 
 ***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 the three and six months ended June 30, 2005, includes
        22,889,431 shares of Class B common stock issued to Kerr-McGee in connection
        with the Contribution, retroactively adjusted for the recapitalization. For
        the
        three and six months ended June 30, 2005, there is no difference between
        basic
        and diluted earnings per share since there were no dilutive securities during
        that period. At the Distribution, forfeiture of Kerr-McGee stock-based awards
        resulted in the issuance of Tronox stock-based awards (see Note 10), which
        were
        included in the earnings per share calculation as if they were outstanding
        as of
        January 1, 2006, in accordance with the provisions of FAS No. 128.
 
 5
 ***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 was completed at June 30, 2006, and no impairment was
        indicated.
 
 ***New/Revised
        Accounting Standards***
 
 *Deferred
        Stripping Costs.* On
        January 1, 2006, the company adopted Emerging Issues Task Force ("EITF")
        Issue
        No. 04-6, "Accounting for Stripping Costs Incurred during Production in the
        Mining Industry" in relation to the mining activities conducted by the company
        and its partner under our joint venture arrangement in Australia. EITF Issue
        No.
        04-6 addresses the accounting for stripping costs incurred during the production
        phase of a mine and requires treatment of these costs as variable production
        costs that should be included as a component of inventory to be recognized
        in
        costs applicable to sales in the same period as the revenue from the sale
        of
        inventory. As a result, capitalization of post-production stripping costs
        is
        appropriate only to the extent product inventory exists at the end of a
        reporting period. The guidance allows application through recognition of
        a
        cumulative effect adjustment to opening retained earnings in the period of
        adoption, with no charge to current earnings for prior periods. The results
        for
        prior periods have not been restated. The cumulative effect adjustment reduced
        opening retained earnings by $1.4 million (net of taxes) and eliminated the
        $2.2
        million net deferred stripping asset from the balance sheet. Adoption of
        EITF
        Issue No. 04-6 will not have an impact on the company’s cash position or net
        cash from operations.
  *FASB
          Exposure
          Draft.* The FASB
          has recently issued an exposure draft titled “Employers’ Accounting for Defined
          Benefit Pension and Other Postretirement Plans (an amendment of FASB Statements
          No. 87, 88, 106, and 132(R))” and is expected to issue the resulting new
          accounting standard later in 2006, to be effective with the 2006 annual
          reporting period. Assuming the provisions of the new standard are consistent
          with decisions reached by the FASB to date, the standard will require
          recognition on the balance sheet of the unrecognized portion of projected
          benefit obligations, with an offsetting change in accumulated other
          comprehensive income 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
          an 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). Based on preliminary
          estimates received from the company’s actuary, it
          is
          estimated that the company will recognize a reduction of approximately
          $120
          million ($80 million after tax) in stockholders’ equity, which represents
          currently unrecognized obligations.
 *Uncertain
          Tax
          Positions.* In
          July
          2006, the FASB issued Interpretation No. 48 (“FIN No. 48”), “Accounting for
          Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
          Accounting for Income Taxes” (“FAS No. 109”). FIN No. 48 is effective for fiscal
          years beginning after December 15, 2006, and clarifies the accounting for
          uncertainty in income taxes recognized in an enterprise's financial statements.
          FAS No. 109 does not prescribe a recognition threshold or measurement attribute
          for the financial statement recognition and measurement of a tax position
          taken
          in a tax return. FIN No. 48 clarifies the application of FAS No. 109 by
          defining
          criteria that an uncertain tax position must meet in order to be recognized
          in
          an enterprise's financial statements. The interpretation also provides
          guidance
          on measurement, derecognition, classification, interest and penalties,
          accounting in interim periods, disclosure and transition. The company is
          currently assessing the financial statement impact of adopting this
          interpretation.
  6
  
 **2** **.
        Other Comprehensive Income (Loss)**
 
 Comprehensive
        income (loss) for the three and six months ended June 30, 2006 and 2005 was
        as
        follows:
 
 **Three
                  Months Ended**
                **June 30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(Millions
                  of dollars)**Net
                  income (loss)
              
              $
              (14.4
              )
              $
              (3.6
              )
              $
              6.2
              
              $
              0.4After
                  tax changes in:Foreign currency translation adjustments
              
              
              15.4
              
              
              (23.4
              )
              
              21.4
              
              
              (37.3
              )Deferred gain (loss) on cash flow hedges
              
              
              (1.1
              )
              
              (0.6
              )
              
              (2.4
              )
              
              5.3Reclassification of realized loss on cash flow hedges to
                net income
              
              
              0.1
              
              
              —
              
              
              1.1
              
              
              —Minimum pension liability adjustments
              
              
              —
              
              
              —
              
              
              (1.1
              )
              
              0.2Comprehensive
                  income (loss)
              
              $
              —
              
              $
              (27.6
              )
              $
              25.2
              
              $
              (31.4
              )
  **3.
        Inventories**
 
 Major
        categories of inventories at June 30, 2006 and December 31, 2005
        were:
 
 **June
                  30,**
                **2006**
              
              **December
                  31,**
                **2005****(Millions
                  of dollars)**Raw
                  materials
              
              $
              85.0
              
              $
              77.1Work-in-progress
              
              
              13.5
              
              
              15.2Finished
                  goods
              
              
              163.6
              
              
              154.7Materials
                  and supplies
              
              
              71.2
              
              
              65.3Total
              
              $
              333.3
              
              $
              312.3
 
 **4.
        Long-Term Receivables, Investments and Other Assets**
 
 Long-term
        receivables, investments, and other assets at June 30, 2006 and
        December 31, 2005 were as follows:
 
 **June
                  30,**
                **2006**
              
              **December
                  31,**
                **2005****(Millions
                  of dollars)**Prepaid
                  pension cost
              
              $
              131.0
              
              $
              11.7Receivables
                  from insurers (Note 13)
              
              
              23.4
              
              
              23.5Investments
                  in equity method investees
              
              
              21.9
              
              
              17.5Debt
                  issuance costs
              
              
              12.1
              
              
              12.7Receivable
                  from the U.S. Department of Energy (Note 13)
              
              
              5.8
              
              
              12.5Other
              
              
              5.3
              
              
              0.9Total
              
              $
              199.5
              
              $
              78.8
   7
  
 **5.
        Noncurrent Liabilities - Other**
 
 Noncurrent
        liabilities - other consisted of the following at June 30, 2006 and
        December 31, 2005:
 
 **June
                  30,**
                **2006**
              
              **December
                  31,**
                **2005****(Millions
                  of dollars)**Pension
                  and postretirement obligations
              
              $
              124.6
              
              $
              12.6Reserve
                  for income taxes payable
              
              
              39.5
              
              
              37.2Asset
                  retirement obligations
              
              
              31.1
              
              
              27.7Reserve
                  for workers’ compensation and general liability claims
              
              
              20.2
              
              
              18.5Other
              
              
              30.2
              
              
              25.4Total
              
              $
              245.6
              
              $
              121.4
 
 **6.
        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 the six months ended
        June
        30, 2006. No significant changes in the status of such activities occurred
        during these periods.
 **Personnel**
                **Costs**
              
              **Dismantlement**
                **and
                  Closure**
              
              **Contract
                  Termination**
              
              **Total****(1)(2)****(Millions
                  of dollars)**Beginning
                  balance
              
              $
              3.1
              
              $
              4.9
              
              $
              1.0
              
              $
              9.0Payments
              
              
              (0.2
              )
              
              (0.8
              )
              
              (0.3
              )
              
              (1.3
              )Adjustments
              
              
              0.2
              
              
              0.1
              
              
              (0.2
              )
              
              0.1Ending
                  balance
              
              $
              3.1
              
              $
              4.2
              
              $
              0.5
              
              $
              7.8
  (1)  Amounts
        exclude asset retirement obligations.
  (2)
              Amounts
                  include obligations of the discontinued forest products operations
                  that
                  have been retained by the company.
 
 In
        April
        2005, in connection with the separation of the company from Kerr-McGee discussed
        in Note 1, the company initiated an employee compensation program designed
        to
        provide an incentive to certain employees to remain with the company over
        a
        one-year period. Costs associated with this program have been split based
        upon
        the periods in which participating employees met the service requirements,
        with
        Kerr-McGee bearing the costs for the period they benefited from this arrangement
        up to the IPO date and the company incurring costs after the IPO date. During
        the six-month period ending June 30, 2006, the company incurred costs of
        $1.7
        million. Incentives were paid to employees during the quarter ended June
        30,
        2006, and Kerr-McGee reimbursed the company for its proportionate share of
        the
        incentives paid.
 
 The
        company has been working on the development of a raw materials feed project
        to
        improve efficiencies and reduce costs at its Savannah, Georgia, pigment
        facility. The initial trials of the project indicated that modifications
        would
        be required to achieve a satisfactory economic benefit. During the second
        quarter of 2006, additional studies were performed to determine the technical
        requirements needed to achieve operations and the additional cost to complete
        the project. The company is evaluating the results of the study and expects
        to
        determine later in 2006 if the project will be completed. If it is decided
        that
        this is not a viable project, the assets will be written down approximately
        $4.0
        million to their net realizable value.
 
 ***Discontinued
        Operations*** - In
        2004, the company’s forest products operations met the criteria for reporting as
        discontinued operations. Pretax loss applicable to discontinued forest products
        operations for the three months ended June 30, 2006 and 2005 was $1.9 million
        and $12.9 million, respectively. Pretax loss applicable to discontinued forest
        products operations for the six months ended June 30, 2006 and 2005 was $5.7
        million and $14.5 million, respectively.
 
 8
 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 legal expenses and changes in the 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 13.
 
 **7** **.
        Other Income (Expense)**
 
 Components
        of other income (expense) for the three and six months ended June 30, 2006
        and
        2005 were as follows:
 
 **Three
                  Months Ended**
                **June 30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(Millions
                  of dollars)**Net
                  foreign currency transaction gain (loss)
              
              $
              3.8
              
              $
              (3.7
              )
              $
              8.1
              
              $
              (2.2
              )Equity
                  in net earnings of equity method investees
              
              
              4.7
              
              
              —
              
              
              4.7
              
              
              0.2Provision
                  for litigation settlements
              
              
              (3.7
              )
              
              —
              
              
              (3.7
              )
              
              —Net
                  interest expense on borrowings with affiliates and interest
                  income
              
              
              0.6
              
              
              (4.5
              )
              
              1.3
              
              
              (7.6
              )Loss
                  on accounts receivables sales
              
              
              —
              
              
              (1.2
              )
              
              —
              
              
              (4.0
              )Other
                  expense
              
              
              (0.1
              )
              
              (0.8
              )
              
              (0.7
              )
              
              (1.6
              )Total
              
              $
              5.3
              
              $
              (10.2
              )
              $
              9.7
              
              $
              (15.2
              )
 
 
 **8.
        Summarized Income Statement Information of Affiliates**
 
 The
        company has investments in companies, located near its facility in Henderson,
        Nevada, which are accounted for under the equity method. These investees
        provide
        services to the Henderson facility and also market and develop land in the
        area.
        The company recognized $4.7 million of equity in net earnings of equity method
        investees for the three and six months ended June 30, 2006 (see Note 7).
        Unaudited summarized income statement information of the significant investees
        is as follows:
 
 **Three
                  Months Ended**
                **June 30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(Millions
                  of dollars)**Gross
                  revenues
              
              $
              25.9
              
              $
              16.0
              
              $
              27.3
              
              $
              17.3Gross
                  profit
              
              
              22.0
              
              
              12.9
              
              
              22.6
              
              
              13.5Income
                  before income taxes
              
              
              20.2
              
              
              11.1
              
              
              19.0
              
              
              9.7Net
                  income
              
              
              16.7
              
              
              9.1
              
              
              15.9
              
              
              8.1
  9
  **9.
        Income Taxes**
 
 In
        the
        following table the U.S. Federal income tax rate is reconciled to the company's
        effective tax rates for income (loss) from continuing operations as reflected
        in
        the Condensed Consolidated and Combined Statement of Operations for the three
        and six months ended June 30, 2006 and 2005.
 
 
 **Three
                  Months Ended**
                **June 30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(Millions
                  of dollars)**U.S.
                  statutory tax rate - provision (benefit)
              
              
              (35.0
              )%
              
              35.0
              %
              
              35.0
              %
              
              35.0
              %Increases
                  (decreases) resulting from -Taxation
                  of foreign operations
              
              
              294.0
              
              
              15.9
              
              
              13.8
              
              
              5.4State income taxes
              
              
              3.2
              
              
              1.5
              
              
              1.2
              
              
              1.3Permanent adjustments
              
              
              (21.1
              )
              
              2.8
              
              
              (1.1
              )
              
              1.3Interest on foreign tax contingency
              
              
              14.0
              
              
              —
              
              
              1.2
              
              
              —Other-net
              
              
              24.9
              
              
              1.1
              
              
              —
              
              
              0.8Total
              
              
              280.0
              %
              
              56.3
              %
              
              50.1
              %
              
              43.8
              %
 
  The
        effective tax rate was higher in the second quarter of 2006 compared to the
        first quarter of 2006 due primarily to the taxation of foreign operations,
        in
        particular, non-deductible permanent differences and forecasted losses in
        certain foreign jurisdictions in which the actual tax rate is below the
        statutory rate. The impact of these items was greater in the second quarter
        than
        the first as a result of a change in the proportion of income between the
        U.S.
        and foreign jurisdictions.
 
 During
        the second quarter of 2006, the Mississippi State Tax Commission began an
        income
        and franchise tax audit of Kerr-McGee Worldwide Corporation covering tax
        years
        2002 through 2004. Although no formal assessment has been received at this
        time,
        the auditors informally conveyed that an assessment for additional taxes
        may be
        forthcoming. Under the tax sharing agreement with Kerr-McGee dated November
        28,
        2005, Tronox is the controlling party for any Mississippi audit being conducted
        of Kerr-McGee Worldwide Corporation and would be potentially liable for the
        entire assessment, if one is made. However, Tronox believes that appropriate
        tax
        filings were made during the years under audit and is unable to determine
        any
        potential liability until a formal assessment is made. Accordingly, no reserve
        has been established related to this matter.
 
