SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
           ACT OF 1934 - For the fiscal year ended December 31, 2003


         Commission file number 333-100047

                           KRONOS INTERNATIONAL, INC.
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             (Exact name of Registrant as specified in its charter)

           Delaware                                           22-2949593
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(State or other jurisdiction of                              (IRS Employer
 incorporation or organization)                            Identification No.)

5430 LBJ Freeway, Suite 1700, Dallas, Texas                    75240-2697
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  (Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code:          (972) 233-1700
                                                        -----------------------

Securities registered pursuant to Section 12(b) of the Act:

                  None.

Securities registered pursuant to Section 12(g) of the Act:

                  None.

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X  No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

Indicate  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Securities Exchange Act). Yes   No  X

No common stock was held by  nonaffiliates of the Registrant as of June 30, 2003
(the last business day of the Registrant's most recently-completed second fiscal
quarter).

As of February 27,  2004,  2,968  shares of the  Registrant's  common stock were
outstanding.

The Registrant is a wholly-owned subsidiary of Kronos Worldwide,  Inc. (File No.
1-31763) and meets the conditions set forth in General Instructions I(1) (a) and
(b) and is therefore filing this Form 10-K with the reduced disclosure format.

                       Documents incorporated by reference

None.


                                     PART I


ITEM 1.  BUSINESS

     Kronos  International,  Inc.,  ("KII")  is  incorporated  in the  State  of
Delaware,  U.S.A.,  and is registered in the Commercial  Register of the Federal
Republic  of  Germany.  KII's  principal  place of  business  is in  Leverkusen,
Germany.

     KII is a  wholly-owned  subsidiary  of Kronos  Worldwide,  Inc.  ("Kronos")
(NYSE:  KRO). At December 31, 2003, NL Industries,  Inc. (NYSE:  NL) held 51% of
the  outstanding  common  stock of Kronos.  NL  conducts  its  titanium  dioxide
pigments ("TiO2") operations through Kronos,  which is the world's fifth largest
producer of TiO2. KII conducts Kronos' European TiO2 operations.

     At  December  31,  2003,  (i)  Valhi,  Inc (NYSE:  VHI) and a  wholly-owned
subsidiary of Valhi owned an aggregate of 84% of NL's outstanding  common stock,
(ii) Valhi and a  wholly-owned  subsidiary of Valhi owned an  additional  42% of
Kronos'   outstanding  common  stock  and  (iii)  Contran  Corporation  and  its
subsidiaries  held  approximately  90%  of  Valhi's  outstanding  common  stock.
Substantially  all of  Contran's  outstanding  voting  stock  is held by  trusts
established for the benefit of certain  children and  grandchildren of Harold C.
Simmons of which Mr. Simmons is sole trustee.  Mr. Simmons,  the Chairman of the
Board and Chief Executive Officer of NL, Kronos and the Company,  as well as the
Chairman of the Board of each of Contran,  Valhi, Kronos and the Company, may be
deemed to control each of such companies. See Notes 1 and 12 to the Consolidated
Financial Statements.

     As  provided  by the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995, the Company cautions that the statements in this
Annual  Report on Form 10-K relating to matters that are not  historical  facts,
including,  but not limited to,  statements  found in this Item 1 -  "Business,"
Item 3 - "Legal Proceedings," Item 7 - "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations" and Item 7A - "Quantitative  and
Qualitative Disclosures About Market Risk," are forward-looking  statements that
represent  management's  beliefs and  assumptions  based on currently  available
information.  Forward-looking  statements  can be identified by the use of words
such  as  "believes,"   "intends,"  "may,"  "should,"  "could,"   "anticipates,"
"expected" or comparable terminology, or by discussions of strategies or trends.
Although  the  Company  believes  that  the   expectations   reflected  in  such
forward-looking  statements are  reasonable,  it cannot give any assurances that
these  expectations  will prove to be correct.  Such  statements by their nature
involve  substantial risks and  uncertainties  that could  significantly  impact
expected  results,  and actual future results could differ materially from those
described  in such  forward-looking  statements.  While  it is not  possible  to
identify   all   factors,   the  Company   continues  to  face  many  risks  and
uncertainties.  Among the factors  that could  cause  actual  future  results to
differ  materially  are the risks and  uncertainties  discussed  in this  Annual
Report and those described from time to time in the Company's other filings with
the SEC including, but not limited to, the following:

o    Future supply and demand for the Company's products,
o    The extent of the  dependence  of certain of the  Company's  businesses  on
     certain market sectors,
o    The cyclicality of the Company's businesses,
o    Customer  inventory  levels  (such as the  extent  to which  the  Company's
     customers may, from time to time,  accelerate  purchases of TiO2 in advance
     of  anticipated  price  increases or defer  purchases of TiO2 in advance of
     anticipated price decreases),
o    Changes in raw material and other operating costs (such as energy costs),
o    The possibility of labor disruptions,
o    General global  economic and political  conditions  (such as changes in the
     level of gross  domestic  product in  various  regions of the world and the
     impact of such changes on demand for TiO2),
o    Competitive products and substitute products,
o    Customer and competitor strategies,
o    The impact of pricing and production decisions,
o    Competitive technology positions,
o    The introduction of trade barriers,
o    Fluctuations  in currency  exchange  rates (such as changes in the exchange
     rate  between  the U.S.  dollar  and  each of the  euro  and the  Norwegian
     kroner),
o    Operating  interruptions  (including,  but not limited to, labor  disputes,
     leaks,   fires,   explosions,   unscheduled   or  unplanned   downtime  and
     transportation interruptions),
o    The ability of the Company to renew or refinance credit facilities,
o    The ultimate  outcome of income tax audits,  tax settlement  initiatives or
     other tax matters,
o    Environmental  matters  (such as those  requiring  emission  and  discharge
     standards for existing and new facilities),
o    Government laws and regulations and possible changes therein,
o    The ultimate resolution of pending litigation, and
o    Possible future litigation.

