**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 March 31, 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
      April 30, 2006, 18,429,439 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 Months
                Ended March 31, 2006 and 2005
            
            1Condensed
                Consolidated Balance Sheet at March 31, 2006 and December 31,
                2005
            
            2Condensed
                Consolidated and Combined Statement of Cash Flows for the Three Months
                Ended March 31, 2006 and 2005
            
            3Notes
                to the Condensed Consolidated and Combined Financial
                Statements
            
            4Item
                2.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of Operations
            
            32Item
                3.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            39Item
                4.
            
            Controls
                and Procedures
            
            39Forward-Looking
                Statements
            
            40**Part
                II**
            
            **OTHER
                INFORMATION**Item
                1.
            
            Legal
                Proceedings
            
            40Item
                6.
            
            Exhibits
            
            42SIGNATURES
            
            43










**PART
      I - FINANCIAL INFORMATION**




**Item
                1.**
            **Financial
                Statements**





**TRONOX
      INCORPORATED**




**CONDENSED
      CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS**


**(UNAUDITED)**


**Three
                  Months Ended March 31,****2006**
              
              **2005****(Millions
                  of dollars)****Net
                  sales**
              
              $
              336.2
              
              $
              334.2Cost
                  of goods sold
              
              
              276.0
              
              
              272.3**Gross
                  margin**
              
              
              60.2
              
              
              61.9Selling,
                  general and administrative expenses
              
              
              35.7
              
              
              28.2Provision
                  for environmental remediation and restoration, net of
                  reimbursements
              
              
              (20.5
              )
              
              10.945.0
              
              
              22.8Interest
                  and debt expense - third parties
              
              
              12.0
              
              
              —Other
                  income (expense)
              
              
              4.4
              
              
              (5.0
              )**Income
                  from Continuing Operations before Income Taxes**
              
              
              37.4
              
              
              17.8Income
                  Tax Provision
              
              
              (13.8
              )
              
              (5.4
              )**Income
                  from Continuing Operations**
              
              
              23.6
              
              
              12.4Loss
                  from Discontinued Operations, net of income tax benefit of $1.8
                  and $4.5,
                  respectively
              
              
              (3.0
              )
              
              (8.4
              )**Net
                  Income**
              
              $
              20.6
              
              $
              4.0**Income
                  (loss) per common share:**Basic
                  -Continuing
                  operations
              
              $
              0.58
              
              $
              0.54Discontinued
                  operations
              
              
              (0.07
              )
              
              (0.37
              )Net
                  income
              
              $
              0.51
              
              $
              0.17Diluted
                  -Continuing
                  operations
              
              $
              0.58
              
              $
              0.54Discontinued
                  operations
              
              
              (0.08
              )
              
              (0.37
              )Net
                  income
              
              $
              0.50
              
              $
              0.17**Dividends
                  Declared per Common Share**
              
              $
              0.05
              
              $
              —**Weighted
                  average shares outstanding (in thousands):**Basic
              
              
              40,369
              
              
              22,889Diluted
              
              
              40,917
              
              
              22,889








The
      accompanying notes are an integral part of these statements.


1


**TRONOX
      INCORPORATED**


**CONDENSED
      CONSOLIDATED BALANCE SHEET**


**(UNAUDITED)**





**March
                  31,**
              
              **December
                  31,****2006**
              
              **2005****(Millions
                  of dollars)****ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              57.3
              
              $
              69.0Accounts
                  receivable, net of allowance for doubtful accounts of $11.4 in
                  2006 and
                  $11.3 in 2005
              
              
              324.7
              
              
              331.6Inventories
              
              
              347.9
              
              
              312.3Prepaid
                  and other assets
              
              
              19.6
              
              
              28.5Income
                  tax receivable
              
              
              0.8
              
              
              2.4Deferred
                  income taxes
              
              
              36.9
              
              
              35.6**Total
                  Current Assets**
              
              
              787.2
              
              
              779.4**Property,
                  Plant and Equipment — Net**
              
              
              846.8
              
              
              839.7**Long-Term
                  Receivables, Investments and Other Assets**
              
              
              194.4
              
              
              78.8**Goodwill
                  and Other Intangible Assets**
              
              
              61.2
              
              
              60.4**Total
                  Assets**
              
              $
              1,889.6
              
              $
              1,758.3**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  Liabilities**Accounts
                  payable
              
              $
              184.5
              
              $
              195.3Accrued
                  liabilities
              
              
              171.7
              
              
              168.9Long-term
                  debt due within one year
              
              
              2.0
              
              
              2.0Income
                  taxes payable
              
              
              11.7
              
              
              8.8**Total
                  Current Liabilities**
              
              
              369.9
              
              
              375.0**Noncurrent
                  Liabilities**Deferred
                  income taxes
              
              
              89.9
              
              
              79.0Environmental
                  remediation and/or restoration
              
              
              138.8
              
              
              145.9Long-term
                  debt
              
              
              547.5
              
              
              548.0Other
              
              
              228.1
              
              
              121.4**Total
                  Noncurrent Liabilities**
              
              
              1,004.3
              
              
              894.3**Commitments
                  and Contingencies (Notes 11 and 12)****Stockholders’
                  Equity**Class
                  A common stock, par value $0.01 - 100,000,000 shares authorized,
                  18,429,279 and 17,886,640 shares issued and outstanding at March
                  31, 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 March 31, 2006 and
                  December
                  31, 2005
              
              
              0.2
              
              
              0.2Capital
                  in excess of par value
              
              
              460.7
              
              
              461.5Retained
                  earnings (accumulated deficit)
              
              
              14.3
              
              
              (2.9
              )Deferred
                  compensation
              
              
              —
              
              
              (5.4
              )Accumulated
                  other comprehensive income
              
              
              40.0
              
              
              35.4**Total
                  Stockholders’ Equity**
              
              
              515.4
              
              
              489.0**Total
                  Liabilities and Stockholders’ Equity**
              
              $
              1,889.6
              
              $
              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)**





**Three
                  Months Ended March 31,****2006**
              
              **2005****(Millions
                  of dollars)****Cash
                  Flows from Operating Activities**Net
                  income
              
              $
              20.6
              
              $
              4.0Adjustments
                  to reconcile net income to net cash provided by operating activities—Depreciation
                  and amortization
              
              
              24.5
              
              
              26.8Deferred
                  income taxes
              
              
              7.1
              
              
              (9.6
              )Provision
                  for environmental remediation and restoration, net of
                  reimbursements
              
              
              (20.2
              )
              
              21.6Allocations
                  from Kerr-McGee
              
              
              —
              
              
              11.9Other
                  noncash items affecting net income
              
              
              15.5
              
              
              4.9Changes
                  in assets and liabilities
              
              
              (33.1
              )
              
              28.6Net
                  cash provided by operating activities
              
              
              14.4
              
              
              88.2**Cash
                  Flows from Investing Activities**Capital
                  expenditures
              
              
              (21.8
              )
              
              (11.8
              )Other
                  investing activities
              
              
              0.1
              
              
              0.7Net
                  cash used in investing activities
              
              
              (21.7
              )
              
              (11.1
              )**Cash
                  Flows from Financing Activities**Repayment
                  of debt
              
              
              (0.5
              )
              
              —Costs
                  of obtaining financing
              
              
              (1.2
              )
              
              —Net
                  transfers with affiliates
              
              
              —
              
              
              (31.9
              )Net
                  cash used in financing activities
              
              
              (1.7
              )
              
              (31.9
              )**Effects
                  of Exchange Rate Changes on Cash and Cash
                  Equivalents**
              
              
              (2.7
              )
              
              0.7**Net
                  Increase (Decrease) in Cash and Cash Equivalents**
              
              
              (11.7
              )
              
              45.9**Cash
                  and Cash Equivalents at Beginning of Period**
              
              
              69.0
              
              
              23.8**Cash
                  and Cash Equivalents at End of Period**
              
              $
              57.3
              
              $
              69.7








The
      accompanying notes are an integral part of these statements.