 As
        of
        August 14, 2006, the company had received two preliminary written reports
        from
        the local tax authority in Germany taking exception to the deductibility
        of
        certain costs and expenses for income tax purposes and discussing the treatment
        of certain transactions for value added tax purposes with respect to the
        periods
        under audit of 1998 through 2001. Although the company has not fully analyzed
        this correspondence nor responded to such communication, the company believes
        that appropriate tax filings were made during the years under audit and that
        it
        has adequately provided for amounts that may be adjusted as a result of any
        audit settlement. However, the ultimate outcome is not presently known and,
        accordingly, additional provisions may be necessary and/or reclassifications
        of
        noncurrent tax liabilities to current may occur in the future related to
        this
        matter.
 
 Contingent
        tax liabilities of $39.5 million and $37.2 million, at June 30, 2006 and
        December 31, 2005, 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.
 
  10
  **10.
        Employee Stock-Based Compensation**
 
 ***Overview*** - The
        company's Long-Term Incentive 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.
 
 Stock-based
        awards granted by the company to its employees and non-employee directors
        (including awards issued as a result of the conversion of Kerr-McGee stock-based
        awards discussed below) generally have the following terms:
 
 **Vesting**
              
              **Cash-
                  or****Contractual**
              **Period**
              **Vesting**
              **Stock-**
              **Vesting
                  and Other****Life
                  (Years)**
              **(Years)**
              **Term**
              **Settled**
              **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. Employees terminating their employment due to retirement
                fully
                vest in their award upon retirement.  (2)
            An
                employee vests in the entire award at the end of the three-year service
                period. Employees terminating their employment due to retirement
                fully
                vest in their award upon retirement.  ***Effect
        of
        Tronox Separation from Kerr-McGee*** - As
        provided in the Employee Benefits Agreement between Kerr-McGee and Tronox,
        except for vested stock options, vested performance unit awards, and awards
        held
        by retirement-eligible employees, Kerr-McGee stock-based awards held by Tronox
        employees at the date of the Distribution were forfeited and replaced with
        stock-based awards of comparable value issued by Tronox. Retirement-eligible
        Tronox employees fully vested in their Kerr-McGee stock options, restricted
        stock and stock opportunity grants on the Distribution date. The company
        evaluated this forfeiture and replacement of stock-based awards as a
        modification of awards (as defined by FAS No. 123R). Under the provisions
        of FAS
        No. 123R, if the fair value of the modified awards is less than their fair
        value
        immediately prior to the modification, then the initial grant-date fair value
        of
        the originally issued awards should be recognized in earnings. Refer to Note
        1
        for additional information on the change in the accounting policy for
        stock-based awards.
 The
        following
        weighted average assumptions were used with the Black-Scholes option-pricing
        model to evaluate the fair value of the Tronox stock option awards exchanged
        immediately after the modification:
 **March
                  30, 2006**Risk-free
                  interest rate
              
              
              4.6
              %Expected
                  dividend yield
              
              
              1.5
              %Expected
                  volatility
              
              
              34.5
              %Expected
                  term (years)
              
              
              6.3Weighted-average
                  estimated fair value of options converted
              
              $
              9.61Stock
                  fair value on the date of modification
              
              $
              17.47Estimated
                  fair value of the options as a % of the stock fair value on the
                  date of
                  modification
              
              
              55.0
              %
 
 11
 Based
        on
        the analysis and assumptions above, the company determined that the
        modifications did not increase the fair value of the converted stock options.
        Therefore, there was no incremental effect on compensation cost recognized
        in
        the first quarter of 2006, and no incremental effect is expected on cost
        recognition in future periods. The analysis for the other equity awards was
        based on the company’s Class A common stock fair value on the date of
        modification listed above and the number of units resulting from the conversion.
        This analysis also revealed that the modification did not increase the fair
        value of the converted equity awards, thus, there was no incremental effect
        on
        compensation cost recognized in the first quarter of 2006. The conversion
        of
        Kerr-McGee performance units to Tronox equity awards represented a
        liability-to-equity award modification and resulted in an insignificant amount
        of incremental compensation expense in the first quarter of 2006 in accordance
        with the newly adopted accounting standard.
 
 ***Compensation
        Expense*** - The
        following summarizes total stock-based compensation expense recognized in
        income
        from continuing operations for the three and six months ended June 30, 2006
        and
        2005. Stock-based compensation expense recognized in 2006 is based on the
        fair
        value of the awards, while in 2005 it reflected the intrinsic value of the
        awards, if any, according to the provisions of APB No. 25.
 **Three
                    Months Ended**
                  **June
                    30,**
                
                **Six
                    Months****Ended**
                  **June
                    30,****2006**
                
                **2005**
                
                **2006**
                
                **2005****(Millions
                    of dollars)***Expense
                    resulting from awards issued originally by Tronox:*Stock
                    options
                
                $
                0.2
                
                $
                —
                
                $
                0.3
                
                $
                —Restricted
                    stock
                
                
                0.3
                
                
                —
                
                
                0.7
                
                
                —*Expense
                    resulting from awards issued originally by
                    Kerr-McGee:*Stock
                    options
                
                
                0.3
                
                
                —
                
                
                1.5
                
                
                —Restricted
                    stock and stock opportunity grants
                
                
                0.7
                
                
                0.4
                
                
                3.0
                
                
                1.3Total
                    stock-based compensation expense, pretax
                
                
                1.5
                
                
                0.4
                
                
                5.5
                
                
                1.3Income
                    tax benefit
                
                
                (0.5
                )
                
                (0.1
                )
                
                (1.4
                )
                
                (0.4
                )Total
                    stock-based compensation expense, net of taxes
                
                $
                1.0
                
                $
                0.3
                
                $
                4.1
                
                $
                0.9
 Primarily
          as a result of implementing FAS No. 123R for the conversion of Kerr-McGee
          awards, the company's income before income taxes and net income for the
          six
          months ended June 30, 2006, were $3.1 million and $2.5 million lower,
          respectively, than if the company had continued to account for stock-based
          compensation under APB No. 25. Accordingly, the respective basic and diluted
          per
          share amounts were $0.08 and $0.06 lower. Compensation expense related
          to Tronox
          stock-based awards was not significantly impacted by the adoption of the
          new
          standard.
  The
        following table presents unamortized compensation cost associated with awards
        outstanding at June 30, 2006, and the weighted average period over which
        it is
        expected to be recognized (before considering the associated income tax
        benefit). Compensation cost ultimately recognized may differ from amounts
        presented below due to new awards, if any, and changes in the estimate of
        forfeitures.
 **Unamortized
                  Cost (Pretax)**
              
              **Remaining
                  period****(Millions
                  of dollars)**
              
              **(Years)**Stock
                  options issued by Tronox Incorporated
              
              $
              1.2
              
              
              2.4Restricted
                  stock issued by Tronox Incorporated
              
              
              3.4
              
              
              2.4Stock
                  options converted from Kerr-McGee awards
              
              
              2.0
              
              
              1.4Restricted
                  stock and stock opportunity grants converted from Kerr-McGee
                  awards
              
              
              2.9
              
              
              1.3$
              9.5
  12
  ***Stock
        Options*** - The
        following table presents a summary of activity for Tronox options for the
        six
        months ended June 30, 2006:
 **Intrinsic****Number
                  of**
              
              
              
              **Contractual**
              
              **Value****Options**
              
              **Price******(1)
              
              **Life
                  (years)****(1)**
              
              **(Millions)****(2)**Options
                  outstanding at December 31, 2005
              
              
              345,700
              
              $
              14.00Options
                  awarded (including those converted from Kerr-McGee awards)
              
              
              923,766
              
              
              9.63Options
                  forfeited
              
              
              (24,711
              )
              
              10.71Options
                  outstanding at June 30, 2006
              
              
              1,244,755
              
              $
              10.83
              
              
              8.6
              
              $
              2.6Options
                  expected to vest
              
              
              1,215,184
              
              $
              10.79
              
              
              8.6
              
              $
              2.6Options
                  exercisable at June 30, 2006
              
              
              350
 
 (1)
            Represents
                weighted average exercise price and weighted average remaining contractual
                life, as applicable.  (2)
            Reflects
                aggregate intrinsic value based on the difference between the market
                price
                of Tronox stock at June 30, 2006, and the options' exercise
                price. 
 *Valuation and cost attribution methods.* Options’
        fair value is determined on the date of grant using the Black-Scholes
        option-pricing model and is recognized in earnings (net of expected forfeitures)
        on a straight-line basis over the employee service period necessary to earn
        the
        awards, which is generally the vesting period. However, compensation cost
        associated with employees whose retention of the options is not contingent
        on
        providing future service is recognized immediately upon grant.
  *Tronox
        Stock Option valuation.* 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
                  term (years)
              
              
              6.3Per-unit
                  fair value of options granted
              
              $
              5.01
 
 Expected
        Volatility ** -
        In
        setting the volatility assumption, the company considers both the implied
        volatility of the traded options of peer group companies and historical
        volatility of peer group company stock prices over the same contractual term
        as
        the options.
 
 Expected
        Term ** -
        The
        expected term represents a weighted average of the expected terms of three
        groups of plan participants: 1) participants eligible to retire at the
        measurement date, 2) participants eligible to retire one year after the
        measurement date, and 3) participants not eligible to retire one year after
        the
        measurement date.
 
 *Kerr-McGee
        Stock Option valuation.* The
        following table presents inputs and assumptions used by Kerr-McGee to estimate
        the fair value of stock options granted to Tronox employees in 2005 and 2004.
        Prior to January 1, 2006, Kerr-McGee utilized the Black-Scholes option-pricing
        model to estimate fair value of stock option awards.
 
 **2005**
              
              **2004**Risk-free
                  interest rate
              
              
              3.9
              %
              
              3.5
              %Expected
                  dividend yield
              
              
              3.5
              %
              
              3.6
              %Expected
                  volatility
              
              
              26.4
              %
              
              22.6
              %Expected
                  term (years)
              
              
              6.0
              
              
              5.8Weighted-average
                  estimate of fair value of options converted
              
              $
              20.96
              
              $
              8.63
 
  13
  ***Restricted
        Stock and Stock Opportunity Grants*** - The
        following table summarizes information about restricted stock and stock
        opportunity grant activity during the first six months of 2006:
 **Number
                  of**
              
              **Fair****Shares**
              
              **Value****(1)**Balance
                  at December 31, 2005
              
              
              321,790
              
              $
              13.77Awards
                  issued (including those converted from Kerr-McGeeawards)
              
              
              636,205
              
              
              12.98Awards
                  forfeited
              
              
              (16,339
              )
              
              13.70Awards
                  lapsed (due to retirements)
              
              
              (3,236
              )
              
              11.74Balance
                  at June 30, 2006
              
              
              938,420
              
              $
              13.24Awards
                  expected to vest
              
              
              912,168
              
              $
              13.23Vested
                  at June 30, 2006
              
              
              —
 
 (1)
            Represents
                the weighted-average grant-date fair
                value.  *Valuation
        and
        cost attribution method.* Grant-date
        fair value of restricted stock and stock opportunity grants is determined
        by
        reference to market quotes for the company’s common stock. Compensation cost is
        recognized in earnings (net of expected forfeitures) on a straight-line basis
        over the employee service period necessary to earn the awards, which is
        generally the vesting period. However, compensation cost associated with
        employees whose retention of stock awards is not contingent on providing
        future
        service is recognized immediately upon grant.
 
 **11.
        Employee Benefit Plans**
 
 ***Overview*** - The
        company has noncontributory defined-benefit retirement plans in the U.S.
        and
        Germany, a contributory defined-benefit retirement plan in the Netherlands
        and
        company-sponsored contributory postretirement plans for health care and life
        insurance in the U.S. Most employees are covered under the company’s retirement
        plans, and substantially all U.S. employees may become eligible for
        postretirement benefits if they reach retirement age while working for the
        company. As discussed below, the company’s U.S. plans were established at the
        Distribution date, according to the employee benefits agreement between
        Kerr-McGee and Tronox.
 
 ***Establishment
        of U.S. Plans*** -
        Effective with the Distribution at March 30, 2006, the company established
        a
        U.S. qualified defined-benefit plan (funded), a U.S. supplemental nonqualified
        benefit plan (unfunded) and a U.S. postretirement plan (unfunded). Benefits
        under the qualified plan are generally based on years of service and final
        average pay. The supplemental nonqualified benefit plan is designed to maintain
        benefits for all employees at the plan formula level.
 
 The
        establishment of the U.S. plans resulted in a transfer of certain assets
        to the
        company and an assumption of obligations associated with current and former
        employees participating in such newly established plans. According to the
        employee benefits agreement between Kerr-McGee and Tronox, $450.3 million
        in
        qualified plan assets was transferred to Tronox’s newly established trust.
        Although not considered plan assets, certain nonqualified benefit payments
        will
        be paid from a newly established Grantor Trust. Assets in the amount of $4.4
        million were transferred, in the second quarter of 2006, from the Kerr-McGee
        Grantor Trust account to the Tronox Grantor Trust account.
 
  14
  The
        following table presents U.S. obligations and assets assumed by Tronox effective
        March 30, 2006, based on actuarial analyses, as well as the funded status,
        unrecognized items and the resulting prepaid or accrued benefit
        cost.
 
 **Effective
                  March 30, 2006****U.S.
                  Retirement Plans**
              
              **U.S.
                  Postretirement Plans****(Millions
                  of dollars)**Accumulated
                  benefit obligation
              
              $
              (381.8
              )
              $
              (144.2
              )Projected
                  benefit obligation
              
              $
              (410.9
              )
              $
              (144.2
              )Fair
                  value of plan assets
              
              
              450.3
              
              
              —Funded
                  status - over (under)
              
              
              39.4
              
              
              (144.2
              )Unrecognized
                  prior service cost (credit)
              
              
              16.9
              
              
              (5.7
              )Unrecognized
                  actuarial loss
              
              
              59.2
              
              
              35.0Prepaid/(accrued)
                  benefit cost
              
              $
              115.5
              
              $
              (114.9
              )
 
 The
        actuarial present values of the benefit obligations presented above are based
        on
        a discount rate assumption and a rate of compensation increases assumption
        developed by management. The company selected a discount rate of 6% for its
        U.S.
        plans based on the results of a cash flow matching analysis which used the
        March
        31, 2006 Citigroup Pension Discount Curve and an assumption rate of compensation
        increases of 3.5% based on the company’s long-term plans for compensation
        increases and expected economic conditions, including the effects of merit
        increases, promotions and general inflation. The company also selected an
        estimated long-term rate of return assumption as of March 31, 2006, of 8%
        to be
        used in the determination of net periodic cost for the period from April
        1,
        2006, through December 31, 2006. This rate was developed after reviewing
        both a
        capital asset pricing model using historical data and a forecasted earnings
        model.
 