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

     Industry.   Titanium  dioxide  pigments  are  chemical  products  used  for
imparting  whiteness,  brightness  and  opacity  to a wide  range  of  products,
including paints, plastics, paper, fibers, food, ceramics and cosmetics. TiO2 is
considered a  "quality-of-life"  product with demand  affected by gross domestic
product in various regions of the world.

     Pricing within the global TiO2 industry over the long term is cyclical, and
changes in industry economic  conditions,  especially in Western  industrialized
nations,  can  significantly  impact the Company's  earnings and operating  cash
flows.  The  Company's  average TiO2 selling  prices were  generally  decreasing
during all of 2001 and the first quarter of 2002, were generally flat during the
second quarter of 2002,  were generally  increasing  during the third and fourth
quarters of 2002 and the first quarter of 2003,  were  generally flat during the
second quarter of 2003 and were generally decreasing during the third and fourth
quarters of 2003.  Industry-wide  demand for TiO2 is estimated to have been flat
or declined  slightly  throughout 2003. This is believed to have been the result
of lower customer  inventory  levels  resulting from overall  declining  selling
prices.  Volume  demand in 2004 is  expected to  increase  moderately  over 2003
levels.

     The  Company  is the  second  largest  producer  of TiO2 in Europe  with an
estimated  18% share of  European  TiO2 sales  volume.  The Company is a leading
producer and marketer of TiO2 in Germany,  with an estimated  26% share of sales
volume in 2003,  and is among the leading  marketers  of TiO2 in the Benelux and
Scandinavian  markets.  By sales volume, the Company sells  approximately 13% of
its total sales to the North  American  market  through its  affiliates,  Kronos
(US), Inc.  ("KUS") and Kronos Canada,  Inc. ("KC").  Per capita  consumption of
TiO2 in the United States and Western  Europe far exceeds that in other areas of
the world and these regions are expected to continue to be the largest consumers
of TiO2.  Significant  regions  for TiO2  consumption  could  emerge in  Eastern
Europe,  the Far East or China as the economies in these regions  develop to the
point that quality-of-life products,  including TiO2, are in greater demand. The
Company believes that, due to its strong presence in Western Europe,  it is well
positioned to participate  in growth in  consumption of TiO2 in Eastern  Europe.
Geographic  information  is  contained in Note 2 to the  Consolidated  Financial
Statements.

     Products and operations.  TiO2 is produced in two crystalline forms: rutile
and  anatase.  Rutile TiO2 is a more  tightly  bound  crystal  that has a higher
refractive index than anatase TiO2 and, therefore, provides better opacification
and tinting strength in many  applications.  Although many end-use  applications
can use  either  form of  TiO2,  rutile  TiO2 is the  preferred  form for use in
coatings,  plastics  and ink.  Anatase  TiO2 has a bluer  undertone  and is less
abrasive than rutile TiO2, and it is often preferred for use in paper, ceramics,
rubber and man-made fibers.

     The Company  believes  that there are no  effective  substitutes  for TiO2.
However,  extenders  such as  kaolin  clays,  calcium  carbonate  and  polymeric
opacifiers are used in a number of the Company's markets.  Generally,  extenders
are used to reduce to some extent the  utilization of higher-cost  TiO2. The use
of extenders has not significantly changed TiO2 consumption over the past decade
because,  to date,  extenders  generally  have  failed to match the  performance
characteristics  of TiO2.  As a result,  the  Company  believes  that the use of
extenders  will not  materially  alter the  growth of the TiO2  business  in the
foreseeable future.

     The Company  currently  produces over 40 different TiO2 grades,  sold under
the Kronos trademark,  which provide a variety of performance properties to meet
customers' specific requirements. The Company's major customers include domestic
and international paint, plastics and paper manufacturers.

     The Company has manufacturing  facilities  located in Germany,  Belgium and
Norway.  The Company and its distributors and agents sell and provide  technical
services for its products to over 4,000 customers.  TiO2 is distributed by rail,
truck and ocean carrier in either dry or slurry form. The Company conducts sales
and marketing  activities in over 100 countries  worldwide.  Kronos, the Company
and its predecessors have produced and marketed TiO2 in North America and Europe
for over 80 years.  As a result,  the  Company  believes  that it has  developed
considerable  expertise and efficiency in the  manufacture,  sale,  shipment and
service of its products. By volume, approximately 73% of the Company's 2003 TiO2
sales were to Europe, with approximately 13% to North America and the balance to
other markets.