3


**TRONOX
      INCORPORATED**


**NOTES
      TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL
      STATEMENTS**


**MARCH
      31, 2006**








**1.  
      The Company, Basis of Presentation and Accounting Policies**





Tronox
      Incorporated is an inorganic chemical company with worldwide operations. The
      pigment segment produces and markets titanium dioxide pigment, TiO2, and 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 chemicals segment produces and markets electrolytic
      manganese dioxide, sodium chlorate, boron-based and other specialty chemicals.
      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 certain
      stock-based compensation awards resulting from the conversion of Kerr-McGee
      stock-based awards held by company employees. See Notes 9 and 10 for further
      discussion of these events. In connection with the Distribution, Tronox
      consummated several noncash transactions with Kerr-McGee during the three months
      ended March 31, 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 $4.2 million.





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. 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.





**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 months ended March 31, 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, 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 period ending March 31, 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 March 31, 2005****(Millions
                of dollars, except per share)**Net
                income as reported
            
            $
            4.0Add:
                stock-based employee compensation expense included in reported net
                income,
                net of taxes
            
            
            0.6Deduct:
                stock-based employee compensation expense determined using a fair-value
                method, net of taxes
            
            
            (1.0
            )Pro
                forma net income
            
            $
            3.6Basic
                and diluted net income per common share:As
                reported
            
            $
            0.17Pro
                forma
            
            
            0.16





***Earnings
      Per Share*** **-** The
      company calculated its earnings per share in accordance with Statement of
      Financial Accounting Standard (“FAS”) No. 128, “Earnings per Share,” and
      FAS No. 123R. Basic earnings per share includes no dilution and is computed
      by
      dividing net income or loss available to common stockholders by the weighted
      average number of common shares outstanding for the period. The weighted average
      number of common shares outstanding for all periods presented includes
      22,889,431 shares of Class B common stock issued to Kerr-McGee in connection
      with the Contribution, retroactively adjusted for the recapitalization. For
      the
      three months ended March 31, 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 9) 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




***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 (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
      $123.0 million ($81.0 million after tax) in stockholders' equity which
      represents currently unrecognized obligations.





**2** **.  
      Other Comprehensive Income (Loss)**





Comprehensive
      income (loss) for the three months ended March 31, 2006 and 2005 was as
      follows:





**Three
                Months Ended March 31,****2006**
            
            **2005****(Millions
                of dollars)**Net
                income
            
            $
            20.6
            
            $
            4.0After
                tax changes in:Deferred
                gain (loss) on cash flow hedges
            
            
            (1.3
            )
            
            4.5Foreign
                currency translation adjustments
            
            
            6.0
            
            
            (13.9
            )Reclassification
                of realized loss on cash flow hedges to net income
            
            
            1.0
            
            
            1.4Minimum
                pension liability adjustments
            
            
            (1.1
            )
            
            0.2Comprehensive
                income (loss)
            
            $
            25.2
            
            $
            (3.8
            )


6


**3. 
       Inventories**





Major
      categories of inventories at March 31, 2006 and December 31, 2005
      were:





**March
                31,**
            
            **December
                31,****2006**
            
            **2005****(Millions
                of dollars)**Raw
                materials
            
            $
            75.8
            
            $
            77.1Work-in-progress
            
            
            16.4
            
            
            15.2Finished
                goods
            
            
            186.1
            
            
            154.7Materials
                and supplies
            
            
            69.6
            
            
            65.3Total
            
            $
            347.9
            
            $
            312.3





**4.  
      Long-Term Receivables, Investments and Other Assets**





Long-term
      receivables, investments, and other assets at March 31, 2006 and
      December 31, 2005 were as follows:





**March
                31,**
            
            **December
                31,****2006**
            
            **2005****(Millions
                of dollars)**Receivable
                from the U.S. Department of Energy (Note 12)
            
            $
            15.0
            
            $
            12.5Investments
                in equity method investees
            
            
            17.6
            
            
            17.5Receivables
                from insurers (Note 12)
            
            
            23.5
            
            
            23.5Prepaid
                pension cost
            
            
            120.6
            
            
            11.7Other
            
            
            17.7
            
            
            13.6Total
            
            $
            194.4
            
            $
            78.8




**5.  
      Noncurrent Liabilities - Other**





Noncurrent
      liabilities - other consisted of the following at March 31, 2006 and
      December 31, 2005:





**March
                31,**
            
            **December
                31,****2006**
            
            **2005****(Millions
                of dollars)**Reserve
                for income taxes payable
            
            $
            37.9
            
            $
            37.2Asset
                retirement obligations
            
            
            27.4
            
            
            27.7Reserve
                for workers’ compensation and general liability claims
            
            
            19.2
            
            
            18.5Pension
                obligations
            
            
            121.6
            
            
            12.6Other
            
            
            22.0
            
            
            25.4Total
            
            $
            228.1
            
            $
            121.4





7


**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 three months ended
      March 31, 2006. No significant changes in the status of such activities occurred
      during this period.


**Personnel**
                **Costs**
              
              **Dismantlement**
                **and
                  Closure**
              
              **Contract
                  Termination**
              
              **Total****(1)(2)****(Millions
                  of dollars)**Beginning
                  balance
              
              $
              3.1
              
              $
              4.9
              
              $
              1.0
              
              $
              9.0Payments
              
              
              (0.1
              )
              
              (0.4
              )
              
              (0.1
              )
              
              (0.6
              )Adjustments
              
              
              0.1
              
              
              —
              
              
              (0.2
              )
              
              (0.1
              )Ending
                  balance
              
              $
              3.1
              
              $
              4.5
              
              $
              0.7
              
              $
              8.3








(1)
            Amounts
                exclude asset retirement obligations and pension
                reserves.


(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. The
      company incurred costs of $1.6 million during the three months ended March
      31,
      2006.





***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 March 31, 2006 and 2005 was $3.8 million
      and $1.6 million, respectively.





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 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 12.





**7** **.  
      Other Income (Expense)**





Components
      of other income (expense) for the three months ended March 31, 2006 and 2005
      were as follows:





**Three
                Months Ended March 31,****2006**
            
            **2005****(Millions
                of dollars)**Net
                foreign currency transaction gain
            
            $
            4.3
            
            $
            1.5Net
                interest expense on borrowings with affiliates and interest
                income
            
            
            0.7
            
            
            (3.1
            )Loss
                on accounts receivables sales
            
            
            —
            
            
            (2.8
            )Other
                expense
            
            
            (0.6
            )
            
            (0.6
            )Total
            
            $
            4.4
            
            $
            (5.0
            )





8


**8.  
      Income Taxes**





In
      the
      following table, the U.S. Federal income tax rate is reconciled to the company's
      effective tax rates for income from continuing operations as reflected in the
      Condensed Consolidated and Combined Statement of Operations for the three months
      ended March 31, 2006 and 2005.





**Three
                Months Ended March 31,****2006**
            
            **2005**U.S.
                statutory tax rate - provision
            
            
            35.0
            %
            
            35.0
            %Increases
                (decreases) resulting from -Taxation
                of foreign operations
            
            
            2.0
            
            
            (6.2
            )State
                income taxes
            
            
            1.0
            
            
            1.0Interest
                on foreign tax contingency
            
            
            0.6
            
            
            —Other
                - net
            
            
            (1.7
            )
            
            0.5Total
            
            
            36.9
            %
            
            30.3
            %





**9.** **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 and restricted
      stock 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.