 ***Retirement
        Expense*** - Prior
        to the Distribution and the establishment of the company’s U.S. plans,
        Kerr-McGee allocated costs associated with employees covered by its U.S.
        plans
        based on salary for defined-benefit pension plans and based on active headcount
        for health and welfare postretirement plans. The tables below present this
        allocated cost, as well as net periodic (benefit) cost associated with the
        U.S.
        and foreign retirement plans sponsored by the company for the three-month
        and
        six-month periods ending June 30, 2006 and 2005:
 
 **Retirement
                  Plans**
              
              **Postretirement
                  Plans****Three
                  Months Ended June 30,****2006**
              
              **2005****(1)**
              
              **2006**
              
              **2005****(1)****(Millions
                  of dollars)**Net
                  periodic cost -Service
                  cost
              
              $
              2.5
              
              $
              0.4
              
              $
              0.4
              
              $
              —Interest
                  cost
              
              
              6.8
              
              
              0.8
              
              
              2.1
              
              
              —Expected
                  return on plan assets
              
              
              (9.6
              )
              
              (0.6
              )
              
              —
              
              
              —Net
                  amortization -Prior
                  service cost
              
              
              0.7
              
              
              (0.1
              )
              
              (0.3
              )
              
              —Net
                  actuarial (gain) loss
              
              
              0.4
              
              
              0.2
              
              
              0.4
              
              
              —Sub-total
                  net periodic cost
              
              
              0.8
              
              
              0.7
              
              
              2.6
              
              
              —Allocated
                  benefit plan expense (credit) from Kerr-McGee
              
              
              —
              
              
              (0.1
              )
              
              —
              
              
              1.7Total
                  retirement expense
              
              $
              0.8
              
              $
              0.6
              
              $
              2.6
              
              $
              1.7
 
 (1)
              Includes
                  costs associated with active and inactive employees of the company’s
                  domestic chemical business and does not include costs associated
                  with
                  Kerr-McGee corporate employees that became employees of Tronox
                  after the
                  IPO.
  15
  
 **Retirement
                  Plans**
              
              **Postretirement
                  Plans****Six
                  Months Ended June 30,****2006**
              
              **2005****(1)**
              
              **2006**
              
              **2005****(1)****(Millions
                  of dollars)**Net
                  periodic cost -Service
                  cost
              
              $
              3.1
              
              $
              0.9
              
              $
              0.4
              
              $
              —Interest
                  cost
              
              
              7.6
              
              
              1.6
              
              
              2.1
              
              
              —Expected
                  return on plan assets
              
              
              (10.4
              )
              
              (1.3
              )
              
              —
              
              
              —Net
                  amortization -Prior
                  service cost
              
              
              0.7
              
              
              (0.1
              )
              
              (0.3
              )
              
              —Net
                  actuarial (gain) loss
              
              
              0.6
              
              
              0.4
              
              
              0.4
              
              
              —Sub-total
                  net periodic cost
              
              
              1.6
              
              
              1.5
              
              
              2.6
              
              
              —Allocated
                  benefit plan expense (credit) from Kerr-McGee
              
              
              0.7
              
              
              (0.2
              )
              
              2.6
              
              
              3.4Total
                  retirement expense
              
              $
              2.3
              
              $
              1.3
              
              $
              5.2
              
              $
              3.4
 
 (1)
              
              Includes
                  costs associated with active and inactive employees of the company’s
                  domestic chemical business and does not include costs associated
                  with
                  Kerr-McGee corporate employees that became employees of Tronox
                  after the
                  IPO.
 
 **12.
        Commitments and Contractual Agreements**
 
 At
        June
        30, 2006, the company had outstanding letters of credit of approximately
        $65.3
        million. These letters of credit have been granted to us by financial
        institutions to support our environmental cleanup costs and miscellaneous
        operational and severance requirements in international locations.
 
 Tronox
        Western Australia Pty Ltd, a wholly-owned subsidiary of the company, entered
        into an agreement to purchase a 50% undivided interest in mining tenements
        and
        related mining assets. The agreement was nonbinding at June 30, 2006, pending
        governmental approval. The final approval was received on July 12, 2006.
        The
        tenements provide additional heavy mineral resources to be processed by our
        joint venture, Tiwest Joint Venture, and provide feedstock for our pigment
        operations. The company will record noncash capital additions during the
        third
        quarter of 2006 of approximately $9.4 million and debt of $9.4 million. The
        debt
        requires scheduled payments through 2014, including $1.1 million in 2006,
        with
        an early payment option commencing at the end of 2007.
 
 **13.
        Contingencies**
 
 The
        following table summarizes the contingency reserve balances, provisions,
        payments and settlements for the six months ended June 30, 2006, as well
        as
        balances, accruals and receipts of reimbursements of environmental costs
        from
        other parties.
 
 **Reserves
                  for**
                **Litigation**
              
              **Reserves
                  for**
                **Environmental**
                **Remediation****(1)**
              
              **Reimbursements**
                **Receivable****(1)****(Millions
                  of dollars)**Balance
                  at December 31, 2005
              
              $
              9.2
              
              $
              223.7
              
              $
              56.7Provisions
                  / Accruals
              
              
              3.7
              
              
              15.0
              
              
              25.3Payments
                  / Settlements
              
              
              (1.5
              )
              
              (17.7
              )
              
              (35.1
              )Balance
                  at June 30, 2006
              
              $
              11.4
              
              $
              221.0
              
              $
              46.9
 
 (1)
              Provisions
                  for environmental remediation and restoration include $14.3 million
                  related to the company’s former forest products operations, thorium
                  compounds manufacturing, uranium and refining operations. Accrual
                  of
                  reimbursements receivable includes $4.2 million related to the
                  company’s
                  former thorium compounds manufacturing. These amounts are reflected
                  in the
                  Condensed Consolidated and Combined Statement of Operations as
                  a component
                  of loss from discontinued operations (net of
                  tax).
 
  16
  Management
        believes, after consultation with its internal legal counsel, that the company
        is currently reserved adequately for the probable and 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. 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 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.
 
 17
 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. A separate
        agreement reached in 1996 with the NDEP also requires Tronox LLC to test
        for
        various potential contaminants at the site, which is ongoing and is expected
        to
        be completed within the next 12 months. Results of testing may lead to further
        site characterization and remediation, the costs of which, if any, are not
        currently included in the financial reserves discussed below.
 
 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
        June 30, 2006, reserves for environmental remediation at Henderson totaled
        $34.2 million. 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.
        In
        February 2006, under the consent decree, the United States paid Tronox LLC
        $20.5
        million in contribution for past costs. 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.
 
 ***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.
 
  18
  At
        June
        30, 2006, the company had received $7.8 million of cost reimbursement under
        the
        insurance policy, and expects additional estimated aggregate cleanup cost
        of
        $91.1 million less the $61.3 million self-insured retention to be covered
        by the
        policy (for a net amount of $29.8 million in additional reimbursement). The
        company believes that additional reimbursement of approximately $29.8 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 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
        three
        of the areas (known as the Residential Areas, Reed-Keppler Park and the Sewage
        Treatment Plant). The other NPL site, known as Kress Creek, is contiguous
        and
        involves 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
        June 30, 2006, the company had reserves of $93.7 million for costs related
        to
        the West Chicago facility and vicinity properties. During the quarter ended
        June
        30, 2006, the company recorded an increase of $12.0 million to the reserve
        for
        Kress Creek due to a cost increase implemented by the commercially licensed
        disposal facility. The increase is effective at the end of the current contract
        which expires December 2007. 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 June 30, 2006, the company had
        been
        reimbursed approximately $292.7 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 June 30, 2006, the government’s share of costs incurred by the company but
        not yet reimbursed by the DOE totaled approximately $16.8 million, which
        includes $3.4 million accrued in 2006. The company received $12.0 million
        from
        the government in April 2006 and believes that receipt of the remaining
        $16.8 million 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.
 
 19
 **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
        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 one to two years to complete. The state
        of
        New Mexico had raised issues about certain non-radiological constituents
        in the
        groundwater at the site. A request to cease groundwater treatment, that included
        the non-radiological constituents, was approved by the NRC in February 2006.
        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
        June 30, 2006, the company had reserves of $10.9 million for the costs of
        the
        remediation activities described above, including groundwater remediation.
        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. Though the company and Rio
        Algom
        tentatively agreed to submit the matter to arbitration, an arbitration agreement
        was not reached and the suit is now in the discovery stage. 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 the 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. It is
        anticipated that the company will submit a plan to the NRC and the ODEQ later
        in
        2006 for the remediation of the remaining groundwater issues following
        completion of the evaluation. The results of the evaluation may result in
        additional remediation efforts required, the costs of which, if any, are
        not
        currently included in the financial reserves discussed below.
 
 ***Financial
        Reserves*** - As of
        June 30, 2006, the company had reserves of $5.8 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.
 
  20
  **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
        June 30, 2006, the company had reserves of $3.4 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
        June 30, 2006, 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 Little
        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.
 
 21
 ***Financial
        Reserves*** - As of
        June 30, 2006, the company had reserves of $4.0 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 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. Tronox LLC intends
        to
        vigorously defend against EPA’s demand. However, Tronox LLC and EPA have agreed
        to submit the matter to nonbinding mediation 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
        June 30, 2006, the company had reserves of approximately $8.1 million for
        the remediation activities, including those currently under evaluation,
        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.
 
 **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
        June 30, 2006, the company had reserves of approximately $2.6 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.
 
 22
 **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 2006, ODEQ approved
        the remedial design for soil and waste, which includes construction of an
        on-site disposal cell. A feasibility study of surface and groundwater remedial
        measures is under ODEQ review. Duration of remedial activities currently
        cannot
        be estimated.
 
 ***Financial
        Reserves*** - As of
        June 30, 2006, the company had reserves of approximately $4.1 million for
        the
        remediation activities described above, including the remedial measures
        recommended in the feasibility study currently under review. 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 are 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. The NRC terminated the site
        license
        in May 2006.
  ***Financial
        Reserves*** - As of
        June 30, 2006, the company had reserves of $11.1 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. Soil and
        groundwater remediation is ongoing under a Corrective Action Plan approved
        by
        the Louisiana Department of Environmental Quality. Remediation is estimated
        to
        take about three years pending results of a Risk Evaluation being conducted
        as
        part of the approved plan.
 
 ***Financial
        Reserves*** - As of
        June 30, 2006, the company had reserves of $4.1 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.
     23
   **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 late 2006
        and
        that it will recommend soil remediation and excavation at the site as well
        as
        site capping.
   ***Financial
        Reserves*** - As of June
        30,
        2006 ,
        the
        company had reserves of $5.6 million to complete the feasibility study and
        to
        conduct the cleanup and remediation activities the company expects to recommend
        to EPA. 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 June 30, 2006, the company had
        reserves of $30.7 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 (which recites that it binds successors), Kerr-McGee 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. At June
        30,
        2006 ,
        the
        company had a receivable of $0.2 million from Kerr-McGee for remediation
        costs
        incurred in excess of established reserves.
   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 .
   24
  **Litigation
        and Claims**
 
 **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 $13.0 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. On June 30, 2006, the Court ruled on
        the
        parties’ motions for summary judgment. It granted in part and denied in part the
        motion of each, ordered the parties to meet and confer regarding any remaining
        open issues and report back to the court. The company and plaintiff then
        undertook settlement discussions that resulted in an oral settlement agreement.
        The company currently expects a written settlement agreement will soon be
        entered.
 
 ***Financial
        Reserves*** - As of
        June 30, 2006, the company had reserves of $3.7 million related to the
        plaintiff’s claims. Although costs associated with the resolution of the claims
        may ultimately differ, the amount of any difference is not expected 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 defendant has moved to dismiss
        the company’s suit and has also filed a countersuit in the circuit court for
        Jefferson County, Alabama, against the company and third parties seeking
        property damages, injunctive relief and costs. 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 June 2006, over 400 plaintiffs were involuntarily
        dismissed. 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
        February 23, 2005, three lawsuits (filed on behalf of 64 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. However,
        in December 2005, five plaintiffs (two of whom were in the dismissed Oklahoma
        case) filed a new lawsuit in a Texas federal court, and in July 2006, five
        plaintiffs (three of whom were in the dismissed Oklahoma cases) filed a new
        suit
        in Texas. 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.
   25
 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
        required 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 basis 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 June
        30,
        2006 ,
        the
        company had reserves of $7.2 million related to forest products litigation.
        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 and a hearing
        related to this was held in late May 2006. A decision from the tribunal is
        expected in the second half of the year. 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 also are 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.
 
  26
  **14.
        Business Segments**
 
 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 via our joint venture arrangement. The heavy minerals production
        is
        integrated with our Australian pigment plant, but also has sales to third
        parties. The 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, 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.
 