     The Company is also  engaged in the mining and sale of ilmenite  ore (a raw
material  used  directly as a feedstock  by some  sulfate-process  TiO2  plants)
pursuant to a  governmental  concession  with an unlimited  term that allows the
Company to  operate  an  ilmenite  mine in  Norway.  The ore body,  owned by the
Norwegian government,  has estimated ilmenite reserves that are expected to last
at least 20 years.  Approximately 7% of the Company's  consolidated net sales in
2001  and  2002  and  6% in  2003  represented  ilmenite  sales  to  third-party
customers. The Company is also engaged in the manufacture and sale of iron-based
water  treatment  chemicals  (derived  co-products  of  the  pigment  production
processes).  The Company's  water treatment  chemicals  (marketed under the name
Ecochem) are used as treatment and conditioning agents for industrial  effluents
and municipal  wastewater,  and in the  manufacture of iron  pigments.  Sales of
water treatment  chemicals were  approximately  5% of the Company's  revenues in
each of 2001, 2002 and 2003.

     Manufacturing  process  and  raw  materials.  TiO2 is  manufactured  by the
Company using both the chloride process and the sulfate  process.  Approximately
65% of the  Company's  current  production  capacity  is based  on the  chloride
process.  The chloride process is a continuous process in which chlorine is used
to extract rutile TiO2. In general,  the chloride process is also less intensive
than the  sulfate  process in terms of  capital  investment,  labor and  energy.
Because much of the chlorine is recycled and feedstock bearing a higher titanium
content is used,  the  chloride  process  produces  less waste than the  sulfate
process. The sulfate process is a batch chemical process that uses sulfuric acid
to extract TiO2. Sulfate  technology  normally produces either anatase or rutile
pigment.  Once an  intermediate  TiO2  pigment  has been  produced by either the
chloride or sulfate  process,  it is  'finished'  into  products  with  specific
performance   characteristics  for  particular  end-use   applications   through
proprietary   processes   involving  various  chemical  surface  treatments  and
intensive milling and micronizing.

     Due to environmental factors and customer considerations, the proportion of
TiO2  industry  sales  represented  by  chloride-process  pigments has increased
relative to sulfate-process pigments and, in 2003,  chloride-process  production
facilities represented approximately 62% of industry capacity.

     The Company  produced a Company record 320,000 metric tons of TiO2 in 2003,
compared  to 293,000  metric tons  produced  in 2002 and 269,000  metric tons in
2001. The Company's  average  production  capacity  utilization rate in 2003 was
98%,  up from 93% in 2002.  The rates in 2002 and 2003 were higher than 2001 due
in part to debottlenecking  activities.  The Company believes its current annual
attainable production capacity is approximately 325,000 metric tons. The Company
expects this production capacity will be increased by approximately 8,000 metric
tons, primarily at its chloride facilities,  with moderate capital expenditures,
bringing the  Company's  capacity to  approximately  333,000  metric tons during
2005.

     The primary raw materials used in the TiO2 chloride  production process are
titanium-containing  feedstock,  derived from sand ilmenite, natural rutile ore,
chlorine and coke.  Chlorine and coke are available  from a number of suppliers.
Titanium-containing  feedstock  suitable  for  use in the  chloride  process  is
available  from a limited but increasing  number of suppliers  around the world,
principally in Australia, South Africa, Canada, India and the United States. The
Company  purchased  approximately  250,000 metric tons of chloride  feedstock in
2003, of which the vast majority was slag.

     Through KUS the Company purchased slag in 2003 from two subsidiaries of Rio
Tinto plc UK - Richards  Bay Iron and Titanium  Limited  South Africa and Q.I.T.
Fer et Titane Inc.  Canada  ("Q.I.T,")  under  long-term  supply  contracts that
expire at the end of 2007 and 2006 respectively. Natural rutile ore is purchased
primarily from Iluka Resources,  Limited  (Australia),  a company formed through
the merger of Westralian Sands Limited  (Australia) and RGC Mineral Sands, Ltd.,
under a long-term  supply  contract that expires at the end of 2005. The Company
and KUS do not expect to encounter  difficulties  obtaining long-term extensions
to existing  supply  contracts  prior to the  expiration of the  contracts.  Raw
materials purchased under these contracts and extensions thereof are expected to
meet the Company's chloride feedstock requirements over the next several years.

     The primary raw materials used in the TiO2 sulfate  production  process are
titanium-containing  feedstock derived primarily from rock and sand ilmenite and
sulfuric  acid.   Sulfuric  acid  is  available  from  a  number  of  suppliers.
Titanium-containing  feedstock  suitable  for  use in  the  sulfate  process  is
available from a limited number of suppliers  around the world.  Currently,  the
principal  active sources are located in Norway,  Canada,  Australia,  India and
South  Africa.   As  one  of  the  few   vertically   integrated   producers  of
sulfate-process  pigments,  the Company operates a rock ilmenite mine in Norway,
which provided all of the Company's  feedstock for its European  sulfate-process
pigment plants in 2003. The Company produced  approximately  860,000 metric tons
of  ilmenite  in 2003 of which  approximately  300,000  metric  tons  were  used
internally, with the remainder sold to third parties.