9




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%





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 effect on compensation cost recognized in the first
      quarter of 2006 and no effect is expected on cost recognition in future periods.
      The analysis for the restricted stock awards was based on the company’s Class A
      common stock fair value on the date of modification listed above and the number
      of shares of restricted stock resulting from the conversion. This analysis
      also
      revealed that the modification did not increase the fair value of the converted
      shares of restricted stock, thus, there was no effect on compensation cost
      recognized in the first quarter of 2006. The conversion of Kerr-McGee
      performance units to Tronox restricted stock 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 months ended March 31, 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 March 31,****2006**
            
            **2005****(Millions
                of dollars)***Expense
                resulting from awards issued originally by Tronox:*Stock
                options
            
            $
            0.1
            
            $
            —Restricted
                stock
            
            
            0.4
            
            
            —*Expense
                resulting from awards issued originally by
                Kerr-McGee:*Stock
                options
            
            
            1.2
            
            
            —Restricted
                stock
            
            
            2.3
            
            
            0.9Total
                stock-based compensation expense, pretax
            
            
            4.0
            
            
            0.9Income
                tax benefit
            
            
            (1.5
            )
            
            (0.3
            )Total
                stock-based compensation expense, net of taxes
            
            $
            2.5
            
            $
            0.6





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 three
      months ended March 31, 2006, were $2.2 million and $1.4 million lower,
      respectively, than if the company had continued to account for stock-based
      compensation under APB No. 25. Basic and diluted net income per share would
      have
      been $0.54 if the company had not adopted FAS No. 123R compared to reported
      basic and diluted net income per share of $0.51 and $0.50, respectively.
      Compensation expense related to Tronox stock-based awards was not significantly
      impacted by the adoption of the new standard.


10


The
      following table presents unamortized compensation cost associated with awards
      outstanding at March 31, 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 changes in the estimate of forfeitures.





**Unamortized
                Cost (Pretax)**
            
            **Remaining
                period****(Millions
                of dollars)**
            
            **(Years)**Stock
                options issued by Tronox Incorporated
            
            $
            1.4
            
            
            2.7Restricted
                stock issued by Tronox Incorporated
            
            
            3.7
            
            
            2.7Stock
                options converted from Kerr-McGee awards
            
            
            2.6
            
            
            1.7Restricted
                stock converted from Kerr-McGee awards
            
            
            3.7
            
            
            1.6$
            11.4




***Stock
      Options*** - The
      following table presents a summary of activity for Tronox options for the three
      months ended March 31, 2006:


**Intrinsic****Number
                of**
            
            
            
            **Contractual**
            
            **Value****Shares**
            
            **Price******(1)
            
            **Life (years)****(1)**
            
            **(Millions)****(2)**Options
                outstanding at December 31, 2005
            
            
            345,700
            
            $
            14.00Options
                converted from Kerr-McGee awards
            
            
            920,466
            
            
            9.62Options
                forfeited
            
            
            (350
            )
            $
            14.00Options
                outstanding at March 31, 2006
            
            
            1,265,816
            
            $
            10.81
            
            
            8.8
            
            $
            8.1Options
                exercisable at March 31, 2006
            
            
            —





(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 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.




11




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





***Restricted
      Stock*** - The
      following table summarizes information about restricted stock activity during
      the first quarter of 2006:


**Number
                of**
            
            **Fair****Shares**
            
            **Value****(1)**Balance
                at December 31, 2005
            
            
            321,790
            
            $
            13.77Awards
                converted from Kerr-McGee awards
            
            
            628,369
            
            
            12.98Forfeited
            
            
            (880
            )
            $
            13.77Balance
                at March 31, 2006
            
            
            949,279
            
            $
            13.25Vested
                at March 31, 2006
            
            
            —





(1)
            Represents
                the weighted-average grant-date fair
                value.




*Valuation
      and cost attribution method* -
      Grant-date fair value of restricted stock 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.





**10.  
      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.





***Foreign
      Plans*** - Net
      periodic pension cost for the company’s foreign retirement plans for the three
      months ended March 31, 2006 and 2005 was $0.8 million and $1.0 million,
      respectively.





***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.





12


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. Net periodic (benefit) cost associated
      with the U.S. plans allocated to the company for the three months ended March
      31, 2006 and 2005 was as follows:


**Three
                Months Ended March 31,****2006**
            
            **2005****(1)****(Millions
                of dollars)**U.S.
                retirement plans
            
            $
            0.7
            
            $
            (0.1
            )U.S.
                postretirement plans
            
            
            2.6
            
            
            1.9





(1)
            Includes
                costs associated with active and inactive employees of the company’s
                domestic chemical business and, effective on the IPO date, costs
                associated with Kerr-McGee corporate employees that became employees
                of
                Tronox after the IPO.





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, as of March 31,
      2006,
      approximately $441.0 million in qualified plan assets had been transferred
      to
      Tronox’s newly established trust. The amount of this transfer is expected to be
      adjusted based on final actuarial analyses in the second quarter of 2006.
      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 on April 28, 2006, from the Kerr-McGee Grantor Trust
      account to the Tronox Grantor Trust account.





The
      following table presents U.S. obligations and assets assumed by Tronox based
      on
      actuarial analyses as well as the funded status, unrecognized items and the
      resulting prepaid or accrued benefit cost.





**At
                March 31, 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
            
            
            440.7
            
            
            —Funded
                status - over (under)
            
            
            29.8
            
            
            (144.2
            )Unrecognized
                prior service cost
            
            
            16.9
            
            
            (5.7
            )Unrecognized
                actuarial (gain) loss
            
            
            59.2
            
            
            35.0Prepaid/(accrued)
                benefit cost
            
            $
            105.9
            
            $
            (114.9
            )




13


Classification
      of the amounts recognized in the Condensed Consolidated Balance Sheet for the
      U.S. retirement and postretirement plans at March 31, 2006 is shown
      below.


**At
                    March 31, 2006****U.S.
                    Retirement Plans**
                
                **U.S.
                    Postretirement Plans****(Millions
                    of dollars)**Prepaid
                    pension cost
                
                $
                108.8
                
                $
                —Accrued
                    benefit liability
                
                
                (2.9
                )
                
                (10.9
                )Noncurrent
                    liability
                
                
                (1.7
                )
                
                (104.0
                )Accumulated
                    other comprehensive income (before tax)
                
                
                1.7
                
                
                —Total
                
                $
                105.9
                
                $
                (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. As of March 31, 2006, 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 30, 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.





***Plan
      Assets*** - Asset
      categories for the company’s funded retirement plan and the associated asset
      allocations by category at March 31, 2006 are as follows:





**At
                March 31, 2006**Equity
                securities
            
            
            54
            %Fixed
                income securities
            
            
            43Cash
                and cash equivalents
            
            
            3Total
            
            
            100
            %





The
      U.S.
      plan is administered by a board-appointed committee that has fiduciary
      responsibility for the plan’s management. The committee maintains an investment
      policy stating the guidelines for the performance and allocation of plan assets,
      performance review procedures and updating of the policy. At least annually,
      the
      U.S. plan’s asset allocation guidelines are reviewed in light of evolving risk
      and return expectations. Current guidelines permit the committee to manage
      the
      allocation of funds between equity and debt securities within the range of
      40-60% equity securities and 40-60% fixed income securities.





Substantially
      all of the plan’s assets are invested with eight equity fund managers and five
      fixed-income fund managers. To control risk, equity fund managers are prohibited
      from entering into the following transactions, (i) investing in commodities,
      including all futures contracts, (ii) purchasing letter stock, (iii) short
      selling and (iv) option trading. In addition, equity fund managers are
      prohibited from purchasing on margin and are prohibited from purchasing Tronox
      securities. Equity managers are monitored to ensure investments are in line
      with
      their style and are generally permitted to invest in U.S. common stock, U.S.
      preferred stock, U.S. securities convertible into common stock, common stock
      of
      foreign companies listed on major U.S. exchanges, common stock of foreign
      companies listed on foreign exchanges, covered call writing, and cash and cash
      equivalents.





Fixed-income
      fund managers are prohibited from investing in (i) direct real estate mortgages
      or commingled real estate funds, (ii) private placements above certain portfolio
      thresholds, (iii) tax exempt debt of state and local governments above certain
      portfolio thresholds, (iv) fixed income derivatives that would cause leverage,
      (v) guaranteed investment contracts, and (vi) Tronox securities. They are
      permitted to invest in debt securities issued by the U.S. government, its
      agencies or instrumentalities, commercial paper rated A3/P3, FDIC insured
      certificates of deposit or bankers acceptances, and corporate debt obligations.
      Each fund manager’s portfolio should have an average credit rating of A or
      better.