 **Three
                  Months Ended**
                **June 30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(Millions
                  of dollars)****Net
                  sales**Pigment
              
              $
              349.0
              
              $
              331.4
              
              $
              658.0
              
              $
              642.2Electrolytic
                  and other chemical products
              
              
              23.9
              
              
              24.5
              
              
              51.1
              
              
              47.9Total
              
              $
              372.9
              
              $
              355.9
              
              $
              709.1
              
              $
              690.1**Operating
                  profit**Pigment
              
              $
              10.2
              
              $
              33.5
              
              $
              35.9
              
              $
              65.2Electrolytic
                  and other chemical products(1)
              
              
              1.3
              
              
              1.9
              
              
              23.1
              
              
              (6.8
              )11.5
              
              
              35.4
              
              
              59.0
              
              
              58.4Corporate
                  and nonoperating sites(2)
              
              
              (6.0
              )
              
              (0.6
              )
              
              (8.5
              )
              
              (0.8
              )Provision
                  for environmental remediation and restoration(3)
              
              
              —
              
              
              (5.6
              )
              
              —
              
              
              (5.6
              )Total
                  operating profit
              
              
              5.5
              
              
              29.2
              
              
              50.5
              
              
              52.0Interest
                  and debt expense - third parties
              
              
              (12.3
              )
              
              —
              
              
              (24.3
              )
              
              —Other
                  income (expense)
              
              
              5.3
              
              
              (10.2
              )
              
              9.7
              
              
              (15.2
              )Income
                  tax provision
              
              
              (4.2
              )
              
              (10.7
              )
              
              (18.0
              )
              
              (16.1
              )Income
                  (loss) from continuing operations
              
              $
              (5.7
              )
              $
              8.3
              
              $
              17.9
              
              $
              20.7
 
 (1)
              Includes
                  $0.1 million and nil for the three months ended June 30, 2006 and
                  2005 and
                  $(20.4) million and $11.0 million for the six month ended June
                  30, 2006
                  and 2005, respectively, of environmental charges, net of reimbursements,
                  related to ammonium perchlorate at the company’s Henderson facility.
 
 (2)
              Includes
                  general corporate expenses not identified to a specific segment
                  and
                  general expenses 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
                  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.
 
 
  27
  **15.
        Condensed Consolidating and Combining Financial Information**
 
 The
        senior unsecured notes, issued jointly by Tronox Worldwide LLC and Tronox
        Finance Corp., with an aggregate principal amount of $350.0 million have
        been
        fully and unconditionally guaranteed by Tronox Incorporated and all of its
        material wholly-owned domestic subsidiaries. As a result of these guarantee
        arrangements, the company is required to present condensed consolidating
        and
        combining financial information.
 
 The
        following tables for the periods ended June 30, 2006, and December 31, 2005,
        present condensed consolidating and combining financial information for (a)
        Tronox Incorporated, the parent company and also one of the guarantors, (b)
        the
        Issuers, Tronox Worldwide LLC and Tronox Finance Corp., (c) the guarantor
        subsidiaries and (d) the nonguarantor subsidiaries.
 
 Tronox
        Incorporated and Tronox Finance Corp. were formed subsequent to June 30,
        2005.
        Therefore, condensed consolidating and combining financial information for
        the
        period ended June 30, 2005, present condensed consolidating and combining
        financial information for (a) the Issuer, Tronox Worldwide LLC, (b) the
        guarantor subsidiaries and (c) the nonguarantor subsidiaries.
  Other
        income (expense) in the Condensed Consolidating and Combining Statement of
        Operations for all periods presented includes equity interest in income (loss)
        of subsidiaries.
  28
  **Condensed
        Consolidating Statement of Operations**
 **Three
        Months Ended June 30, 2006**
 
 **Tronox
                  Incorporated**
              
              **Issuers**
              
              **Guarantor
                  Subsidiaries**
              
              **Non-Guarantor
                  Subsidiaries**
              
              **Eliminations**
              
              **Consolidated****(Millions
                  of dollars)****Net
                  sales**
              
              $
              —
              
              $
              —
              
              $
              214.3
              
              $
              196.7
              
              $
              (38.1
              )
              $
              372.9Cost
                  of goods sold
              
              
              —
              
              
              —
              
              
              191.3
              
              
              186.2
              
              
              (35.6
              )
              
              341.9**Gross
                  margin**
              
              
              —
              
              
              —
              
              
              23.0
              
              
              10.5
              
              
              (2.5
              )
              
              31.0Selling,
                  general and administrative expenses
              
              
              0.8
              
              
              0.1
              
              
              14.7
              
              
              10.9
              
              
              (1.0
              )
              
              25.5Provision
                  for environmental remediation and restoration, net of
                  reimbursements
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —(0.8
              )
              
              (0.1
              )
              
              8.3
              
              
              (0.4
              )
              
              (1.5
              )
              
              5.5Interest
                  and debt expense - third parties
              
              
              —
              
              
              (13.0
              )
              
              0.4
              
              
              0.3
              
              
              —
              
              
              (12.3
              )Other
                  income (expense)
              
              
              (13.7
              )
              
              (2.1
              )
              
              (2.1
              )
              
              2.1
              
              
              21.1
              
              
              5.3**Income
                  (Loss) from Continuing Operations before Income
                  Taxes**
              
              
              (14.5
              )
              
              (15.2
              )
              
              6.6
              
              
              2.0
              
              
              19.6
              
              
              (1.5
              )Income
                  Tax Benefit (Provision)
              
              
              0.1
              
              
              1.7
              
              
              (1.1
              )
              
              (4.9
              )
              
              —
              
              
              (4.2
              )**Income
                  (Loss) from Continuing Operations**
              
              
              (14.4
              )
              
              (13.5
              )
              
              5.5
              
              
              (2.9
              )
              
              19.6
              
              
              (5.7
              )Loss
                  from Discontinued Operations, net of taxes
              
              
              —
              
              
              (0.2
              )
              
              (8.5
              )
              
              —
              
              
              —
              
              
              (8.7
              )**Net
                  Income (Loss)**
              
              $
              (14.4
              )
              $
              (13.7
              )
              $
              (3.0
              )
              $
              (2.9
              )
              $
              19.6
              
              $
              (14.4
              )
 
 **Condensed
        Combining Statement of Operations**
 **Three
        Months Ended June 30, 2005**
 
 **Issuer**
              
              **Guarantor
                  Subsidiaries**
              
              **Non-Guarantor
                  Subsidiaries**
              
              **Eliminations**
              
              **Combined****(Millions
                  of dollars)****Net
                  sales**
              
              $
              —
              
              $
              206.3
              
              $
              186.7
              
              $
              (37.1
              )
              $
              355.9Cost
                  of goods sold
              
              
              —
              
              
              156.4
              
              
              169.3
              
              
              (34.1
              )
              
              291.6**Gross
                  margin**
              
              
              —
              
              
              49.9
              
              
              17.4
              
              
              (3.0
              )
              
              64.3Selling,
                  general and administrative expenses
              
              
              0.3
              
              
              13.5
              
              
              17.8
              
              
              (2.3
              )
              
              29.3Provision
                  for environmental remediation and restoration, net of
                  reimbursements
              
              
              —
              
              
              5.8
              
              
              —
              
              
              —
              
              
              5.8(0.3
              )
              
              30.6
              
              
              (0.4
              )
              
              (0.7
              )
              
              29.2Other
                  income (expense)
              
              
              105.9
              
              
              98.2
              
              
              (4.2
              )
              
              (210.1
              )
              
              (10.2
              )**Income
                  (Loss) from Continuing Operations before Income
                  Taxes**
              
              
              105.6
              
              
              128.8
              
              
              (4.6
              )
              
              (210.8
              )
              
              19.0Income
                  Tax Benefit (Provision)
              
              
              (1.0
              )
              
              (13.3
              )
              
              3.6
              
              
              —
              
              
              (10.7
              )**Income
                  (Loss) from Continuing Operations**
              
              
              104.6
              
              
              115.5
              
              
              (1.0
              )
              
              (210.8
              )
              
              8.3Loss
                  from Discontinued Operations, net of taxes
              
              
              (2.4
              )
              
              (9.5
              )
              
              —
              
              
              —
              
              
              (11.9
              )**Net
                  Income (Loss)**
              
              $
              102.2
              
              $
              106.0
              
              $
              (1.0
              )
              $
              (210.8
              )
              $
              (3.6
              )
 
 29
 **Condensed
        Consolidating Statement of Operations**
 **Six
        Months Ended June 30, 2006**
 
 **Tronox
                  Incorporated**
              
              **Issuers**
              
              **Guarantor
                  Subsidiaries**
              
              **Non-Guarantor
                  Subsidiaries**
              
              **Eliminations**
              
              **Consolidated****(Millions
                  of dollars)****Net
                  sales**
              
              $
              —
              
              $
              —
              
              $
              396.2
              
              $
              369.2
              
              $
              (56.3
              )
              $
              709.1Cost
                  of goods sold
              
              
              —
              
              
              —
              
              
              341.4
              
              
              330.0
              
              
              (53.5
              )
              
              617.9**Gross
                  margin**
              
              
              —
              
              
              —
              
              
              54.8
              
              
              39.2
              
              
              (2.8
              )
              
              91.2Selling,
                  general and administrative expenses
              
              
              1.3
              
              
              0.3
              
              
              35.4
              
              
              26.1
              
              
              (1.9
              )
              
              61.2Provision
                  for environmental remediation and restoration, net of
                  reimbursements
              
              
              —
              
              
              —
              
              
              (20.5
              )
              
              —
              
              
              —
              
              
              (20.5
              )(1.3
              )
              
              (0.3
              )
              
              39.9
              
              
              13.1
              
              
              (0.9
              )
              
              50.5Interest
                  and debt expense - third parties
              
              
              —
              
              
              (25.5
              )
              
              0.6
              
              
              0.6
              
              
              —
              
              
              (24.3
              )Other
                  income (expense)
              
              
              7.2
              
              
              29.2
              
              
              1.1
              
              
              5.5
              
              
              (33.3
              )
              
              9.7**Income
                  from Continuing Operations before Income Taxes**
              
              
              5.9
              
              
              3.4
              
              
              41.6
              
              
              19.2
              
              
              (34.2
              )
              
              35.9Income
                  Tax Benefit (Provision)
              
              
              0.3
              
              
              4.1
              
              
              (10.8
              )
              
              (11.6
              )
              
              —
              
              
              (18.0
              )**Income
                  from Continuing Operations**
              
              
              6.2
              
              
              7.5
              
              
              30.8
              
              
              7.6
              
              
              (34.2
              )
              
              17.9Loss
                  from Discontinued Operations, net of taxes
              
              
              —
              
              
              (0.3
              )
              
              (11.4
              )
              
              —
              
              
              —
              
              
              (11.7
              )**Net
                  Income**
              
              $
              6.2
              
              $
              7.2
              
              $
              19.4
              
              $
              7.6
              
              $
              (34.2
              )
              $
              6.2
 
 30
 **Condensed
        Combining Statement of Operations**
 **Six
        Months Ended June 30, 2005**
 
 **Issuer**
              
              **Guarantor
                  Subsidiaries**
              
              **Non-Guarantor
                  Subsidiaries**
              
              **Eliminations**
              
              **Combined****(Millions
                  of dollars)****Net
                  sales**
              
              $
              —
              
              $
              386.5
              
              $
              368.7
              
              $
              (65.1
              )
              $
              690.1Cost
                  of goods sold
              
              
              —
              
              
              301.2
              
              
              323.3
              
              
              (60.6
              )
              
              563.9**Gross
                  margin**
              
              
              —
              
              
              85.3
              
              
              45.4
              
              
              (4.5
              )
              
              126.2Selling,
                  general and administrative expenses
              
              
              0.3
              
              
              27.0
              
              
              34.3
              
              
              (4.1
              )
              
              57.5Provision
                  for environmental remediation and restoration, net of
                  reimbursements
              
              
              —
              
              
              16.7
              
              
              —
              
              
              —
              
              
              16.7(0.3
              )
              
              41.6
              
              
              11.1
              
              
              (0.4
              )
              
              52.0Other
                  income (expense)
              
              
              108.9
              
              
              100.5
              
              
              (3.4
              )
              
              (221.2
              )
              
              (15.2
              )**Income
                  from Continuing Operations before Income Taxes**
              
              
              108.6
              
              
              142.1
              
              
              7.7
              
              
              (221.6
              )
              
              36.8Income
                  Tax Benefit (Provision)
              
              
              (0.8
              )
              
              (15.8
              )
              
              0.5
              
              
              —
              
              
              (16.1
              )**Income
                  from Continuing Operations**
              
              
              107.8
              
              
              126.3
              
              
              8.2
              
              
              (221.6
              )
              
              20.7Loss
                  from Discontinued Operations, net of taxes
              
              
              (3.3
              )
              
              (17.0
              )
              
              —
              
              
              —
              
              
              (20.3
              )**Net
                  Income**
              
              $
              104.5
              
              $
              109.3
              
              $
              8.2
              
              $
              (221.6
              )
              $
              0.4
 
  31
  **Condensed
        Consolidating Balance Sheet as of June 30, 2006**
 
 **Tronox
                  Incorporated**
              
              **Issuers**
              
              **Guarantor
                  Subsidiaries**
              
              **Non-Guarantor
                  Subsidiaries**
              
              **Eliminations**
              
              **Consolidated****(Millions
                  of dollars)****ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              —
              
              $
              —
              
              $
              7.0
              
              $
              18.9
              
              $
              —
              
              $
              25.9Intercompany
                  receivables
              
              
              —
              
              
              —
              
              
              26.8
              
              
              13.0
              
              
              (39.8
              )
              
              —Accounts
                  receivable, net of allowance for doubtful accounts
              
              
              —
              
              
              0.4
              
              
              172.2
              
              
              178.8
              
              
              —
              
              
              351.4Inventories
              
              
              —
              
              
              —
              
              
              200.3
              
              
              135.0
              
              
              (2.0
              )
              
              333.3Prepaid
                  and other assets
              
              
              0.5
              
              
              0.4
              
              
              9.8
              
              
              15.0
              
              
              —
              
              
              25.7Income
                  tax receivable
              
              
              —
              
              
              —
              
              
              5.0
              
              
              1.6
              
              
              —
              
              
              6.6Deferred
                  income taxes
              
              
              0.2
              
              
              19.9
              
              
              31.7
              
              
              3.0
              
              
              (16.7
              )
              
              38.1**Total
                  Current Assets**
              
              
              0.7
              
              
              20.7
              
              
              452.8
              
              
              365.3
              
              
              (58.5
              )
              