     The Company believes the availability of titanium-containing  feedstock for
both the chloride and sulfate  processes is adequate for the next several years.
The Company does not expect to experience any  interruptions of its raw material
supplies  because of its  long-term  supply  contracts.  However,  political and
economic  instability in certain  countries from which the Company purchases its
raw material supplies could adversely affect the availability of such feedstock.
Should the Company's vendors not be able to meet their  contractual  obligations
or should the Company be otherwise unable to obtain necessary raw materials, the
Company may incur  higher  costs for raw  materials or may be required to reduce
production  levels,  which may have a material  adverse  effect on the Company's
financial position, results of operations or liquidity.

     Competition.  The TiO2 industry is highly competitive. The Company competes
primarily on the basis of price,  product quality and technical service, and the
availability of high  performance  pigment grades.  Although certain TiO2 grades
are  considered  specialty  pigments,  the majority of the Company's  grades and
substantially all of the Company's  production are considered commodity pigments
with price generally being the most significant  competitive factor. During 2003
the  Company  had an  estimated  18% share of European  TiO2 sales  volume,  and
believes  that it is the  leading  seller  of TiO2 in  Germany  and is among the
leading marketers in the Benelux and Scandinavian markets.

     The  Company's  (along with KUS and KC) principal  competitors  are E.I. du
Pont  de  Nemours  &  Co.  ("DuPont");  Millennium  Chemicals,  Inc.;  Huntsman;
Kerr-McGee  Corporation;  and Ishihara  Sangyo  Kaisha,  Ltd. The Company's five
largest competitors have estimated individual shares of TiO2 production capacity
ranging from 24% to 5%, and an estimated  aggregate 70% share of worldwide  TiO2
production volume.

     Capacity additions that are the result of construction of greenfield plants
in the worldwide TiO2 market require  significant  capital and substantial  lead
time,  typically  three to five  years in the  Company's  experience.  As no new
plants are currently under construction,  additional  greenfield capacity is not
expected in the next three to five years, but industry  capacity can be expected
to increase as the Company and its competitors  debottleneck existing plants. In
addition to potential capacity additions,  certain competitors have either idled
or shut down  facilities.  Based on the  factors  described  under  the  caption
"Industry"  above,  the  Company  expects  that the average  annual  increase in
industry capacity from announced  debottlenecking projects will be less than the
average annual demand growth for TiO2 over the next three to five years.

     No  assurance  can be given  that  future  increases  in the TiO2  industry
production  capacity and future average annual demand growth rates for TiO2 will
conform to the Company's  expectations.  If actual  developments differ from the
Company's expectations, the Company and the TiO2 industry's performance could be
unfavorably affected.

     Research  and  development.  The  Company's  expenditures  for research and
development and certain technical support programs were approximately $5 million
in 2001,  $6 million in 2002 and $7 million in 2003.  Research  and  development
activities are conducted principally at the Leverkusen,  Germany facility.  Such
activities are directed primarily toward improving both the chloride and sulfate
production processes,  improving product quality and strengthening the Company's
competitive position by developing new pigment applications.

     Patents and trademarks.  Patents held for products and production processes
are  believed to be  important  to the Company  and to the  continuing  business
activities of the Company.  The Company  continually seeks patent protection for
its technical developments, principally in the United States, Canada and Europe,
and from time to time enters into licensing arrangements with third parties.

     The Company's major trademarks,  including Kronos(TM) and Ecochem(TM),  are
protected  by  registration  in Europe,  the United  States and  elsewhere  with
respect to those products it manufactures and sells.

     Foreign operations.  The Company's chemical businesses have operated in the
European markets since the 1920s. The Company's current  production  capacity is
located in Europe with its net property and equipment aggregating  approximately
$368 million at December 31, 2003. The Company's  operations  include production
facilities in Germany,  Belgium and Norway and sales and distribution facilities
in England,  France, Denmark and the Netherlands.  Approximately $568 million of
the  Company's  2003   consolidated   sales  were  to  European   customers  and
approximately  $148 million to  customers in areas other than Europe,  including
approximately $58 million of sales to customers in the U.S. through  affiliates.
Foreign  operations are subject to, among other things,  currency  exchange rate
fluctuations  and the Company's  results of operations  have, in the past,  been
both favorably and unfavorably  affected by  fluctuations  in currency  exchange
rates.  Effects of  fluctuations  in currency  exchange  rates on the  Company's
results of operations  are  discussed in Item 7.  "Management's  Discussion  and
Analysis  of  Financial  Condition  and  Results  of  Operations"  and  Item 7A.
"Quantitative and Qualitative Disclosures about Market Risk."

     Political and economic  uncertainties  in certain of the countries in which
the Company operates may expose it to risk of loss. The Company does not believe
that there is currently any  likelihood  of material  loss through  political or
economic  instability,  seizure,  nationalization  or similar event. The Company
cannot predict,  however, whether events of this type in the future could have a
material  effect on its  operations.  The  Company's  manufacturing  and  mining
operations are also subject to extensive and diverse environmental regulation in
each of the  foreign  countries  in which  they  operate.  See  "Regulatory  and
Environmental Matters."