14




**11.  
      Commitments**





At
      March
      31, 2006 the company had outstanding letters of credit of approximately $77.3
      million. These letters of credit have been granted to us by financial
      institutions to support our environmental clean-up costs and miscellaneous
      operational and severance requirements in international locations.





**12. 
       Contingencies**





The
      following table summarizes the contingency reserve balances, provisions,
      payments and settlements for the three months ended March 31, 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
            
            
            —
            
            
            2.0
            
            
            22.2Payments
                / Settlements
            
            
            (1.4
            )
            
            (9.2
            )
            
            (21.3
            )Balance
                at March 31, 2006
            
            $
            7.8
            
            $
            216.5
            
            $
            57.6





(1)
            Provisions
                for environmental remediation and restoration include $2.0 million
                related to the company’s former forest products operations, thorium
                compounds manufacturing, uranium and refining operations. Accrual
                of
                reimbursements receivable includes $1.7 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).





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.




15




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.





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.





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.




16




***Financial
      Reserves*** *-* As of
      March 31, 2006, reserves for environmental remediation at Henderson totaled
      $35.2 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.





At
      March
      31, 2006, the company had received $6.6 million of cost reimbursement under
      the
      insurance policy, and expects additional estimated aggregate cleanup cost of
      $91.7 million less the $61.3 million self-insured retention to be covered by
      the
      policy (for a net amount of $30.4 million in additional reimbursement). The
      company believes that additional reimbursement of approximately $30.4 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.




17




***Financial
      Reserves*** - As of
      March 31, 2006, the company had reserves of $83.6 million for costs related
      to
      the West Chicago facility and vicinity properties. 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 March 31, 2006, the company had
      been reimbursed approximately $280.6 million under Title X.





Reimbursements
      under Title X are provided by congressional appropriations. Historically,
      congressional appropriations have lagged the company’s cleanup expenditures. As
      of March 31, 2006, the government’s share of costs incurred by the company but
      not yet reimbursed by the DOE totaled approximately $27.0 million, which
      includes $1.5 million accrued in 2006. The company received $12.0 million from
      the government in April 2006 and believes that receipt of the remaining
      $15.0 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.





**Ambrosia
      Lake, New Mexico**





From
      the
      late 1950s until 1988, the company operated a uranium mining and milling
      operation at Ambrosia Lake near Grants, New Mexico, pursuant to a license issued
      by the Atomic Energy Commission (“AEC”), now the Nuclear Regulatory Commission
      (“NRC”). When the operation was sold, the company retained responsibility for
      certain environmental conditions existing at the site, including mill tailings,
      selected ponds and groundwater contamination related to the mill tailings and
      unlined ponds. Since 1989, the unaffiliated current owner of the site, Rio
      Algom
      Mining LLC (“Rio Algom”), has been decommissioning the site pursuant to the
      license issued by NRC. Mill tailings, certain impacted surface soils and
      selected pond sediments have been consolidated in an onsite containment unit,
      and groundwater treatment has been ongoing. Under terms of the sales agreement,
      which included provisions capping the liability of Rio Algom, the company became
      obligated to solely fund the remediation for the items described above when
      total expenditures exceeded $30 million, which occurred in late 2000. A request
      to cease groundwater treatment has been under review by the NRC since 2001.
      In
      addition, a decommissioning plan for remaining impacted soil was submitted
      by
      Rio Algom to the NRC in January 2005 and is currently under review. If approved,
      the soil decommissioning plan would take about 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
      March 31, 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.




18




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





**Crescent,
      Oklahoma**





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





***Financial
      Reserves*** - As of
      March 31, 2006, the company had reserves of $6.2 million for the costs of
      the remediation activities, including those currently under evaluation by the
      NRC and the ODEQ, 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.





**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
      March 31, 2006, the company had reserves of $3.5 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.




19




***Financial
      Reserves*** - As of
      March 31, 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.





***Financial
      Reserves*** - As of
      March 31, 2006, the company had reserves of $4.2 million for the costs of
      the remediation work described above. Although actual costs may differ from
      current estimates, the amount of any revisions in remediation costs cannot
      be
      reasonably estimated at this time. The costs associated with remediation, if
      any, of the lower portion of the tributary creek are not reasonably estimable
      at
      this time and, thus, no reserve has been recorded.





**New
      Jersey Wood-Treatment Site**





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




20


**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
      March 31, 2006, the company had reserves of approximately $8.3 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
      March 31, 2006, the company had reserves of approximately $2.7 million for
      the remediation activities described above. Although actual costs may differ
      from current estimates, the amount of any revisions in remediation costs cannot
      be reasonably estimated at this time.





**Cleveland,
      Oklahoma**





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





***Financial
      Reserves*** - As of
      March 31, 2006, the company had reserves of approximately $4.2 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 is being performed under the oversight of the ODEQ.
      Remediation to address hydrocarbon contamination in soils is expected to take
      about four more years. The long-term scope, duration and cost of groundwater
      remediation are uncertain and, therefore, additional costs beyond those accrued
      may be incurred in the future.




21




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




***Financial
      Reserves*** - As of
      March 31, 2006, the company had reserves of $11.6 million for the costs of
      the ongoing remediation and decommissioning work described above. Although
      actual costs may differ from current estimates, the amount of any revisions
      in
      remediation costs cannot be reasonably estimated at this time.





**Calhoun,
      Louisiana**





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





***Financial
      Reserves*** - As of
      March 31, 2006, the company had reserves of $4.3 million for the costs of
      the remediation activities described above. Although actual costs may differ
      from current estimates, the amount of any revisions in remediation costs cannot
      be reasonably estimated at this time.




**Jacksonville,
      Florida**




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






***Financial
      Reserves*** - As of
      March 31, 2006, the company had reserves of $5.4 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 March 31, 2006, the company had
      reserves of $33.7 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, 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.




22




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 March 31, 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 .




**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 million for alleged breaches of contract. Discovery in
      the litigation was completed in February 2006. On March 1, 2006, both parties
      filed motions for summary judgment. A trial date will be set after the court
      rules on the motions for summary judgment. The company believes that the claims
      made in the complaint are without substantial merit and is vigorously defending
      against them and, thus, no reserve has been recorded. The company currently
      believes that damages, if any, related to the claims are not likely to have
      a
      material adverse effect on the company.





**Birmingham,
      Alabama**




Until
      1995, Triple S operated a petroleum terminal in Birmingham, Alabama. In late
      2005, a local church, which is located on property adjacent to the site,
      demanded payment for damages of approximately $25 million in connection with
      a
      release of petroleum alleged to have occurred at the terminal and threatened
      litigation. In March 2006, the company filed a lawsuit seeking a declaration
      of
      the parties’ rights and injunctive relief. The 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.




23




**Forest
      Products Litigation**




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




In
      2003,
      Tronox LLC entered into a settlement agreement that resolved approximately
      1,490
      of the Hattiesburg claims, which resulted in aggregate payments by Tronox LLC
      of
      approximately $0.6 million. In December 2005, Tronox LLC entered into
      settlement agreements to resolve up to 1,335 of the remaining Hattiesburg claims
      and up to 879 of the Columbus claims. The December 2005 settlement agreements
      require Tronox LLC to pay up to $2.5 million, of which $1.8 million was paid
      in
      December 2005. In addition, all of the remaining Hattiesburg claims have been
      dismissed without prejudice on the 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
      March 31, 2006, the company had reserves of $7.3 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 has been scheduled for late May 2006. The company currently
      cannot reasonably estimate the amount of damages that will be awarded. The
      company will recognize a receivable, if and when damages are awarded and all
      contingencies associated with any recovery are resolved.





**Other
      Matters**





The
      company is party to a number of legal and administrative proceedings involving
      environmental and/or other matters pending in various courts or agencies. These
      proceedings, individually and in the aggregate, are not expected to have a
      material adverse effect on the company. These proceedings 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.