              781.0**Property,
                  Plant and Equipment—Net**
              
              
              —
              
              
              9.9
              
              
              459.5
              
              
              389.8
              
              
              —
              
              
              859.2**Investments
                  in Subsidiaries**
              
              
              2,194.5
              
              
              976.0
              
              
              174.5
              
              
              —
              
              
              (3,345.0
              )
              
              —**Long-Term
                  Receivables, Investments and**
                **Other Assets**
              
              
              123.1
              
              
              12.6
              
              
              51.6
              
              
              12.2
              
              
              —
              
              
              199.5**Goodwill
                  and Other Intangible Assets**
              
              
              —
              
              
              —
              
              
              28.2
              
              
              34.8
              
              
              —
              
              
              63.0**Total
                  Assets**
              
              $
              2,318.3
              
              $
              1,019.2
              
              $
              1,166.6
              
              $
              802.1
              
              $
              (3,403.5
              )
              $
              1,902.7**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  Liabilities**Intercompany
                  borrowings
              
              $
              535.5
              
              $
              —
              
              $
              115.0
              
              $
              214.2
              
              $
              (864.7
              )
              $
              —Accounts
                  payable
              
              
              —
              
              
              1.5
              
              
              77.6
              
              
              114.7
              
              
              —
              
              
              193.8Long-term
                  debt due within one year
              
              
              —
              
              
              2.0
              
              
              —
              
              
              —
              
              
              —
              
              
              2.0Income
                  taxes payable
              
              
              —
              
              
              —
              
              
              7.4
              
              
              0.1
              
              
              —
              
              
              7.5Accrued
                  liabilities and other
              
              
              12.6
              
              
              15.6
              
              
              100.3
              
              
              29.0
              
              
              —
              
              
              157.5**Total
                  Current Liabilities**
              
              
              548.1
              
              
              19.1
              
              
              300.3
              
              
              358.0
              
              
              (864.7
              )
              
              360.8**Noncurrent
                  Liabilities**Deferred
                  income taxes
              
              
              —
              
              
              —
              
              
              64.2
              
              
              38.7
              
              
              (16.7
              )
              
              86.2Environmental
                  remediation and/or restoration
              
              
              —
              
              
              4.9
              
              
              135.1
              
              
              —
              
              
              —
              
              
              140.0Long-term
                  debt
              
              
              —
              
              
              547.0
              
              
              —
              
              
              —
              
              
              —
              
              
              547.0Other
              
              
              110.5
              
              
              10.5
              
              
              56.6
              
              
              67.8
              
              
              0.2
              
              
              245.6**Total
                  Noncurrent Liabilities**
              
              
              110.5
              
              
              562.4
              
              
              255.9
              
              
              106.5
              
              
              (16.5
              )
              
              1,018.8**Total
                  Stockholders’ Equity**
              
              
              1,659.7
              
              
              437.7
              
              
              610.4
              
              
              337.6
              
              
              (2,522.3
              )
              
              523.1**Total
                  Liabilities and Stockholders’ Equity**
              
              $
              2,318.3
              
              $
              1,019.2
              
              $
              1,166.6
              
              $
              802.1
              
              $
              (3,403.5
              )
              $
              1,902.7
 
  32
  **Condensed
        Consolidating Balance Sheet as of December 31, 2005**
 
 **Tronox
                  Incorporated**
              
              **Issuers**
              
              **Guarantor
                  Subsidiaries**
              
              **Non-Guarantor
                  Subsidiaries**
              
              **Eliminations**
              
              **Consolidated****(Millions
                  of dollars)****ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              —
              
              $
              —
              
              $
              23.8
              
              $
              45.2
              
              $
              —
              
              $
              69.0Intercompany
                  receivables
              
              
              —
              
              
              —
              
              
              53.0
              
              
              11.4
              
              
              (64.4
              )
              
              —Accounts
                  receivable, net of allowance for doubtful accounts
              
              
              0.8
              
              
              —
              
              
              173.9
              
              
              156.9
              
              
              —
              
              
              331.6Inventories
              
              
              —
              
              
              —
              
              
              192.2
              
              
              121.3
              
              
              (1.2
              )
              
              312.3Prepaid
                  and other assets
              
              
              0.8
              
              
              —
              
              
              12.8
              
              
              14.9
              
              
              —
              
              
              28.5Income
                  tax receivable
              
              
              —
              
              
              —
              
              
              —
              
              
              2.4
              
              
              —
              
              
              2.4Deferred
                  income taxes
              
              
              —
              
              
              8.4
              
              
              26.6
              
              
              3.1
              
              
              (2.5
              )
              
              35.6**Total
                  Current Assets**
              
              
              1.6
              
              
              8.4
              
              
              482.3
              
              
              355.2
              
              
              (68.1
              )
              
              779.4**Property,
                  Plant and Equipment—Net**
              
              
              —
              
              
              —
              
              
              475.8
              
              
              363.9
              
              
              —
              
              
              839.7**Investments
                  in Subsidiaries**
              
              
              2,222.4
              
              
              996.8
              
              
              203.5
              
              
              —
              
              
              (3,422.7
              )
              
              —**Long-Term
                  Receivables, Investments and**
                **Other Assets**
              
              
              —
              
              
              13.2
              
              
              53.9
              
              
              11.7
              
              
              —
              
              
              78.8**Goodwill
                  and Other Intangible Assets**
              
              
              —
              
              
              —
              
              
              28.2
              
              
              32.2
              
              
              —
              
              
              60.4**Total
                  Assets**
              
              $
              2,224.0
              
              $
              1,018.4
              
              $
              1,243.7
              
              $
              763.0
              
              $
              (3,490.8
              )
              $
              1,758.3**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  Liabilities**Intercompany
                  borrowings
              
              $
              543.1
              
              $
              —
              
              $
              111.5
              
              $
              214.7
              
              $
              (869.3
              )
              $
              —Accounts
                  payable
              
              
              0.3
              
              
              2.2
              
              
              75.4
              
              
              117.4
              
              
              —
              
              
              195.3Accrued
                  liabilities
              
              
              2.0
              
              
              14.3
              
              
              119.8
              
              
              32.8
              
              
              —
              
              
              168.9Long-term
                  debt due within one year
              
              
              —
              
              
              2.0
              
              
              —
              
              
              —
              
              
              —
              
              
              2.0Income
                  taxes payable
              
              
              2.2
              
              
              —
              
              
              6.3
              
              
              0.3
              
              
              —
              
              
              8.8**Total
                  Current Liabilities**
              
              
              547.6
              
              
              18.5
              
              
              313.0
              
              
              365.2
              
              
              (869.3
              )
              
              375.0**Noncurrent
                  Liabilities**Deferred
                  income taxes
              
              
              0.3
              
              
              —
              
              
              54.2
              
              
              27.0
              
              
              (2.5
              )
              
              79.0Environmental
                  remediation and/or restoration
              
              
              —
              
              
              7.2
              
              
              128.5
              
              
              10.2
              
              
              —
              
              
              145.9Long-term
                  debt
              
              
              —
              
              
              548.0
              
              
              —
              
              
              —
              
              
              —
              
              
              548.0Other
              
              
              —
              
              
              1.2
              
              
              56.4
              
              
              66.1
              
              
              (2.3
              )
              
              121.4**Total
                  Noncurrent Liabilities**
              
              
              0.3
              
              
              556.4
              
              
              239.1
              
              
              103.3
              
              
              (4.8
              )
              
              894.3**Total
                  Stockholders’ Equity**
              
              
              1,676.1
              
              
              443.5
              
              
              691.6
              
              
              294.5
              
              
              (2,616.7
              )
              
              489.0**Total
                  Liabilities and Stockholders’ Equity**
              
              $
              2,224.0
              
              $
              1,018.4
              
              $
              1,243.7
              
              $
              763.0
              
              $
              (3,490.8
              )
              $
              1,758.3
 
   33
  **Condensed
        Consolidating Statement of Cash Flows**
 **Six
        Months Ended June 30, 2006**
 
 **Tronox
                  Incorporated**
              
              **Issuers**
              
              **Guarantor
                  Subsidiaries**
              
              **Non-Guarantor
                  Subsidiaries**
              
              **Eliminations**
              
              **Consolidated****(Millions
                  of dollars)****Cash
                  Flows from Operating Activities**Net
                  income
              
              $
              6.2
              
              $
              7.2
              
              $
              19.4
              
              $
              7.6
              
              $
              (34.2
              )
              $
              6.2Adjustments
                  to reconcile net income to net cash provided by operating activities—Depreciation
                  and amortization
              
              
              —
              
              
              —
              
              
              28.6
              
              
              20.7
              
              
              —
              
              
              49.3Deferred
                  income taxes
              
              
              (0.4
              )
              
              0.4
              
              
              0.4
              
              
              5.2
              
              
              —
              
              
              5.6Equity
                  in earnings of subsidiaries
              
              
              (7.2
              )
              
              (16.2
              )
              
              (9.9
              )
              
              —
              
              
              33.3
              
              
              —Provision
                  for environmental remediation and restoration, net of
                  reimbursements
              
              
              —
              
              
              —
              
              
              (10.3
              )
              
              —
              
              
              —
              
              
              (10.3
              )Other
                  noncash items affecting net income
              
              
              0.1
              
              
              1.3
              
              
              15.3
              
              
              1.8
              
              
              —
              
              
              18.5Changes
                  in assets and liabilities
              
              
              (0.5
              )
              
              (9.6
              )
              
              (23.5
              )
              
              (22.3
              )
              
              —
              
              
              (55.9
              )Net
                  cash provided by (used in) operating activities
              
              
              (1.8
              )
              
              (16.9
              )
              
              20.0
              
              
              13.0
              
              
              (0.9
              )
              
              13.4**Cash
                  Flows from Investing Activities**Capital
                  expenditures
              
              
              —
              
              
              —
              
              
              (19.1
              )
              
              (24.2
              )
              
              —
              
              
              (43.3
              )Other
                  investing activities
              
              
              —
              
              
              —
              
              
              0.5
              
              
              —
              
              
              —
              
              
              0.5Net
                  cash used in investingactivities
              
              
              —
              
              
              —
              
              
              (18.6
              )
              
              (24.2
              )
              
              —
              
              
              (42.8
              )**Cash
                  Flows from Financing Activities**Dividends
                  paid
              
              
              (2.0
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (2.0
              )Net
                  transfers with affiliates
              
              
              3.8
              
              
              20.3
              
              
              (18.2
              )
              
              (6.8
              )
              
              0.9
              
              
              —Decrease
                  in debt
              
              
              —
              
              
              (1.0
              )
              
              —
              
              
              —
              
              
              —
              
              
              (1.0
              )Debt
                  issuance costs
              
              
              —
              
              
              (2.4
              )
              
              —
              
              
              —
              
              
              —
              
              
              (2.4
              )Net cash provided by (usedin)
                  financing activities
              
              
              1.8
              
              
              16.9
              
              
              (18.2
              )
              
              (6.8
              )
              
              0.9
              
              
              (5.4
              )**Effects
                  of Exchange Rate Changes on Cash and Cash
                  Equivalents**
              
              
              —
              
              
              —
              
              
              —
              
              
              (8.3
              )
              
              —
              
              
              (8.3
              )**Net
                  Increase (Decrease) in****Cash
                  and Cash Equivalents**
              
              
              —
              
              
              —
              
              
              (16.8
              )
              
              (26.3
              )
              
              —
              
              
              (43.1
              )**Cash
                  and Cash Equivalents at Beginning of Year**
              
              
              —
              
              
              —
              
              
              23.8
              
              
              45.2
              
              
              —
              
              
              69.0**Cash
                  and Cash Equivalents at End of Year**
              
              $
              —
              
              $
              —
              
              $
              7.0
              
              $
              18.9
              
              $
              —
              
              $
              25.9
 
  34
  **Condensed
        Combining Statement of Cash Flows**
 **Six
        Months Ended June 30, 2005**
 
 **Issuer**
              
              **Guarantor
                  Subsidiaries**
              
              **Non-Guarantor
                  Subsidiaries**
              
              **Eliminations**
              
              **Combined****(Millions
                  of dollars)****Cash
                  Flows from Operating Activities**Net
                  income
              
              $
              104.5
              
              $
              109.3
              
              $
              8.2
              
              $
              (221.6
              )
              $
              0.4Adjustments
                  to reconcile net income to net cash provided by operating activities—Depreciation
                  and amortization
              
              
              —
              
              
              29.1
              
              
              24.5
              
              
              —
              
              
              53.6Deferred
                  income taxes
              
              
              0.7
              
              
              (25.7
              )
              
              (4.3
              )
              
              —
              
              
              (29.3
              )Asset
                  write-downs and impairments
              
              
              1.3
              
              
              1.6
              
              
              —
              
              
              —
              
              
              2.9Equity
                  in earnings of subsidiaries
              
              
              (109.1
              )
              
              (12.1
              )
              
              —
              
              
              121.2
              
              
              —Provision
                  for environmental remediation and restoration, net of
                  reimbursements
              
              
              3.7
              
              
              39.0
              
              
              —
              
              
              —
              
              
              42.7Allocations
                  from Kerr-McGee
              
              
              0.3
              
              
              30.1
              
              
              (4.9
              )
              
              —
              
              
              25.5Other
                  noncash items affecting net income
              
              
              0.3
              
              
              3.0
              
              
              5.1
              
              
              —
              
              
              8.4Changes
                  in assets and liabilities
              
              
              (8.5
              )
              
              (91.3
              )
              
              (42.9
              )
              
              —
              
              
              (142.7
              )Net
                  cash provided by(used
                  in) operating activities
              
              
              (
                  6.8
              )
              
              83.0
              
              
              (14.3
              )
              
              (100.4
              )
              
              (38.5
              )**Cash
                  Flows from Investing Activities**Capital
                  expenditures
              
              
              —
              
              
              (13.3
              )
              
              (18.1
              )
              
              —
              
              
              (31.4
              )Collection
                  on repurchased receivables
              
              
              —
              
              
              70.3
              
              
              94.7
              
              
              —
              
              
              165.0Other
                  investing activities
              
              
              —
              
              
              0.9
              
              
              —
              
              
              —
              
              
              0.9Net
                  cash used in investing activities
              
              
              —
              
              
              57.9
              
              
              76.6
              
              
              —
              
              
              134.5**Cash
                  Flows from Financing Activities**Net
                  transfers with affiliates
              
              
              6.8
              
              
              (138.6
              )
              
              0.7
              
              
              100.4
              
              
              (30.7
              )Net
                  cash provided by (used in) financing activities
              
              
              6.8
              
              
              (138.6
              )
              
              0.7
              
              
              100.4
              
              
              (30.7
              )**Effects
                  of Exchange Rate Changes on Cash and Cash
                  Equivalents**
              
              
              —
              
              
              —
              
              
              3.6
              
              
              —
              
              
              3.6**Net
                  Increase in Cash and Cash Equivalents**
              
              
              —
              
              
              2.3
              
              
              66.6
              
              
              —
              
              
              68.9**Cash
                  and Cash Equivalents at Beginning of Period**
              
              
              —
              
              
              4.8
              
              
              19.0
              
              
              —
              
              
              23.8**Cash
                  and Cash Equivalents at End of Period**
              
              $
              —
              
              $
              7.1
              
              $
              85.6
              
              $
              —
              
              $
              92.7
 
  35
  **Item
        2.**  **Management’s
        Discussion and Analysis of Financial Condition and Results of** **Operations**
 
 **Overview
        and Recent Developments**
 
 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. Also, 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.
 