     Customer base and annual seasonality. The Company believes that neither its
aggregate  sales  nor  those  of  any  of  its  principal   product  groups  are
concentrated in or materially  dependent upon any single customer or small group
of customers. The Company's largest ten TiO2 pigment customers,  excluding sales
to Kronos and affiliates,  accounted for approximately 20% of net sales in 2003.
Neither  the  Company's  business  as a whole  nor that of any of its  principal
product  groups  is  seasonal  to any  significant  extent.  Due in  part to the
increase  in paint  production  in the  spring  to meet the  spring  and  summer
painting season demand, TiO2 sales are generally higher in the first half of the
year than in the second half of the year.

     Employees.  As of December 31,  2003,  the Company  employed  approximately
1,950  persons.   Hourly  employees  in  European   production   facilities  are
represented by a variety of labor unions,  with labor agreements  having various
expiration dates. The Company believes its labor relations are good.

     Regulatory and environmental matters. The Company's operations are governed
by  various  environmental  laws  and  regulations.  Certain  of  the  Company's
businesses  are, or have been  engaged in the  handling,  manufacture  or use of
substances  or compounds  that may be considered  toxic or hazardous  within the
meaning of applicable  environmental  laws. As with other  companies  engaged in
similar  businesses,  certain  past and current  operations  and products of the
Company have the potential to cause  environmental or other damage.  The Company
has implemented and continues to implement  various  policies and programs in an
effort to  minimize  these  risks.  The  policy of the  Company  is to  maintain
compliance  with  applicable  environmental  laws  and  regulations  at all  its
facilities  and to  strive  to  improve  its  environmental  performance.  It is
possible that future developments such as stricter requirements in environmental
laws and enforcement policies  thereunder,  could adversely affect the Company's
production,  handling,  use, storage,  transportation,  sale or disposal of such
substances as well as the Company's consolidated financial position,  results of
operations or liquidity.

     The Company's production facilities operate in an environmental  regulatory
framework  in  which  governmental   authorities  typically  are  granted  broad
discretionary powers that allow them to issue operating permits required for the
plants to operate.  The Company  believes that all its plants are in substantial
compliance with applicable  environmental  laws.  Neither the Company nor any of
its subsidiaries have been notified of any environmental claim by any applicable
federal, state, provincial or local environmental authority.

     While the laws  regulating  operations of  industrial  facilities in Europe
vary from country to country, a common regulatory denominator is provided by the
European Union (the "EU").  Germany and Belgium are members of the EU and follow
its  initiatives.   Norway,  although  not  a  member,  generally  patterns  its
environmental  regulatory actions after the EU. The Company believes that it has
obtained all required  permits and is in substantial  compliance with applicable
EU requirements,  including EU Directive 92/112/EEC  regarding  establishment of
procedures for reduction and eventual  elimination of pollution  caused by waste
from the TiO2 industry.

     At the Company's sulfate plant facilities other than  Fredrikstad,  Norway,
the Company  recycles spent acid either through  contracts with third parties or
using the Company's  own  facilities.  At its  Fredrikstad,  Norway  plant,  the
Company ships its spent acid to a third party  location  where it is treated and
disposed.  The  Company  has a  contract  with a third  party to  treat  certain
by-products of its German sulfate-process plants. Either party may terminate the
contract  after giving four years advance  notice with regard to its  Nordenham,
Germany  plant.  Under  certain  circumstances,  the Company may  terminate  the
contract after giving six months notice with respect to treatment of by-products
from the Leverkusen, Germany plant.

     The Company is also involved in various other  environmental,  contractual,
product liability and other claims and disputes incidental to its business.

     The Company's  capital  expenditures  related to its ongoing  environmental
protection and improvement  programs in 2003 were approximately $5 million,  and
are currently expected to be approximately $5 million in 2004.

     Website and other  available  information.  The Company does not maintain a
website on the  Internet.  However,  NL maintains a website on the Internet with
the address of www.nl-ind.com. Copies of this Annual Report on Form 10-K for the
year ended  December 31, 2003 and copies of the Company's  Quarterly  Reports on
Form  10-Q for 2003 and 2004 and any  Current  Reports  on Form 8-K for 2003 and
2004,  and any  amendments  thereto,  are or will be available free of charge at
such website as soon as reasonably  practical after they are filed with the SEC.
Information contained on NL's website is not part of this report.

     The general  public may read and copy any  materials the Company files with
the  SEC  at  the  SEC's  Public  Reference  Room  at 450  Fifth  Street,  N.W.,
Washington,  D.C. 20549.  The public may obtain  information on the operation of
the Public Reference Room by calling the SEC at  1-800-SEC-0330.  The Company is
an electronic  filer,  and the SEC  maintains an Internet  website that contains
reports,  proxy and  information  statements,  and other  information  regarding
issuers  that file  electronically  with the SEC,  including  the  Company.  The
Internet address of the SEC's website is www.sec.gov.

ITEM 2.  PROPERTIES

     The  Company  currently  operates  four  TiO2  plants  (one in  Leverkusen,
Germany;  one in Nordenham,  Germany;  one in Langerbrugge,  Belgium; and one in
Fredrikstad,  Norway). The Company also operates an ilmenite ore mine in Hauge i
Dalane,  Norway  pursuant  to a  governmental  concession.  See  Note  13 to the
Consolidated Financial Statements.