24


**13. 
       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. 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 March 31,****2006**
              
              **2005****(Millions
                  of dollars)****Net
                  sales**Pigment
              
              $
              309.0
              
              $
              310.8Electrolytic
                  and other chemical products
              
              
              27.2
              
              
              23.4Total
              
              $
              336.2
              
              $
              334.2**Operating
                  profit**Pigment
              
              $
              25.7
              
              $
              31.7Electrolytic
                  and other chemical products(1)
              
              
              21.8
              
              
              (8.7
              )47.5
              
              
              23.0Expenses
                  of nonoperating sites(2)
              
              
              (2.5
              )
              
              (0.2
              )Total
                  operating profit
              
              
              45.0
              
              
              22.8Interest
                  and debt expense - third parties
              
              
              12.0
              
              
              —Other
                  income (expense)
              
              
              4.4
              
              
              (5.0
              )Income
                  tax provision
              
              
              (13.8
              )
              
              (5.4
              )Income
                  from continuing operations
              
              $
              23.6
              
              $
              12.4





(1)
            Includes
                $(20.5) million and $11.0 million for the three months ended March
                31, 2006 and 2005, respectively, of environmental charges, net of
                reimbursements, related to ammonium perchlorate at the company’s Henderson
                facility.





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


25


**14.  
      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 March 31, 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 March 31, 2005.
      Therefore, condensed consolidating and combining financial information for
      the
      period ended March 31, 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.





**Condensed
      Consolidating and Combining Statement of Operations**


**Three
      Months Ended March 31, 2006**





**Tronox
                Incorporated**
            
            **Issuers**
            
            **Guarantor
                Subsidiaries**
            
            **Non-Guarantor
                Subsidiaries**
            
            **Eliminations**
            
            **Consolidated****(Millions
                of dollars)****Net
                sales**
            
            $
            —
            
            $
            —
            
            $
            181.9
            
            $
            172.5
            
            $
            (18.2
            )
            $
            336.2Cost
                of goods sold
            
            
            —
            
            
            —
            
            
            150.1
            
            
            143.8
            
            
            (17.9
            )
            
            276.0**Gross
                margin**
            
            
            —
            
            
            —
            
            
            31.8
            
            
            28.7
            
            
            (0.3
            )
            
            60.2Selling,
                general and administrative expenses
            
            
            0.5
            
            
            0.2
            
            
            20.7
            
            
            15.2
            
            
            (0.9
            )
            
            35.7Provision
                for environmental remediation and restoration, net of
                reimbursements
            
            
            —
            
            
            —
            
            
            (20.5
            )
            
            —
            
            
            —
            
            
            (20.5
            )(0.5
            )
            
            (0.2
            )
            
            31.6
            
            
            13.5
            
            
            0.6
            
            
            45.0Interest
                and debt expense - third parties
            
            
            —
            
            
            12.5
            
            
            (0.2
            )
            
            (0.3
            )
            
            —
            
            
            12.0Other
                income (expense)
            
            
            20.9
            
            
            31.3
            
            
            3.2
            
            
            3.4
            
            
            (54.4
            )
            
            4.4**Income
                from Continuing Operations before Income Taxes**
            
            
            20.4
            
            
            18.6
            
            
            35.0
            
            
            17.2
            
            
            (53.8
            )
            
            37.4Income
                Tax Benefit (Provision)
            
            
            0.2
            
            
            2.4
            
            
            (9.7
            )
            
            (6.7
            )
            
            —
            
            
            (13.8
            )**Income
                from Continuing Operations**
            
            
            20.6
            
            
            21.0
            
            
            25.3
            
            
            10.5
            
            
            (53.8
            )
            
            23.6Loss
                from Discontinued Operations, net of taxes
            
            
            —
            
            
            (0.1
            )
            
            (2.9
            )
            
            —
            
            
            —
            
            
            (3.0
            )**Net
                Income**
            
            $
            20.6
            
            $
            20.9
            
            $
            22.4
            
            $
            10.5
            
            $
            (53.8
            )
            $
            20.6








26


**Condensed
      Consolidating and Combining Statement of Operations**


**Three
      Months Ended March 31, 2005**





**Issuer**
              
              **Guarantor
                  Subsidiaries**
              
              **Non-Guarantor
                  Subsidiaries**
              
              **Eliminations**
              
              **Combined****(Millions
                  of dollars)****Net
                  sales**
              
              $
              —
              
              $
              180.2
              
              $
              182.0
              
              $
              (28.0
              )
              $
              334.2Cost
                  of goods sold
              
              
              —
              
              
              144.8
              
              
              154.0
              
              
              (26.5
              )
              
              272.3**Gross
                  margin**
              
              
              —
              
              
              35.4
              
              
              28.0
              
              
              (1.5
              )
              
              61.9Selling,
                  general and administrative expenses
              
              
              —
              
              
              13.5
              
              
              16.5
              
              
              (1.8
              )
              
              28.2Provision
                  for environmental remediation and restoration, net of
                  reimbursements
              
              
              —
              
              
              10.9
              
              
              —
              
              
              —
              
              
              10.9—
              
              
              11.0
              
              
              11.5
              
              
              0.3
              
              
              22.8Other
                  income (expense)
              
              
              3.0
              
              
              2.3
              
              
              0.8
              
              
              (11.1
              )
              
              (5.0
              )**Income
                  from Continuing Operations before Income Taxes**
              
              
              3.0
              
              
              13.3
              
              
              12.3
              
              
              (10.8
              )
              
              17.8Income
                  Tax Benefit (Provision)
              
              
              0.2
              
              
              (2.5
              )
              
              (3.1
              )
              
              —
              
              
              (5.4
              )**Income
                  from Continuing Operations**
              
              
              3.2
              
              
              10.8
              
              
              9.2
              
              
              (10.8
              )
              
              12.4Loss
                  from Discontinued Operations, net of taxes
              
              
              (0.9
              )
              
              (7.5
              )
              
              —
              
              
              —
              
              
              (8.4
              )**Net
                  Income**
              
              $
              2.3
              
              $
              3.3
              
              $
              9.2
              
              $
              (10.8
              )
              $
              4.0











27


**Condensed
      Consolidating Balance Sheet as of March 31, 2006**





**Tronox
                Incorporated**
            
            **Issuers**
            
            **Guarantor
                Subsidiaries**
            
            **Non-Guarantor
                Subsidiaries**
            
            **Eliminations**
            
            **Consolidated****(Millions
                of dollars)****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            —
            
            $
            —
            
            $
            15.8
            
            $
            41.5
            
            $
            —
            
            $
            57.3Intercompany
                receivables
            
            
            —
            
            
            —
            
            
            59.8
            
            
            11.6
            
            
            (71.4
            )
            
            —Accounts
                receivable, net of allowance for doubtful accounts
            
            
            —
            
            
            0.2
            
            
            161.1
            
            
            163.4
            
            
            —
            
            
            324.7Inventories
            
            
            —
            
            
            —
            
            
            209.8
            
            
            138.7
            
            
            (0.6
            )
            
            347.9Prepaid
                and other assets
            
            
            0.8
            
            
            0.1
            
            
            7.5
            
            
            11.2
            
            
            —
            
            
            19.6Income
                tax receivable
            
            
            —
            
            
            —
            
            
            —
            
            
            0.8
            
            
            —
            
            
            0.8Deferred
                income taxes
            
            
            —
            
            
            7.4
            
            
            27.2
            
            
            3.8
            
            
            (1.5
            )
            
            36.9**Total
                Current Assets**
            
            
            0.8
            
            
            7.7
            
            
            481.2
            
            
            371.0
            
            
            (73.5
            )
            
            787.2**Property,
                Plant and Equipment—Net**
            
            
            —
            
            
            9.9
            
            
            464.0
            
            
            372.9
            
            
            —
            
            
            846.8**Investments
                in Subsidiaries**
            
            
            2,202.6
            
            
            986.2
            
            
            171.8
            
            
            —
            
            
            (3,360.6
            )
            