 Our
        business has two reportable segments: pigment and electrolytic and other
        chemical products. Our pigment segment primarily produces and markets titanium
        dioxide pigment, a white pigment used in a wide range of products for its
        exceptional ability to impart whiteness, brightness and opacity. 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. The electrolytic and other chemical products segment produces chemicals
        for both rechargeable and non-rechargeable batteries, sodium chlorate for
        pulp
        bleaching used in the paper industry and boron-based specialty chemicals
        used in
        pharmaceuticals, high-performance fibers and other specialty products. We
        are a
        key supplier and have leading market positions in each of these products.
 
 *Distribution
        of Tronox Class B shares* ***.*** ** On
        March
        30, 2006, Kerr-McGee completed its spin-off of Tronox Class B shares (“the
        Distribution”). Concurrently, as provided in the employee benefits agreement
        between Tronox and Kerr-McGee, certain of our employees received Tronox
        stock-based awards as a result of a conversion of unvested Kerr-McGee stock
        options, restricted stock, stock opportunity grants and performance units.
        Approximately 920,000 stock options and 625,000 restricted stock-based awards
        resulted from the conversion based on the closing stock prices of Kerr-McGee
        and
        Tronox on March 30, 2006.
 
 Also
        concurrent with the Distribution, Tronox established certain tax-qualified
        and
        nonqualified pension and postretirement plans for its U.S. employees previously
        covered under the U.S. benefit plans of Kerr-McGee. As a result, the company
        assumed certain obligations and received associated trust assets in accordance
        with the employee benefits agreement between the two companies.
 
 The
        company adopted Statement of Financial Accounting Standard ("SFAS") No. 123
        (revised 2004), "Share-Based Payment" effective January 1, 2006, using the
        modified prospective method of transition. Including the effects of adopting
        the
        new accounting standard and the effects of the conversion of Kerr-McGee
        stock-based awards, stock-based compensation expense in the first six months
        of
        2006 totaled $5.5 million ($3.5 million on an after tax basis). In accordance
        with this standard, for the remainder of the 2006 year, we expect to recognize
        $3.0 million to $4.0 million of stock-based compensation expense, pretax.
        The
        total unamortized compensation cost as of June 30, 2006, was $9.5 million. Compensation
        cost ultimately recognized may differ from this amount due to new awards,
        if
        any, and changes in the estimate of forfeitures.
 
 *Recent
        Developments.* **** Our
        operations in Australia include a synthetic rutile facility (“Chandala”) with
        annual capacity of 225,000 tonnes. Synthetic rutile is a high-grade titanium
        dioxide (“pigment”) feedstock. All of the feedstock for our pigment facility in
        Australia, and approximately 20% of the feedstock used at our two pigment
        facilities in the U.S., is supplied from Chandala. On July 12, 2006, Chandala
        encountered increased deterioration in the kiln, requiring a short-term shutdown
        for internal repair work. In light of this shutdown, we have decided to
        incorporate additional repair work that had been scheduled for 2007. We estimate
        the current shutdown to last approximately six to seven weeks. We have adequate
        supplies of synthetic rutile to meet feedstock requirements at our pigment
        facility in Australia, and have made arrangements to insure substitute feedstock
        is available to meet the feedstock requirements at our U.S. pigment facilities.
        We estimate this shutdown will have a negative effect on our operating results
        for the second half of 2006 in the range of $5 million to $6
        million.
 
 36
 *Asset
        Impairment.* The
        company has been working on the development of a raw materials feed project
        to
        improve efficiencies and reduce costs at its Savannah, Georgia, pigment
        facility. The initial trials of the project indicated that modifications
        would
        be required to achieve a satisfactory economic benefit. During the second
        quarter of 2006, additional studies were performed to determine the technical
        requirements needed to achieve operations and the additional cost to complete
        the project. The company is evaluating the results of the study and expects
        to
        determine later in 2006 if the project will be completed. If it is decided
        that
        this is not a viable project, the assets will be written down approximately
        $4.0
        million to their net realizable value.
 
 **Results
        of Operations**
 
 The
        following table summarizes segment operating profit, with a reconciliation
        to
        consolidated and combined net income (loss) for the three and six months
        ended
        June 30, 2006 and 2005:
 
 **Three
                  Months Ended**
                **June 30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(Millions
                  of dollars)****Net
                  sales—**Pigment
              
              $
              349.0
              
              $
              331.4
              
              $
              658.0
              
              $
              642.2Electrolytic
                  and other chemical products
              
              
              23.9
              
              
              24.5
              
              
              51.1
              
              
              47.9Total
              
              $
              372.9
              
              $
              355.9
              
              $
              709.1
              
              $
              690.1**Operating
                  profit**(1)**—**Pigment
              
              $
              10.2
              
              $
              33.5
              
              $
              35.9
              
              $
              65.2Electrolytic
                  and other chemical products(2)
              
              
              1.3
              
              
              1.9
              
              
              23.1
              
              
              (6.8
              )Subtotal
              
              
              11.5
              
              
              35.4
              
              
              59.0
              
              
              58.4Corporate
                  and nonoperating sites(3)
              
              
              (6.0
              )
              
              (0.6
              )
              
              (8.5
              )
              
              (0.8
              )Provision
                  for environmental remediation and restoration(4)
              
              
              —
              
              
              (5.6
              )
              
              —
              
              
              (5.6
              )Operating profit
              
              
              5.5
              
              
              29.2
              
              
              50.5
              
              
              52.0Interest
                  and debt expense - third parties
              
              
              (12.3
              )
              
              —
              
              
              (24.3
              )
              
              —Other
                  income (expense)(5)
              
              
              5.3
              
              
              (10.2
              )
              
              9.7
              
              
              (15.2
              )Income
                  tax provision
              
              
              (4.2
              )
              
              (10.7
              )
              
              (18.0
              )
              
              (16.1
              )Income
                  (loss) from continuing operations
              
              
              (5.7
              )
              
              8.3
              
              
              17.9
              
              
              20.7Discontinued
                  operations, net of taxes
              
              
              (8.7
              )
              
              (11.9
              )
              
              (11.7
              )
              
              (20.3
              )Net income (loss)
              
              $
              (14.4
              )
              $
              (3.6
              )
              $
              6.2
              
              $
              0.4
 _____________________
 (1)
              Our
                  management evaluates segment performance based on segment operating
                  profit, which represents the results of segment operations before
                  unallocated costs, such as general corporate expenses not identified
                  to a
                  specific segment and environmental provisions related to sites
                  no longer
                  in operation, income tax expense or benefit and other income (expense).
                  Total operating profit 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, the most comparable GAAP measure.
                  Our
                  management considers total operating profit 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 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 of our segments has
                  limitations and should not be used as an alternative to operating
                  profit,
                  a performance measure determined in accordance with GAAP, as it
                  excludes
                  certain costs that may affect our operating performance in future
                  periods.
 
 (2)
              Includes
                  $0.1 million and nil for the three months ended June 30, 2006 and
                  2005,
                  respectively, and $(20.4) million and $11.0 million for the six
                  months
                  ended June 30, 2006 and 2005, respectively, of environmental charge,
                  net
                  of reimbursements, related to ammonium perchlorate at the company’s
                  Henderson, Nevada, facility.
 
 37
 (3)
              Includes
                  general corporate expenses not identified to a specific segment
                  and
                  general expenses 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.
 
 (4)
              Includes
                  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.
 
 (5)
              Three
                  months and six months ended June 30, 2005, include interest expense
                  allocated to us by Kerr-McGee based on specifically identified
                  borrowings
                  from Kerr-McGee at Kerr-McGee’s average borrowing
                  rates.
 
 ***Quarter
        Ended June 30, 2006 Compared to Quarter Ended June 30,
        2005***
 
 *Net
        Sales.* Net
        sales increased by $17.0 million, or 4.8%, to $372.9 million in the
        second quarter of 2006 from $355.9 million in the second quarter of 2005.
        The increase was due to a $17.6 million increase in the pigment
        segment sales offset slightly by a reduction in the electrolytic and other
        chemical product segment sales.
        See further discussions below under “ *Pigment
        Segment - Net Sales* ”
and
        “ *Electrolytic
        and Other Chemical Products Segment - Net Sales* .”
 
 *Gross Margin.* Gross
        margin for the second quarter of 2006 was $31.0 million compared to $64.3
        million in the second quarter of 2005. As a percent of sales, gross margin
        declined to 8.3% from 18.1% as compared to the same period of the prior year.
        Margins were negatively impacted by higher process chemical and energy costs
        as
        well as by unplanned production downtime, which curtailed production and
        resulted in additional costs at our Savannah, Georgia, facility. Higher process
        chemical costs were primarily attributable to increased pricing for chlorine,
        coke and caustic at our pigment plants in the United States. Feedstock costs
        were higher for our Henderson, Nevada, manganese dioxide operations. Energy
        costs, for all of our plants in the United States, were higher in 2006 compared
        to 2005 primarily due to higher realized natural gas prices.
 
 *Selling,
        General and Administrative Expenses.* Selling,
        general and administrative expenses decreased $3.8 million in the second
        quarter of 2006 compared to the second quarter of 2005. The decrease was
        primarily due to a decrease in employee incentive compensation related to
        cash
        bonuses resulting from lower projected payouts under the 2006 plan, partially
        offset by increased other compensation and benefit costs, including costs
        related to stock-based awards, and
        increased retirement and postretirement expense.
 
 *Provision
        for Environmental Remediation and Restoration, net of Reimbursements.* The
        provision for environmental remediation and restoration, net of reimbursements,
        was nil in the second quarter of 2006 compared to an expense of
        $5.8 million in the same period of 2005. The expense recognized in 2005 was
        primarily related to remediation of the former agricultural chemical,
        Jacksonville, Florida, site for soil remediation and excavation (see
        Note 13 to the Condensed Consolidated and Combined Financial Statements
        included in Item 1 of this quarterly report on Form 10-Q).
  *Interest
        and Debt Expense — Third Parties* .
        Interest and debt expense to outside parties was $12.3 million in the second
        quarter of 2006 compared to nil in the same period of the prior year. The
        increase was due to interest on
        the
        company’s unsecured notes and term loan facility that were entered into
        concurrent with the initial public offering (“IPO”) in November
        2005.
 
 *Other
        Income (Expense).* Other
        i ncome
        for
        the second quarter of 2006 was $5.3 million compared to expense of $10.2
        million
        in the second quarter of 2005. The $15.5 million change was primarily due
        to the
        favorable effects of income in 2006 from equity method affiliates of $4.7
        million principally due to land sales in the Henderson, Nevada, area, the
        elimination in 2006 of interest expense allocated from affiliates ($4.5
        million), the elimination of the
        asset
        securitization program and the fees associated with it ($1.2 million), and
        gains
        in 2006 compared to losses in 2005 attributable to changes in the exchange
        rates
        for both the euro and the Australian dollar ($7.5 million). Partially offsetting
        these favorable effects was a provision for litigation settlements of $3.7
        million related to the Western Fertilizer case (see
        Note 13 to the Condensed Consolidated and Combined Financial Statements
        included in Item 1 of this quarterly report on Form 10-Q) .
 
 38
 *Income
        Tax Provision.* Our
        effective tax rate related to continuing operations for the second quarter
        of
        2006 was 280% compared to 56.3% for the same period in 2005. Our effective
        tax
        rate was lower in the second quarter of 2006 primarily due
        to the taxation of foreign operations, in particular, non-deductible
        permanent differences and forecasted losses in certain foreign jurisdictions
        in
        which the actual tax rate is below the statutory rate.
 
 *Loss
        from Discontinued Operations.* The loss
        from discontinued operations, net of taxes, in the second quarter of 2006
        was
        $8.7 million compared to $11.9 million in the second quarter of 2005. The
        2006
        loss was primarily attributable to additional environmental costs for the
        former
        West Chicago site due primarily to a cost increase implemented by the licensed
        disposal facility used in remediation efforts. The loss in 2005 was primarily
        related to legal fees and environmental costs associated with the company’s
        former forest products operations. (see Note 13 to the Condensed
        Consolidated and Combined Financial Statements included in Item 1 of this
        quarterly report on Form 10-Q).
 
 *Pigment
        Segment*
 
 *Net
        Sales.* Net
        sales increased $17.6 million, or 5.3%, in the second quarter of 2006
        compared to the same period in 2005. Higher sales volumes accounted for $19.1
        million of the increase offset in part by a reduction in average selling
        prices
        due to a change in the euro exchange rate between the second quarter of 2005
        and
        the second quarter of 2006. The increased volumes in the second quarter were
        primarily attributable to
        strong
        demand into the Asia/Pacific region and a rebound in demand in
        Europe.
 