     The Company's  principal German operating  subsidiary leases the land under
its Leverkusen  TiO2 production  facility  pursuant to a lease expiring in 2050.
The Leverkusen facility, with about 50% of the Company's current TiO2 production
capacity,  is located within an extensive  manufacturing  complex owned by Bayer
AG. Rent for the Leverkusen  facility is  periodically  established by agreement
with  Bayer AG for  periods  of at least two years at a time.  Under a  separate
supplies  and  services  agreement  expiring in 2011,  Bayer  provides  some raw
materials,  including  chlorine and certain amounts of sulfuric acid,  auxiliary
and  operating  materials  and  utilities  services  necessary  to  operate  the
Leverkusen  facility.  The lease and the supplies and  services  agreement  have
certain  restrictions  regarding the Company's ability to transfer  ownership or
use of the Leverkusen facility.

     The  Company  owns all of its  principal  production  facilities  described
above,  except for the land under the Leverkusen and Fredrikstad  facilities the
Company also operates an ilmenite ore mine in Norway  pursuant to a governmental
concession with an unlimited term to operate the ilmenite mine in Norway.

     The Company has under lease various  corporate and  administrative  offices
located in Leverkusen,  Germany and Brussels,  Belgium and various sales offices
located in France, the Netherlands, Denmark and the United Kingdom.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is involved in various legal proceedings.  Certain  information
called for by this Item is  included  in Note 13 to the  Consolidated  Financial
Statements, which information is incorporated herein by reference.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Omitted pursuant to the General Instruction I of Form 10-K.

                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     All of KII's common stock is held by Kronos. There is no established public
trading  market for KII's common  stock.  The indenture  governing  KII's 8.875%
Senior Notes Due 2009 limits the ability of the Company to pay dividends or make
other  restricted  payments,  as defined.  The aggregate amount of dividends and
other  restricted  payments  since June 2002 may not exceed 75% of the aggregate
consolidated  net income,  as defined in the  indenture,  plus $25 million.  KII
currently  expects to pay  dividends  as  permitted  by the  indenture;  however
declaration and payment of future  dividends and the amount thereof is dependent
upon the  Company's  results of  operations,  financial  condition,  contractual
limitations,  cash  requirements  for its  businesses  and other factors  deemed
relevant by the  Company's  Board of Directors.  See Note 6 to the  Consolidated
Financial  Statements.  At December  31,  2003,  $70 million was  available  for
dividends or other restricted payments, as defined.

     In January  2004,  the Company paid a $60 million  dividend to Kronos.  The
declaration and payment of future dividends is discretionary, and the amount, if
any,  will be dependent  upon the  Company's  results of  operations,  financial
condition,  contractual  restrictions  and other factors deemed  relevant by the
Company's Board of Directors.

ITEM 6.           SELECTED FINANCIAL DATA

     The following  selected  financial data should be read in conjunction  with
the  Company's  Consolidated  Financial  Statements  and Item 7 -  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations."
Certain  amounts  have been  reclassified  to conform  with the  current  year's
Consolidated Financial Statements.

<TABLE>
<CAPTION>

                                                                       Years ended December 31,
                                                    1999         2000          2001           2002          2003
                                                                (In millions, except per share data)

STATEMENTS OF OPERATIONS DATA:
<S>                                              <C>          <C>          <C>            <C>            <C>
   Net sales                                     $ 620.3      $ 620.5      $ 554.6        $ 579.7        $ 715.9
   Net income (1)                                   41.9         80.1        113.7           52.3           81.8

BALANCE SHEET DATA (at year end):
   Total assets                                    580.4        530.1        532.5          611.3          750.5
   Long-term debt including current maturities     244.5        196.1        482.9          325.9          356.7
   Redeemable preferred stock and profit
     participation certificates                    489.1        504.9        617.4             -             -
   Stockholder's equity (deficit)                 (442.9)      (427.7)      (777.5)          76.8          111.6

TiO2 OPERATING STATISTICS:
   Sales volume*                                   291          294          265            297            310
   Production volume*                              272          297          269            293            320
   Production rate as a percentage of capacity     90%         Full           87%            93%            98%

</TABLE>

       * Metric tons in thousands

(1)  Net income in 1999 includes a $57.7 million  income tax benefit  related to
     (i)  a  favorable  resolution  of  the  Company's  previously-reported  tax
     contingency  in Germany  ($29.1  million)  and (ii) a net  reduction in the
     Company's deferred income tax asset valuation  allowance due to a change in
     the  estimate  of the  Company's  ability  to  utilize  certain  income tax
     attributes  under the  "more-likely-than-not"  recognition  criteria ($28.6
     million).


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Critical accounting policies and estimates

     The  accompanying   "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations"  are based upon the Company's  consolidated
financial  statements,  which have been prepared in accordance  with  accounting
principles  generally  accepted in the United  States of America  ("GAAP").  The
preparation of these financial statements requires the Company to make estimates
and judgments  that affect the reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements, and the reported amount of revenues and expenses during the reported
period.  On an on-going basis,  the Company  evaluates its estimates,  including
those related to bad debts,  inventory  reserves,  impairments of investments in
marketable  securities and investments  accounted for by the equity method,  the
recoverability  of  other  long-lived  assets  (including   goodwill  and  other
intangible  assets),  pension benefit  obligations and the underlying  actuarial
assumptions  related thereto,  the realization of deferred income tax assets and
accruals for, litigation, income tax and other contingencies.  The Company bases
its estimates on historical  experience and on various other assumptions that it
believes to be reasonable under the circumstances, the results of which form the
basis for making  judgments about the reported  amounts of assets,  liabilities,
revenues  and  expenses.  Actual  results may differ  from  previously-estimated
amounts under different assumptions or conditions.