            —**Long-Term
                Receivables, Investments**
              **and
                Other Assets**
            
            
            113.0
            
            
            13.0
            
            
            56.8
            
            
            11.6
            
            
            —
            
            
            194.4**Goodwill
                and Other Intangible Assets**
            
            
            —
            
            
            —
            
            
            28.2
            
            
            33.0
            
            
            —
            
            
            61.2**Total
                Assets**
            
            $
            2,316.4
            
            $
            1,016.8
            
            $
            1,202.0
            
            $
            788.5
            
            $
            (3,434.1
            )
            $
            1,889.6**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Current
                Liabilities**Intercompany
                borrowings
            
            $
            530.6
            
            $
            —
            
            $
            129.6
            
            $
            218.5
            
            $
            (878.7
            )
            $
            —Accounts
                payable
            
            
            —
            
            
            1.5
            
            
            71.7
            
            
            111.3
            
            
            —
            
            
            184.5Accrued
                liabilities
            
            
            14.5
            
            
            24.6
            
            
            101.4
            
            
            31.2
            
            
            —
            
            
            171.7Long-term
                debt due within one year
            
            
            —
            
            
            2.0
            
            
            —
            
            
            —
            
            
            —
            
            
            2.0Income
                taxes payable
            
            
            —
            
            
            —
            
            
            9.6
            
            
            2.1
            
            
            —
            
            
            11.7**Total
                Current Liabilities**
            
            
            545.1
            
            
            28.1
            
            
            312.3
            
            
            363.1
            
            
            (878.7
            )
            
            369.9**Noncurrent
                Liabilities**Deferred
                income taxes
            
            
            0.3
            
            
            —
            
            
            58.6
            
            
            32.5
            
            
            (1.5
            )
            
            89.9Environmental
                remediation and/or restoration
            
            
            —
            
            
            4.3
            
            
            134.5
            
            
            —
            
            
            —
            
            
            138.8Long-term
                debt
            
            
            —
            
            
            547.5
            
            
            —
            
            
            —
            
            
            —
            
            
            547.5Other
            
            
            108.4
            
            
            10.6
            
            
            43.0
            
            
            65.9
            
            
            0.2
            
            
            228.1**Total
                Noncurrent Liabilities**
            
            
            108.7
            
            
            562.4
            
            
            236.1
            
            
            98.4
            
            
            (1.3
            )
            
            1,004.3**Total
                Stockholders’ Equity**
            
            
            1,662.6
            
            
            426.3
            
            
            653.6
            
            
            327.0
            
            
            (2,554.1
            )
            
            515.4**Total
                Liabilities and Stockholders’ Equity**
            
            $
            2,316.4
            
            $
            1,016.8
            
            $
            1,202.0
            
            $
            788.5
            
            $
            (3,434.1
            )
            $
            1,889.6





28


**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







29


**Condensed
      Consolidating and Combining Statement of Cash Flows**


**Three
      Months Ended March 31, 2006**





**Tronox
                Incorporated**
            
            **Issuers**
            
            **Guarantor
                Subsidiaries**
            
            **Non-Guarantor
                Subsidiaries**
            
            **Eliminations**
            
            **Consolidated****(Millions
                of dollars)****Cash
                Flows from Operating Activities**Net
                income
            
            $
            20.6
            
            $
            20.9
            
            $
            22.4
            
            $
            10.5
            
            $
            (53.8
            )
            $
            20.6Adjustments
                to reconcile net income to net cash provided by operating activities—Depreciation
                and amortization
            
            
            —
            
            
            —
            
            
            14.4
            
            
            10.1
            
            
            —
            
            
            24.5Deferred
                income taxes
            
            
            —
            
            
            1.0
            
            
            3.5
            
            
            2.6
            
            
            —
            
            
            7.1Equity
                in earnings of subsidiaries
            
            
            (20.9
            )
            
            (25.2
            )
            
            (8.3
            )
            
            —
            
            
            54.4
            
            
            —Provision
                for environmental remediation and restoration, net of
                reimbursements
            
            
            —
            
            
            —
            
            
            (20.2
            )
            
            —
            
            
            —
            
            
            (20.2
            )Other
                noncash items affecting net income
            
            
            —
            
            
            0.7
            
            
            14.2
            
            
            0.6
            
            
            —
            
            
            15.5Changes
                in assets and liabilities
            
            
            (0.2
            )
            
            15.0
            
            
            (14.3
            )
            
            (33.6
            )
            
            —
            
            
            (33.1
            )Net
                cash provided by (used in) operating activities
            
            
            (0.5
            )
            
            12.4
            
            
            11.7
            
            
            (9.8
            )
            
            0.6
            
            
            14.4**Cash
                Flows from Investing Activities**Capital
                expenditures
            
            
            —
            
            
            —
            
            
            (9.1
            )
            
            (12.7
            )
            
            —
            
            
            (21.8
            )Other
                investing activities
            
            
            —
            
            
            —
            
            
            0.1
            
            
            —
            
            
            —
            
            
            0.1Net
                cash used in investing activities
            
            
            —
            
            
            —
            
            
            (9.0
            )
            
            (12.7
            )
            
            —
            
            
            (21.7
            )**Cash
                Flows from Financing Activities**Repayment
                of debt
            
            
            —
            
            
            (0.5
            )
            
            —
            
            
            —
            
            
            —
            
            
            (0.5
            )Costs
                of obtaining financing
            
            
            —
            
            
            (1.2
            )
            
            —
            
            
            —
            
            
            —
            
            
            (1.2
            )Net
                transfers with affiliates
            
            
            0.5
            
            
            (10.7
            )
            
            (10.7
            )
            
            21.5
            
            
            (0.6
            )
            
            —Net
                cash provided by (used in) financing activities
            
            
            0.5
            
            
            (12.4
            )
            
            (10.7
            )
            
            21.5
            
            
            (0.6
            )
            
            (1.7
            )**Effects
                of Exchange Rate Changes on Cash and Cash
                Equivalents**
            
            
            —
            
            
            —
            
            
            —
            
            
            (2.7
            )
            
            —
            
            
            (2.7
            )**Net
                Decrease in Cash and Cash Equivalents**
            
            
            —
            
            
            —
            
            
            (8.0
            )
            
            (3.7
            )
            
            —
            
            
            (11.7
            )**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            —
            
            
            —
            
            
            23.8
            
            
            45.2
            
            
            —
            
            
            69.0**Cash
                and Cash Equivalents at End of Period**
            
            $
            —
            
            $
            —
            
            $
            15.8
            
            $
            41.5
            
            $
            —
            
            $
            57.3





30


**Condensed
      Consolidating and Combining Statement of Cash Flows**


**Three
      Months Ended March 31, 2005**





**Issuer**
            
            **Guarantor
                Subsidiaries**
            
            **Non-Guarantor
                Subsidiaries**
            
            **Eliminations**
            
            **Combined****(Millions
                of dollars)****Cash
                Flows from Operating Activities**Net
                income
            
            $
            2.3
            
            $
            3.3
            
            $
            9.2
            
            $
            (10.8
            )
            $
            4.0Adjustments
                to reconcile net income to net cash provided by operating activities—Depreciation
                and amortization
            
            
            —
            
            
            14.4
            
            
            12.4
            
            
            —
            
            
            26.8Deferred
                income taxes
            
            
            0.2
            
            
            (10.5
            )
            
            0.7
            
            
            —
            
            
            (9.6
            )Equity
                in earnings of subsidiaries
            
            
            (3.1
            )
            
            (8.0
            )
            
            —
            
            
            11.1
            
            
            —Provision
                for environmental remediation and restoration, net of
                reimbursements
            
            
            —
            
            
            21.6
            
            
            —
            
            
            —
            
            
            21.6Allocations
                from Kerr-McGee
            
            
            0.1
            
            
            16.3
            
            
            (4.5
            )
            
            —
            
            
            11.9Other
                noncash items affecting net income
            
            
            1.4
            
            
            0.3
            
            
            3.2
            
            
            —
            
            
            4.9Changes
                in assets and liabilities
            
            
            (2.4
            )
            