 *Operating
        Profit.* Operating profit in the second quarter of 2006 was $10.2 million, a
        decrease of $23.3 million from $33.5 million in the second quarter of
        2005. Offsetting the favorable affects of the increased sales mentioned above,
        operating results were negatively impacted $29.2 million by higher production
        and distribution costs. The increased production costs were primarily due
        to
        increased process chemical, energy and waste treatment costs in our U.S.
        operations, as well as unplanned production downtime which curtailed production
        and resulted in additional costs at our Savannah, Georgia, facility. Higher
        process chemical costs were primarily attributable to increased pricing for
        chlorine, coke and caustic at our pigment plants in the United States. Energy
        costs, for all of our plants in the United States, were higher in 2006 compared
        to 2005 primarily due to higher realized natural gas prices.
  Operating
        costs in our European operations were slightly higher in local currency but
        were
        largely offset by the favorable impact of exchange rate changes on the euro
        between the second quarter of 2005 and the second quarter of 2006. Selling,
        general and administrative expenses decreased $9.7
        million due to a decrease
        in employee incentive compensation related to cash bonuses resulting from
        lower
        projected payouts under the 2006 plan partially offset by increased compensation
        and benefit costs, including costs related to stock-based awards and
        increased retirement and postretirement expense.
 
 *Electrolytic
        and Other Chemical Products Segment*
 
 *Net
        Sales.* Net
        sales in the second quarter of 2006 were $23.9 million, a decrease of
        $0.6 million compared to the second quarter of 2005. Pricing remains ahead
        of last year as sales prices were increased early in 2006 in an effort to
        offset
        rising costs. Volumes for manganese dioxide have slowed in the second quarter
        of
        2006 after a strong first quarter and as compared to the prior year. The
        reduction is due to a slowdown in the normal order patterns of the primary
        customers for electrolytic manganese dioxide. I ncreased
        market share in boron and chlorate products, as well as the continued
        commercialization and ramp up of the lithium manganese product line, partially
        offset the lower volumes in manganese dioxide.
 
 *Operating
        Profit.* Operating profit in the second quarter of 2006 was $1.3 million, compared
        with operating profit of $1.9 million in the same period of 2005. The $0.6
        million reduction in profit was primarily due to higher manufacturing costs,
        including feedstock and energy costs, which more than offset the improved
        pricing and a slightly lower selling,
        general and administrative expense.
 
  39
  ***Six
        Months Ended June 30, 2006 Compared to Six Months Ended June 30,
        2005***
 
 *Net
        Sales.* Net
        sales increased by $19.0 million, or 2.8%, to $709.1 million in the
        six months ended June 30, 2006, from $690.1 million in the same period of
        2005. The increase was primarily due to an increase in the pigment segment
        sales
        of $15.8 million and an increase in the electrolytic and other chemical product
        segment sales of $3.2 million. See further discussions below under
“ *Pigment
        Segment - Net Sales* ”
and
        “ *Electrolytic
        and Other Chemical Products Segment - Net Sales* .”
 -
 *Gross
        Margin.* Gross
        margin for the six months ended June 30, 2006, was $91.2 million compared
        to
        $126.2 million in the second quarter of 2005. As a percent of sales, gross
        margin declined to 12.9% from 18.3% in the same period of the prior year.
        Margins in the six-month period were negatively impacted by higher process
        chemical and energy costs, as well as unplanned production downtime which
        curtailed production and resulted in additional costs at our Savannah, Georgia,
        facility. Higher process chemical costs were primarily attributable to increased
        pricing for chlorine, coke and caustic at our pigment plants in the United
        States. Feedstock costs were higher for our Henderson, Nevada, manganese
        dioxide
        operations. Energy costs, for all of our plants in the United States, were
        higher in 2006 compared to 2005 primarily due to higher realized natural
        gas
        prices.
 
 *Selling,
        General and Administrative Expenses.* Selling,
        general and administrative expenses increased $3.7 million in the six
        months ended June 30, 2006, compared to the same period of 2005. The increase
        was primarily due to increased compensation and benefit costs, including
        costs
        related to stock-based awards, certain retention
        award programs, and increased retirement and postretirement expense. Partially
        offsetting the increase was a decrease in
        employee incentive compensation related to cash bonuses resulting from lower
        projected payouts under the plan.
 
 *Provision
        for Environmental Remediation and Restoration, net of Reimbursements.* The
        provision for environmental remediation and restoration, net of reimbursements,
        was income of $20.5 million in the six months ended June 30, 2006, compared
        to
        an expense of $16.7 million in the same period of 2005. The income
        recognized in 2006 consisted of a $20.5 million reimbursement settlement
        of our
        claim against the United States for contribution of past costs for ammonium
        perchlorate remediation at our Henderson, Nevada, facility. The provision in the six months ended June 30, 2005, included $10.4 million related
        to the remediation of ammonium perchlorate contamination at the Henderson,
        Nevada, facility, and $5.6 million related to remediation of the former
        agricultural chemical, Jacksonville, Florida, site for soil removal and
        excavation (see Note 13 to the Condensed Consolidated and Combined
        Financial Statements included in Item 1 of this quarterly report on Form
        10-Q).
  *Interest
        and Debt Expense — Third Parties* .
        Interest and debt expense to outside parties was $24.3 million in the six
        months
        ended June 30, 2006, compared to nil in the same period of the prior year.
        The
        increase was due to interest on the company’s unsecured notes and term loan
        facility that were entered into concurrent with the initial public offering
        (“IPO”) in November 2005.
 
 *Other
        Income (Expense).* Other
        i ncome
        for
        the six months ended June 30, 2006, was $9.7 million compared to expense
        of
        $15.2 million in the six months ended June 30, 2005. The $24.9 million change
        is
        primarily due to the favorable effects of an increase in income from equity
        method affiliates of $4.5 million, the elimination in 2006 of interest expense
        allocated from affiliates ($7.6 million), the elimination of the
        asset
        securitization program and the fees associated with it ($4.0 million), and
        an
        increase in gains in 2006 compared to losses in 2005 attributable to changes
        in
        the exchange rates for both the euro and the Australian dollar ($10.3 million).
        Partially offsetting these favorable effects was a provision for litigation
        settlements of $3.7 million related to the Western Fertilizer case (see
        Note 13 to the Condensed Consolidated and Combined Financial Statements
        included in Item 1 of this quarterly report on Form 10-Q) .
 
 *Income
        Tax Provision.* Our
        effective tax rate related to continuing operations in the six-month period
        ending June 30, 2006, was 50.1% compared to 43.8% for the same period in
        2005.
        Our effective tax rate was higher in 2006, primarily due to the taxation
        of
        foreign operations.
 
 *Loss
        from Discontinued Operations.* The loss
        from discontinued operations, net of taxes, in the six months ended June
        30,
        2006, was $11.7 million compared to $20.3 million in the same period of 2005.
        In
        both 2006 and 2005, the losses from discontinued operations were primarily
        related to legal fees and environmental costs associated with the company’s
        former forest products operations and environmental costs for the former
        West
        Chicago site. (see Note 13 to the Condensed Consolidated and Combined
        Financial Statements included in Item 1 of this quarterly report on Form
        10-Q).
 
 40
 *Pigment
        Segment*
 
 *Net
        Sales.* Net
        sales increased $15.8 million, or 2.5%, in the six months ended June 30,
        2006, compared to the same period in 2005. Higher sales volumes accounted
        for
        the increase in net sales offset in part by approximately $12.9 million related
        to exchange rate changes on the euro between the first six months of 2005
        and
        the same period of 2006. Higher sales volumes in 2006 were attributable to
        the
        strong sales in Europe and Asia/Pacific during the second quarter.
 
 *Operating
        Profit.* Operating profit in the six months ended June 30, 2006, was $35.9 million,
        a decrease of $29.3 million from $65.2 million in the same period of
        2005. Offsetting the favorable effects of the increased sales volumes mentioned
        above, operating results were negatively impacted $34.9 million by higher
        production and distribution costs. The increased production costs were primarily
        due to increased process chemical, energy and waste treatment costs in our
        U.S.
        operations, as well as unplanned production downtime which curtailed production
        and resulted in additional costs at our Savannah, Georgia, facility. Higher
        process chemical costs were primarily attributable to increased pricing for
        chlorine, coke and caustic at our pigment plants in the United States. Energy
        costs, for all of our plants in the United States, were higher in 2006 compared
        to 2005 primarily due to higher realized natural gas prices.
 
 Operating
        costs in our European operations were slightly higher in local currency,
        but
        were more than offset by the favorable impact of exchange rate changes on
        the
        euro between the first six months of 2005 and the same period in 2006. Selling,
        general and administrative expenses decreased $4.7
        million primarily due to a decrease
        in employee incentive compensation related to cash bonuses resulting from
        lower
        projected payouts under the plan, partially offset by increased other
        compensation and benefit costs, including costs related to stock-based awards,
        certain retention
        award programs, and increased retirement and postretirement
        expense.
 
 *Electrolytic
        and Other Chemical Products Segment*
 
 *Net
        Sales.* Net
        sales in the first six months of 2006 were $51.1 million, an increase of
        $3.2 million compared to the same period of 2005. Pricing remains ahead of
        last year as sales prices were increased early in the year in an effort to
        offset rising costs. Volumes for manganese dioxide on a year-to-date basis
        are
        behind the volumes in the same period of last year despite a strong first
        quarter . The
        reduction is due to a slowdown in the normal order patterns of the primary
        customers for electrolytic manganese dioxide. I ncreased
        market share and new opportunities in other products as well as the continued
        commercialization and ramp up of the lithium manganese product line more
        than
        offset the lower volumes in manganese dioxide.
 
 *Operating
        Profit.* Operating profit in the six months ended June 30, 2006, was $23.1 million,
        compared with an operating loss of $6.8 million in the same period of 2005.
        The $29.9 million improvement was primarily due to the $20.5 million recovery
        of
        past environmental remediation costs from the United States in 2006 compared
        to
        a net environmental provision of $10.9 million in 2005 related to ammonium
        perchlorate remediation associated with our Henderson, Nevada, facility.
        Increased manufacturing costs and selling, general and administrative expenses
        more than offset the sales gains in the first half of the year. Increased
        manufacturing costs are primarily related to feedstock costs and energy,
        while
        higher selling,
        general and administrative expenses of $0.5 million are attributable to legal
        costs associated with the Navy lawsuit and higher compensation and benefits
        costs, including stock-based awards, and increased retirement and postretirement
        expense.
  41
  
 **Financial
        Condition and Liquidity**
 
 *Overview* .
        The
        following table provides certain information useful in the analysis of our
        financial condition and liquidity:
 
 **June
                  30, 2006**
              
              **December
                  31,****2005****(Millions
                  of dollars)**Current
                  ratio(1)
              
              
              2.2:1
              
              
              2.1:1Cash
                  and cash equivalents
              
              $
              25.9
              
              $
              69.0Working
                  capital(2)
              
              
              420.2
              
              
              404.4Total
                  assets(3)
              
              
              1,902.7
              
              
              1,758.3Long-term
                  debt
              
              
              547.0
              
              
              548.0Stockholders’
                  equity
              
              
              523.1
              
              
              489.0
 
 (1)
              Represents
                a ratio of current assets to current
                liabilities. (2)
              Represents
                excess of current assets over current
                liabilities. (3)
              Effective
                  March 30, 2006, the company assumed certain U.S. benefit plan obligations
                  and received a transfer of related assets which resulted in increases
                  in
                  total assets of $122.8 million, stockholders’ equity of $2.1 million and
                  total liabilities of $120.7 million.
 
 Our
        primary cash needs are 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.
 
 Cash
        and
        cash equivalents at June 30, 2006, consisted of $16.9 million which was
        held in the United States and $9.0 million held in other countries.
 
 Prior
        to
        the IPO, we participated in Kerr-McGee’s centralized cash management system and
        relied on Kerr-McGee to provide necessary cash financing. The related cash
        activity between us and Kerr-McGee has been reflected as net transfers with
        affiliates within financing activities in our condensed consolidated and
        combined statement of cash flows. Additionally, as discussed below under
        “ *Cash
        Flows from Operating Activities,* ”
prior
        to the IPO, 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 condensed
        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 in our condensed consolidated and combined financial
        statements presented as of or for the six months ended June 30, 2005, are
        not
        representative of the amounts that would have been required or generated
        by us
        as a stand-alone company.
 
 Tronox
        Western Australia Pty Ltd, a wholly-owned subsidiary of the company, entered
        into an agreement to purchase a 50% undivided interest in mining tenements
        and
        related mining assets. The agreement was nonbinding at June 30, 2006, pending
        governmental approval. The final approval was received on July 12, 2006.
        The
        tenements provide additional heavy mineral resources to be processed by our
        joint venture, Tiwest Joint Venture, and provide feedstock for our pigment
        operations. The company will record noncash capital additions during the
        third
        quarter of 2006 of approximately $9.4 million and debt of $9.4 million. The
        debt
        requires scheduled payments through 2014, including $1.1 million in 2006,
        with
        an early payment option at the end of 2007.
 
 42
 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 projected to be satisfied in the fourth
        quarter 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.
 
 *Credit
        Facilities and Debt Covenants.* **** In
        November 2005, 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
        terms
        of the credit agreement provide for customary representations and warranties,
        affirmative and negative covenants, and events of default. We are also required
        to maintain compliance with the following financial covenants 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
  We
        were
        in compliance with these financial covenants at June 30, 2006.
 
 Also
        in
        November, 2005, our wholly-owned subsidiaries, Tronox Worldwide LLC and Tronox
        Finance Corp., issued $350.0 million in aggregate principal amount of 91⁄2% senior
        unsecured notes due 2012 in a private offering concurrent with the IPO. During
        the second quarter of 2006, the company registered these notes with the
        Securities and Exchange Commission (“SEC”) and subsequently completed an
        exchange of all notes and guarantees for publicly tradable notes and guarantees
        having substantially identical terms, on July 14, 2006. These notes are
        guaranteed by our material direct and indirect wholly-owned domestic
        subsidiaries.
 