     The Company believes the following critical  accounting policies affect its
more  significant  judgments  and  estimates  used  in  the  preparation  of its
consolidated financial statements:

o    The Company maintains allowances for doubtful accounts for estimated losses
     resulting from the inability of its customers to make required payments and
     other factors.  The Company takes into  consideration the current financial
     condition  of its  customers,  the age of the  outstanding  balance and the
     current economic  environment when assessing the adequacy of the allowance.
     If the financial  condition of the Company's customers were to deteriorate,
     resulting in an impairment of their  ability to make  payments,  additional
     allowances  may be  required.  During 2001,  2002 and 2003,  the net amount
     written off against the allowance for doubtful  accounts as a percentage of
     the balance of the allowance  for doubtful  accounts as of the beginning of
     the year ranged from 12% to 24%.

o    The Company  provides  reserves for estimated  obsolescence or unmarketable
     inventory  equal to the  difference  between the cost of inventory  and the
     estimated net realizable  value using  assumptions  about future demand for
     its products and market  conditions.  If actual market  conditions are less
     favorable than those projected by management, additional inventory reserves
     may be required.  The Company also provides reserves for tools and supplies
     inventory  based  generally on both  historical  and expected  future usage
     requirements.

o    The Company  recognizes an impairment charge associated with its long-lived
     assets,  including  property and  equipment,  whenever it  determines  that
     recovery of such long-lived  asset is not probable.  Such  determination is
     made in accordance  with the applicable GAAP  requirements  associated with
     the long-lived  asset, and is based upon, among other things,  estimates of
     the amount of future net cash flows to be generated by the long-lived asset
     and  estimates of the current fair value of the asset.  Adverse  changes in
     such  estimates  of future net cash flows or  estimates of fair value could
     result in an  inability  to recover the  carrying  value of the  long-lived
     asset,  thereby possibly requiring an impairment charge to be recognized in
     the future.

     Underapplicable  GAAP  (SFAS No.  144,  Accounting  for the  Impairment  or
     Disposal of Long-Lived Assets),  property and equipment is not assessed for
     impairment unless certain impairment  indicators,  as defined, are present.
     During 2003, no such impairment indicators, as defined, were present.

o    The Company  maintains  various defined  benefit pension plans.  The amount
     recognized as defined benefit pension  expense,  and the reported amount of
     prepaid and accrued  pension costs,  are  actuarially  determined  based on
     several assumptions, including discount rates, expected rates of returns on
     plan assets and  expected  health care trend  rates.  Variances  from these
     actuarially  assumed  rates  will  result in  increases  or  decreases,  as
     applicable,  in the recognized  pension  obligations,  pension  expense and
     funding  requirements.  These  assumptions  are more fully  described below
     under "Assumptions on defined benefit pension plans."

o    The Company records a valuation allowance to reduce its deferred income tax
     assets  to  the  amount  that  is   believed  to  be  realized   under  the
     "more-likely-than-not"   recognition   criteria.   While  the  Company  has
     considered  future  taxable  income and ongoing  prudent and  feasible  tax
     planning strategies in assessing the need for a valuation allowance,  it is
     possible  that in the future the  Company  may change its  estimate  of the
     amount of the deferred income tax assets that would  "more-likely-than-not"
     be realized in the  future,  resulting  in an  adjustment  to the  deferred
     income  tax  asset  valuation  allowance  that  would  either  increase  or
     decrease,  as applicable,  reported net income in the period such change in
     estimate was made.

o    The Company records accruals for legal,  income tax and other contingencies
     when  estimated  future  expenditures  associated  with such  contingencies
     become probable, and the amounts can be reasonably estimated.  However, new
     information may become available, or circumstances (such as applicable laws
     and regulations) may change,  thereby  resulting in an increase or decrease
     in the amount  required to be accrued  for such  matters  (and  therefore a
     decrease or increase in reported net income in the period of such change).

Executive summary

     Relative  changes in the Company's  TiO2 sales and operating  income during
the past three years are primarily due to (i) relative changes in TiO2 sales and
production  volumes,  (ii) relative  changes in TiO2 average  selling prices and
(iii) relative changes in foreign currency  exchange rates. The relatively lower
levels of sales and production  volumes in 2001 as compared to 2002 and 2003 are
due  in  part  to the  effects  of a fire  at  one of the  Company's  production
facilities, as discussed below.

     Selling prices for TiO2, the Company's  principal  product,  were generally
decreasing during all of 2001 and the first quarter of 2002, were generally flat
during the second  quarter of 2002,  were generally  increasing  during the last
half of 2002 and the first  quarter  of 2003,  were  generally  flat  during the
second quarter of 2003 and were generally  declining during the third and fourth
quarters of 2003.

Results of operations

     Average  TiO2  selling  prices in billing  currencies  (which  exclude  the
effects of foreign currency translation) were generally decreasing during all of
2001 and the first  quarter  of 2002,  were  generally  flat  during  the second
quarter of 2002 and were generally  increasing  during the last half of 2002 and
the first quarter of 2003.  Average  selling prices for TiO2 were generally flat
during the second quarter of 2003 and were generally  decreasing  throughout the
remainder of 2003.