            20.3
            
            
            10.7
            
            
            —
            
            
            28.6Net
                cash provided by (used in) operating activities
            
            
            (1.5
            )
            
            57.7
            
            
            31.7
            
            
            0.3
            
            
            88.2**Cash
                Flows from Investing Activities**Capital
                expenditures
            
            
            —
            
            
            (4.6
            )
            
            (7.2
            )
            
            —
            
            
            (11.8
            )Other
                investing activities
            
            
            —
            
            
            0.7
            
            
            —
            
            
            —
            
            
            0.7Net
                cash used in investing activities
            
            
            —
            
            
            (3.9
            )
            
            (7.2
            )
            
            —
            
            
            (11.1
            )**Cash
                Flows from Financing Activities**Net
                transfers with affiliates
            
            
            1.5
            
            
            (57.1
            )
            
            24.0
            
            
            (0.3
            )
            
            (31.9
            )Net
                cash provided by (used in) financing activities
            
            
            1.5
            
            
            (57.1
            )
            
            24.0
            
            
            (0.3
            )
            
            (31.9
            )**Effects
                of Exchange Rate Changes on Cash and Cash
                Equivalents**
            
            
            —
            
            
            —
            
            
            0.7
            
            
            —
            
            
            0.7**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            —
            
            
            (3.3
            )
            
            49.2
            
            
            —
            
            
            45.9**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            —
            
            
            4.8
            
            
            19.0
            
            
            —
            
            
            23.8**Cash
                and Cash Equivalents at End of Period**
            
            $
            —
            
            $
            1.5
            
            $
            68.2
            
            $
            —
            
            $
            69.7





31


**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 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 quarter of
      2006 totaled $4.0 million ($2.5 million on an after tax basis). In accordance
      with this standard, for the remainder of the 2006 year, we expect to recognize
      $4.5 million to $5.5 million of stock-based compensation expense, pretax. The
      total unamortized compensation cost as of March 31, 2006 was $11.4 million. Compensation
      cost ultimately recognized may differ from this amount due to changes in the
      estimate of forfeitures.


32


**Results
      of Operations**





The
      following table summarizes segment operating profit, with a reconciliation
      to
      consolidated and combined net income for the three months ended March 31, 2006
      and 2005:





**Three
                Months Ended March 31,****2006**
            
            **2005****(Millions
                of dollars)****Net
                sales—**Pigment
            
            $
            309.0
            
            $
            310.8Electrolytic
                and other chemical products
            
            
            27.2
            
            
            23.4****Total
            
            $
            336.2
            
            $
            334.2**Operating
                profit**(1)**—**Pigment
            
            $
            25.7
            
            $
            31.7Electrolytic
                and other chemical products(2)
            
            
            21.8
            
            
            (8.7
            )Subtotal
            
            
            47.5
            
            
            23.0Expenses
                of nonoperating sites(3)
            
            
            (2.5
            )
            
            (0.2
            )Operating
                profit
            
            
            45.0
            
            
            22.8Interest
                and debt expense - third parties
            
            
            12.0
            
            
            —Other
                income (expense)(4)
            
            
            4.4
            
            
            (5.0
            )Provision
                for income taxes
            
            
            (13.8
            )
            
            (5.4
            )Income
                from continuing operations
            
            
            23.6
            
            
            12.4Discontinued
                operations, net of taxes
            
            
            (3.0
            )
            
            (8.4
            )Net
                income
            
            $
            20.6
            
            $
            4.0





(1)
            Our
                management evaluates segment performance based on segment operating
                profit, which represents the results of segment operations before
                unallocated costs, such as general expenses and environmental provisions
                related to sites no longer in operation, income tax expense or benefit
                and
                other income (expense). Total operating profit 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
                $(20.5) million and $11.0 million for the three months ended March
                31, 2006 and 2005, respectively, of environmental charges, net of
                reimbursements, related to ammonium perchlorate at the company’s
                Henderson, Nevada, facility.





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





(4)
            Three
                months ended March 31, 2005, includes 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 March 31, 2006 Compared to Quarter Ended March 31,
      2005***





*Net
      Sales.* Net
      sales increased by $2.0 million, or 0.6%, to $336.2 million in the
      first quarter of 2006 from $334.2 million in the first quarter of 2005. The
      increase was primarily due to an increase in the electrolytic
      and other chemical product segment sales
      of
      $3.8 million offset by a decrease in the pigment segment sales of $1.8
      million, as discussed below under “ *Pigment
      Segment - Net Sales* ”
and
      “ *Electrolytic
      and Other Chemical Products Segment - Net Sales* .”




33




*Gross
      Margin.* Gross
      margin for the first quarter of 2006 was $60.2 million compared to $61.9 million
      in the first quarter of 2005. As a percent of sales, gross margin declined
      slightly to 17.9% from 18.5% in the same period of the prior year. Margins
      were
      negatively impacted by higher production costs, primarily due to increased
      process chemical and energy costs.





*Selling,
      General and Administrative Expenses.* Selling,
      general and administrative expenses increased $7.5 million in the first
      quarter of 2006 compared to the first quarter 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.





*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 first quarter of 2006 compared to an expense
      of $10.9 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 first quarter of 2005 related to the remediation of ammonium
      perchlorate contamination at the Henderson facility as it was determined that
      the groundwater remediation system would need to be operated and maintained
      over
      an extended time period (see Note 12 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 $12.0 million in the first
      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 first quarter of 2006 was $4.4 million compared to expense of $5.0 million
      in the first quarter of 2005. The $9.4 million increase was primarily due to
      the
      elimination in 2006 of interest expense allocated from affiliates ($3.1
      million), the elimination of the
      asset
      securitization program and the fees associated with it ($2.8 million), and
      an
      increase in gains in 2006 compared to 2005 attributable to changes in the
      exchange rates for both the euro and the Australian dollar ($2.8
      million).





*Income
      Tax Provision.* Our
      effective tax rate related to continuing operations for the first quarter of
      2006 was 36.9% compared to 30.3% for the same period in 2005. Our effective
      tax
      rate was higher in the
      f irst
      quarter of 2006 primarily due to the taxation of foreign
      operations.





*Loss
      from Discontinued Operations.* The loss
      from discontinued operations, net of taxes, in the first quarter of 2006 was
      $3.0 million compared to $8.4 million in the first quarter of 2005. The 2006
      loss was primarily attributable to legal fees and environmental costs associated
      with the company’s former forest products operations. The loss in 2005 was
      primarily related to additional environmental costs for the former West Chicago
      site (see Note 12 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 decreased $1.8 million, or 0.6%, in the first quarter of 2006
      compared to the same period in 2005. Lower sales volumes accounted for a
      decrease of $3.4 million, while an increase in average selling prices partially
      offset the volume impact. Stronger market conditions contributed to the
      improvement in pricing, although pricing was negatively impacted approximately
      $11.1 million related to exchange rate changes on the euro between the first
      quarter of 2005 and the first quarter of 2006. The decline in volume was due
      to
      the shutdown of our sulfate production facility in Savannah, Georgia, in 2004,
      as we sold our remaining inventory in the first quarter of 2005, and due to
      slightly reduced volumes in the first quarter of 2006 following a strong 2005
      fourth quarter.





*Operating
      Profit.* Operating profit in the first quarter of 2006 was $25.7 million, a decrease
      of $6.0 million from $31.7 million in the first quarter of 2005.
      Offsetting the favorable affects of the selling prices mentioned above,
      operating results were negatively impacted $3.5 million by higher production
      costs. The increased production costs were primarily due to increased process
      chemical and energy costs which were partially offset by the favorable impact
      of
      exchange rate changes on the euro between the first quarter of 2005 and the
      first quarter of 2006. Selling, general and administrative expenses increased $4.1
      million due to increased compensation and benefit costs, including stock-based awards, and
      increased retirement and postretirement expense.