 *Cash Flows from Operating Activities.* Cash
          flows from operating activities for the six months ended June 30, 2005,
          exclude
          expenditures of $31.0 million for general corporate expenses, employee
          benefits
          and net interest costs associated with our present and discontinued operations
          which were paid by Kerr-McGee on our behalf. Therefore, reported amounts
          are not
          representative of cash flows from operating activities we will generate
          or use
          as a stand-alone company. While such costs are reflected in our condensed
          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. Excluding
          any one-time adjustments (such as the implementation of FAS 123R and changes
          in
          our cash bonus accrual), 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. Cash
          flows from operating activities for the six months ended June 30, 2005,
          also
          exclude $165 million paid by Kerr-McGee on our behalf to repurchase pigment
          receivables upon termination of an accounts receivable monetization
          program.
 
 Cash
        flows from
        operating activities for the six months ended June 30, 2006, were
        $13.4 million, compared to cash used in operating activities of
        $38.5 million for the same period in 2005. The $51.9 million increase
        in cash flows from operating activities for the six months ended June 30,
        2006,
        was due primarily to the impact of the termination of the accounts receivable
        monetization program in 2005, partially offset by higher operating costs,
        interest payments on long-term debt arrangements, timing of income tax payments,
        a decrease in environmental reimbursement receipts and cash bonus program
        payments in 2006. Termination of our accounts receivable monetization 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 had a one-time impact, in the 2005 period,
        of
        reducing our cash flows from operating activities related to the increase
        in our
        accounts receivable.
 
 43
 *Cash
        Used in Investing Activities.* Net cash
        used in investing activities for the six months ended June 30, 2006, was
        $42.8
        million, a decrease of $177.3 million compared to the same period in 2005.
        The
        decrease is due primarily to the collection of repurchased accounts receivable
        of $165.0 million contributed to us by Kerr-McGee in the 2005 period as well
        as
        increased capital expenditures. Capital expenditures were higher due to
        significant ongoing projects that 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, facility
        and
        process improvements at the Hamilton, Mississippi, facility for the purpose
        of
        producing a new grade of pigment for use in architectural paints.
 
 Capital
        expenditures for the 2006 annual period are forecasted to be $90 million
        ($9
        million of which will be noncash activity in the third quarter of 2006, related
        to the Australian mining tenements). The process and technology improvement
        projects at Uerdingen, Botlek and Hamilton described above comprise the majority
        of the total 2006 annual forecast. Additionally, investing activities for
        2006
        are expected to include, in the form of a dividend, proceeds from land sales
        in
        the vicinity of our Henderson, Nevada, facility.
 
 *Cash
        Used in Financing Activities.* Net cash
        used in financing activities was $5.4 million for the six months ended June
        30,
        2006, and $30.7 million for the same period in 2005. The decrease in use
        of
        funds primarily resulted from becoming a stand-alone and self-supported company.
        The cash used for the six months ended June 30, 2006, consisted of payments
        related to our long-term debt of $3.4 million and the payment of $2.0 million
        in
        dividends, while the net financing activity for the same period in 2005
        represented funds transferred to Kerr-McGee. Upon receipt of certain proceeds
        from the land sales mentioned in the preceding paragraph, we will be required
        to
        pay down outstanding debt under our senior secured credit facility.
 
 ***Commitments***
 
 At
        July
        31, 2006, we had outstanding letters of credit of approximately $65.7 million.
        These letters of credit have been granted to us by financial institutions
        to
        support our environmental cleanup costs, insurance claims and miscellaneous
        operational and severance requirements.
 
 **Critical
        Accounting Policies**
 
 The
        following description of critical accounting policies is not intended to
        be an
        all-inclusive discussion of the uncertainties considered and estimates made
        by
        management in applying benefit plan 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. There were no other
        significant changes in critical accounting policies from those previously
        disclosed in the company’s latest annual report on Form 10-K.
 
 ***U.S.
        Benefit Plans***
 
 As
        discussed under Note 11 to the Condensed Consolidated and Combined Financial
        Statements included in Item 1 of this quarterly report on Form 10-Q, as of
        March
        30, 2006, the company established certain U.S. benefit plans to cover our
        U.S.
        employees who previously participated in certain U.S. benefit plans sponsored
        by
        Kerr-McGee. In order to establish the appropriate amounts on the company’s
        balance sheet and estimate net periodic cost for the remainder of 2006, an
        actuarial analysis was performed based on assumptions developed by management.
        A
        brief description of the methodology used by management to develop certain
        significant assumptions is included below.
 
 *Discount
        Rate* .
        The
        company selected a discount rate of 6% for its U.S. plans based on the results
        of a cash flow matching analysis which used the March 31, 2006, Citigroup
        Pension Discount Curve.
 
 *Rate
        of Compensation Increases* .
        The
        company’s estimated rate of compensation increases was 3.5% based on the
        company’s long-term plans for compensation increases and expected economic
        conditions, including the effects of merit increases, promotions and general
        inflation.
 
 44
 *Long-term
        Rate of Return.* The
        estimated long-term rate of return assumption used in the determination of
        net
        periodic cost for the period from April 1, 2006, through December 31, 2006,
        was
        8%. This rate was developed after reviewing both a capital asset pricing
        model
        using historical data and a forecasted earnings model.
 
 The
        above
        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. 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. It is estimated that total U.S. net periodic cost for the
        annual
        2006 period will be approximately $10.6 million, which includes $3.3 million
        allocated from Kerr-McGee for the period January 1 through March 30, 2006.
        (See
        Note 11 to the Condensed Consolidated and Combined Financial Statements included
        in Item 1 of this quarterly report on Form 10-Q).
 
 *Unrecognized
        Gains (Losses) and Prior Service Cost.* Net
        periodic cost for the period April 1 through December 31, 2006, and future
        periods will include amortization of unrecognized items assumed at the time
        the
        company established the plans. According to the March 30, 2006, actuarial
        valuation, unrecognized prior service cost totaled $11.2 million and
        unrecognized actuarial loss was $94 million. The component of the 2006 net
        periodic cost related to amortization of unrecognized items for our newly
        established U.S. retirement plans is estimated to be approximately $2.8 million.
 
 The
        following table shows the impact of changes in the primary assumptions used
        in
        actuarial calculations associated with our pension and other postretirement
        benefits. The net periodic cost (benefit) amounts reflect the impact on net
        periodic cost (benefit) for the nine-month period ending December 31, 2006,
        following the establishment of our benefit plans. The projected benefit
        obligation amounts reflect the impact on the projected benefit obligation
        as of
        March 30, 2006.
 
 **Pension
                  Benefits****(1)**
              
              **Other
                  Postretirement Benefits****Net
                  Periodic Cost (Benefit)**
              
              **Projected
                  Benefit Obligation**
              
              **Net
                  Periodic Cost (Benefit)**
              
              **Accumulated
                  Postretirement Benefit Obligation**(**Millions
                  of dollars)**Increase
                  of 0.5% in —Discount
                  rates
              
              $
              (0.4
              )
              $
              (23.0
              )
              $
              (0.3
              )
              $
              (6.9
              )Expected
                  return on plan assets
              
              
              (1.7
              )
              
              —
              
              
              —
              
              
              —Rate
                  of compensation increase
              
              
              0.5
              
              
              4.4
              
              
              —
              
              
              0.1Decrease
                  of 0.5% in —Discount
                  rates
              
              $
              2.0
              
              $
              25.5
              
              $
              0.3
              
              $
              7.5Expected
                  return on plan assets(2)
              
              
              1.7
              
              
              —
              
              
              —
              
              
              —Rate
                  of compensation increase
              
              
              (0.5
              )
              
              (4.4
              )
              
              —
              
              
              (0.1
              )Change
                  in health care cost trend rate of 1%Increase
              
              $
              —
              
              $
              —
              
              $
              1.0
              
              $
              9.1Decrease
              
              
              —
              
              
              —
              
              
              (0.8
              )
              
              (7.8
              )
 
 (1)
            The
                sensitivity analysis reflects only the impact of assumption changes
                on our
                U.S. qualified retirement plan. While Tronox sponsors other retirement
                plans for its U.S. employees, the projected benefit obligation for
                the
                U.S. qualified retirement plan at March 31, 2006, represented 98%
                of the
                total projected benefit obligation for all U.S. retirement
                plans. 
 (2)
            If
                the actual return on plan assets was one percent lower than the expected
                return on plan assets, our expected cash contributions to our pension
                and
                other postretirement benefit plans would not significantly
                change. 
  45
  **New/Revised
        Accounting Standards**
 
 *Deferred
        Stripping Costs* - *-* ** On
        January 1, 2006, the company adopted Emerging Issues Task Force ("EITF")
        Issue
        No. 04-6, "Accounting for Stripping Costs Incurred during Production in the
        Mining Industry" in relation to the mining activities conducted by the company
        and its partner under our joint venture arrangement in Australia. EITF Issue
        No.
        04-6 addresses the accounting for stripping costs incurred during the production
        phase of a mine and requires treatment of these costs as variable production
        costs that should be included as a component of inventory to be recognized
        in
        costs applicable to sales in the same period as the revenue from the sale
        of
        inventory. As a result, capitalization of post-production stripping costs
        is
        appropriate only to the extent product inventory exists at the end of a
        reporting period. The guidance allows application through recognition of
        a
        cumulative effect adjustment to opening retained earnings in the period of
        adoption, with no charge to current earnings for prior periods. The results
        for
        prior periods have not been restated. The cumulative effect adjustment reduced
        opening retained earnings by $1.4 million (net of taxes) and eliminated the
        $2.2
        million net deferred stripping asset from the balance sheet. Adoption of
        EITF
        Issue No. 04-6 will have no impact on the company’s cash position or net cash
        from operations.
 
 *FASB
        Exposure Draft* - The
        FASB has recently issued an exposure draft titled “Employers’ Accounting for
        Defined Benefit Pension and Other Postretirement Plans (an amendment of FASB
        Statements No. 87, 88, 106, and 132(R))” and is expected to issue the resulting
        new accounting standard later in 2006, to be effective with the 2006 annual
        reporting period. Assuming the provisions of the new standard are consistent
        with decisions reached by the FASB to date, the standard will require
        recognition on the balance sheet of the unrecognized portion of projected
        benefit obligations, 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 an 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). Based on preliminary
        estimates received from the company’s actuary, it
        is
        estimated that the company will recognize a reduction of approximately $120.0
        million ($80.0 million after tax) in stockholders’ equity which represents
        currently unrecognized obligations.
  *Uncertain
        Tax
        Positions* -
        In July
        2006, the FASB issued Interpretation No. 48 (“FIN No. 48”), “Accounting for
        Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
        Accounting for Income Taxes” (“FAS No. 109”). FIN No. 48 is effective for fiscal
        years beginning after December 15, 2006, and clarifies the accounting for
        uncertainty in income taxes recognized in an enterprise's financial statements.
        FAS No. 109 does not prescribe a recognition threshold or measurement attribute
        for the financial statement recognition and measurement of a tax position
        taken
        in a tax return. FIN No. 48 clarifies the application of FAS No. 109 by defining
        criteria that an uncertain tax position must meet in order to be recognized
        in
        an enterprise's financial statements. The interpretation also provides guidance
        on measurement, derecognition, classification, interest and penalties,
        accounting in interim periods, disclosure and transition. The company is
        currently assessing the financial statement impact of adopting this
        interpretation.
 
  46
  **Item
        3.**  **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. We also 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. The following table presents the forecasted
        percentage hedged and the weighted average price per MMBtu for contracts
        outstanding at June 30, 2006, to purchase natural gas for our U.S.
        operations.
 
 **U.S.
                  Natural gas purchases****%
                  hedged**
              
              **Average**
                **Contract
                  Price**
                **$/MMBtu**Q3
                  2006
              
              
              76
              %
              $
              7.82Q4
                  2006
              
              
              63
              %
              $
              8.96
 
  **Item
        4.**  **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 second quarter of 2006 that has materially affected or is reasonably
        likely to materially affect the company’s internal control over financial
        reporting.
  **SPECIAL
        NOTE REGARDING FORWARD-LOOKING STATEMENTS**
 
 Forward-Looking
        Statements
 
 Statements
        in this quarterly 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 quarterly 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 in this quarterly
        report
        on Form 10-Q, and risk factors in the company’s latest annual report on Form
        10-K and other SEC filings.
  
  47
  **PART
        II - OTHER INFORMATION**
 
 
 **Item
        1.  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 the Environmental Protection Agency (“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.
 
 ***New
        Jersey Wood-Treatment Site***
 
 Tronox
        LLC was named in 1999 as a potentially responsible party (“PRP”) under the
        Comprehensive Environmental Response, Compensation, and Liability Act of
        1980
        (“ 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
        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.
        Tronox LLC intends to vigorously defend against EPA’s demand. However, Tronox
        LLC and EPA have agreed to submit the matter to nonbinding mediation 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.
 
 ***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 June 2006, over 400 plaintiffs were involuntarily
        dismissed. 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. However,
        in December 2005, five plaintiffs (two of whom were in the dismissed Oklahoma
        case) filed a new lawsuit in a Texas federal court, and in July 2006, five
        plaintiffs (three of whom were in the dismissed Oklahoma case) also filed
        a
        lawsuit in Texas. 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.
  48
 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
        required 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 basis 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 13 to the Condensed
        Consolidated and Combined Financial Statements included in Item 1 of this
        quarterly report on Form 10-Q.
  **Item
        4.**  **Submission
        of Matters to a Vote of Security Holders**
  (a)
            The
                2006 annual meeting of stockholders was held on May 11, 2006. The
                following matters were voted upon at the 2006 annual
                meeting: 
 (1) The
        stockholders voted in favor of electing Jerome Adams as director. There were
 152,531,212
        votes for the proposal; 1,430 votes against the proposal; and 12,570
 abstentions.
 
 (2) The
        stockholders ratified the appointment of Ernst & Young LLP as the company’s
 independent auditors for 2006. There were 152,543,622 votes for the proposal;
        5,410
 votes against the proposal; and 370 abstentions. ****
 
 **Item
        6. Exhibits**
  **Exhibit
        No.**
  31.1
              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
 
  49
  
 
 **SIGNATURES**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned, thereunto
        duly authorized on August 14, 2006.
 
 **TRONOX
                  INCORPORATED**By:
              /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)