34




*Electrolytic
      and Other Chemical Products Segment*





*Net
      Sales.* Net
      sales in the first quarter of 2006 were $27.2 million, an increase of
      $3.8 million compared to the first quarter of 2005. Sales volumes for all
      products were higher than the previous year due to strong market demand and
      concerted efforts to increase market share for established products and
      continued commercialization and ramp up of the lithium manganese product line.
      Sales prices for manganese dioxide and sodium chlorate also were increased
      in
      2006 to offset rising manufacturing costs.





*Operating
      Profit.* Operating profit in the first quarter of 2006 was $21.8 million compared
      with an operating loss of $8.7 million in the same period of 2005. The
      $30.5 million improvement was primarily due to the $20.5 million recovery of
      past environmental remediation costs from the United States in the first quarter
      of 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 offset the majority of the
      sales
      increases realized during the quarter and the segment also had increased selling,
      general and administrative expenses of $1.1 million attributable to higher
      compensation and benefits costs, including stock-based awards, and increased
      retirement and postretirement expense.





**Financial
      Condition and Liquidity**





The
      following table provides certain information useful in the analysis of our
      financial condition and liquidity:





**March
                31,**
              **2006**
            
            **December
                31,**
              **2005****(Millions
                of dollars)**Current
                ratio(1)
            
            
            2.1:1
            
            
            2.1:1Cash
                and cash equivalents
            
            $
            57.3
            
            $
            69.0Working
                capital(2)
            
            
            417.3
            
            
            404.4Total
                assets(3)
            
            
            1,889.6
            
            
            1,758.3Long-term
                debt
            
            
            547.5
            
            
            548.0Stockholders’
                equity
            
            
            515.4
            
            
            489.0





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


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


(3)
            On
                March 30, 2006, the company assumed certain U.S. benefit plan obligations
                and received a transfer of related assets which resulted in an increase
                in
                total assets of $113.2 million, offset by an increase in total liabilities
                of $117.3 million and a decrease in stockholders’ equity of $4.1
                million.





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





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. The company is in the
      process of registering these notes with the Securities and Exchange Commission
      (“SEC”). Once registered, the company will commence an offer to exchange the
      notes and guarantees for publicly tradable notes and guarantees having
      substantially identical terms.




35




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 three months ended March 31, 2005 are
      not
      representative of the amounts that would have been required or generated by
      us
      as a stand-alone company.





Cash
      and
      cash equivalents at March 31, 2006, consisted of $15.0 million which was
      held in the United States and $42.3 million held in other countries.





*Cash
      Flows from Operating Activities.* Cash
      flows from operating activities for the three months ended March 31, 2005,
      exclude expenditures of $6.7 million for general corporate expenses, $6.1
      million for employee benefits and $4.1 million for 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. Additionally, we expect that our general corporate expenses may
      be
      $15 million to $20 million greater on an annual basis than we have incurred
      historically, which will further reduce our cash flows from operating activities
      as compared to historical experience.





Cash
      flows from operating activities for the three months ended March 31, 2006,
      were
      $14.4 million, compared to cash from operating activities of
      $88.2 million for the same period in 2005. The $73.8 million decrease
      in cash flows from operating activities for the three months ended March 31,
      2006, was due primarily to a decrease in environmental reimbursement receipts.
      During the three months ended March 31, 2005, $65.7 million in environmental
      reimbursements was received from the U.S. Department of Energy, compared to
      $20.5 million received from the U.S. Navy for the same period in 2006. Cash
      flows from operating activities also decreased in 2006 due to the timing of
      payments for raw materials and cash bonus programs.





*Cash
      Used in Investing Activities.* Net cash
      used in investing activities for the three months ended March 31, 2006, was
      $21.7 million, an increase of $10.6 million compared to the same period in
      2005.
      Capital expenditures were higher due to significant on-going 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, pigment 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 budgeted at $94.0 million. The
      process and technology improvement projects at Uerdingen, Botlek and Hamilton
      described above comprise the majority of the total 2006 annual budget.
      Additionally, investing activities for 2006 are expected to include proceeds
      from land sales in the vicinity of our Henderson, Nevada, facility.





*Cash
      Used in Financing Activities.* Net cash
      used in financing activities was $1.7 million for the three months ended March
      31, 2006, and $31.9 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 three months ended March 31, 2006, related to payments
      of
      debt issue costs associated with our long-term debt of $1.2 million and a
      scheduled principal payment of $0.5 million under our term loan facility, 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.




36


***Commitments***





At
      April
      30, 2006, we had outstanding letters of credit of approximately $77.9 million.
      These letters of credit have been granted to us by financial institutions to
      support our environmental clean-up costs and miscellaneous operational and
      severance requirements in international locations.





**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.





***U.S.
      Benefit Plans***





As
      discussed under Note 10 to the Condensed Consolidated and Combined Financial
      Statements included in Item 1 of this quarterly report on Form 10-Q, as of
      March
      31, 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.





*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 net periodic cost for the annual
      2006
      period related to the newly established U.S. retirement and postretirement
      plans
      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 10 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 31, 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.





37


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 31, 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.





**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
      $123.0 million ($81.0 million after tax) in stockholders' equity which
      represents currently unrecognized obligations.




38




**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.





From
      time
      to time, we enter into financial derivative instruments that generally fix
      the
      commodity prices to be paid for a portion of our forecasted natural gas
      purchases. These contracts have been designated and qualified as cash flow
      hedges. At March 31, 2006, we had hedged approximately 70% of our forecasted
      U.S. natural gas purchases.




**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.




The
      company separated its financial applications and certain of its significant
      processes from Kerr-McGee during the period covered by this report. The
      separation included establishment of our own information technology
      infrastructure and copying existing financial applications and historical data
      to the new infrastructure. The company relies upon these financial applications
      as part of its system of internal control over financial reporting. General
      controls were in place during this transition to insure integrity of the
      hardware, software and data. Tests were performed to substantiate data
      integrity, application performance, financial reports and effectiveness of
      the
      processes. The company has continually performed its internal controls over
      financial reporting. As a result, management believes the separation did not
      materially affect the company’s internal control over financial
      reporting.




There
      were no other changes in the company’s internal control over financial reporting
      that occurred during the first quarter 2006 that have materially affected or
      is
      reasonably likely to materially affect the company’s internal control over
      financial reporting.




39


**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.







**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
      the other PRPs have received similar letters from EPA, whether there are any
      defenses to liability available to the other PRPs or whether the other PRPs
      have
      the financial resources necessary to meet their obligations. The company intends
      to vigorously defend against EPA’s demand, though the company expects to have
      discussions with EPA that could lead to a settlement or resolution of EPA’s
      demand. No reserve for reimbursement of cleanup costs at the site has been
      recorded because it is not possible to reliably estimate the liability, if
      any,
      the company may have for the site because of the aforementioned defenses and
      uncertainties.




40




***Forest
      Products***




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




In
      2003,
      Tronox LLC entered into a settlement agreement that resolved approximately
      1,490
      of the Hattiesburg claims, which resulted in aggregate payments by Tronox LLC
      of
      approximately $0.6 million. In December 2005, Tronox LLC entered into
      settlement agreements to resolve up to 1,335 of the remaining Hattiesburg claims
      and up to 879 of the Columbus claims. The December 2005 settlement agreements
      require Tronox LLC to pay up to $2.5 million, of which $1.8 million was paid
      in
      December 2005. In addition, all of the remaining Hattiesburg claims have been
      dismissed without prejudice on the 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 12 to the Condensed
      Consolidated and Combined Financial Statements included in Item 1 of this
      quarterly report on Form 10-Q.




41


**Item
              6.**
            **Exhibits**




**Exhibit
      No.**







10.1
            Continuity
                Agreement, dated as of November 28, 2005, between Tronox Incorporated
                and
                Kelly A. Green (as referenced in the official notification to shareholders
                of matters to be brought to a vote on Form DEF 14A, filed with the
                Securities and Exchange Commission on April 10, 2006)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





42








**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 May 15, 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 Financial and Accounting
                Officer)






43