<TABLE>
<CAPTION>

                                                    Years ended December 31,                     % Change
                                              2001          2002            2003          2001-02        2002-03
(In millions, except selling price data)
<S>                                       <C>           <C>              <C>                 <C>           <C>
Net sales                                 $ 554.6       $ 579.7          $ 715.9             + 5%          +23%
Cost of sales                               379.5         454.2            516.9             +20%          +14%
                                          -------       -------          -------

Gross margin                                175.1         125.5            199.0             -28%          +59%

Selling, general and administrative
    expense                                 (68.3)        (72.0)           (87.0)            + 5%          +21%
Insurance recoveries, net                     7.2            -                -
Currency transaction gains (losses), net     (9.1)         12.4             (3.7)
Royalty income                                5.4           5.8              6.1
Other operating income (expense), net          .6           (.2)               -
                                          -------       -------          -------

Income from operations                    $ 110.9       $  71.5          $ 114.4             -36%          +60%
                                          =======       =======          =======
TiO2 operating statistics:

Percent change in average selling prices:
       Using actual foreign currency
          exchange rates                                                                     -10%          +20%
       Impact of changes in foreign
          currency exchange rates                                                             **           -20%
                                                                                            ----          ----

       In billing currencies                                                                 -10%           **
                                                                                            ====          ====

Sales volumes*                              265           297              310               +12%          + 4%
Production volumes*                         269           293              320               + 9%          + 9%
Production rate as
    percent of capacity                     87%           93%              98%

</TABLE>

* Thousands of metric tons
** less that 1%

      Year ended December 31, 2003 compared to year ended December 31, 2002

     The Company's net sales increased  $136.2 million (23%) in 2003 compared to
2002 due to higher  average  selling  prices along with higher sales  volumes in
2003 and the  positive  effects of currency  exchange  rates,  specifically  the
weaker U.S. dollar as compared to the euro. Excluding the effect of fluctuations
in the value of the U.S.  dollar  relative to other  currencies,  the  Company's
average TiO2 selling price in 2003 was  consistent  with 2002.  When  translated
from billing  currencies to U.S. dollars using actual foreign currency  exchange
rates  prevailing  during the  respective  periods,  the Company's  average TiO2
selling  prices in 2003 increased 20% compared to 2002. The Company's TiO2 sales
volumes  in 2003  set a new  record,  increasing  4% from  the  previous  record
achieved in 2002,  with higher  volumes in European and North  American  markets
more  than  offsetting  a  decline  in  volumes  to other  regions.  By  volume,
approximately  75% of the  Company's  2002  and 2003  TiO2  sales  volumes  were
attributable to markets in Europe,  with approximately 10% attributable to North
America and the balance to other regions.

     The Company's  sales are denominated in various  currencies,  including the
U.S. dollar, the euro and other major European currencies. The disclosure of the
percentage  change  in the  Company's  average  TiO2  selling  price in  billing
currencies  (which excludes the effects of fluctuations in the value of the U.S.
dollar  relative to other  currencies)  is  considered  a  "non-GAAP"  financial
measure under regulations of the SEC. The disclosure of the percentage change in
the Company's average TiO2 selling prices using actual foreign currency exchange
rates prevailing  during the respective  periods is considered the most directly
comparable financial measure presented in accordance with accounting  principles
generally accepted in the United States ("GAAP measure").  The Company discloses
percentage  changes in its average TiO2 prices in billing currencies because the
Company  believes such disclosure  provides  useful  information to investors to
allow  them to analyze  such  changes  without  the impact of changes in foreign
currency exchange rates,  thereby facilitating  period-to-period  comparisons of
the relative  changes in average  selling prices in the actual  various  billing
currencies.  Generally,  when the U.S.  dollar  either  strengthens  or  weakens
against other  currencies,  the percentage  change in average  selling prices in
billing currencies will be higher or lower,  respectively,  than such percentage
changes would be using actual  exchange rates  prevailing  during the respective
periods.  The difference  between the 20% increase in the Company's average TiO2
selling  prices  during 2003 as compared to 2002 using actual  foreign  currency
exchange rates prevailing  during the respective  periods (the GAAP measure) and
the minimal  percentage  change in the  Company's  average TiO2 selling price in
billing  currencies  (the  non-GAAP  measure)  during such periods is due to the
effect of changes in foreign  currency  exchange rates. The table above presents
(i) the  percentage  change in the Company's  average TiO2 selling  prices using
actual foreign currency exchange rates prevailing during the respective  periods
(the GAAP  measure),  (ii) the percentage  change in the Company's  average TiO2
selling  price in  billing  currencies  (the  non-GAAP  measure)  and  (iii) the
percentage  change due to changes in  foreign  currency  exchange  rates (or the
reconciling item between the non-GAAP measure and the GAAP measure).

     The Company's cost of sales  increased $62.7 million (14%) in 2003 compared
to 2002 due to the higher  sales  volumes.  The  Company's  cost of sales,  as a
percentage of net sales, decreased from 78% in 2002 to 72% in 2003 due primarily
to the effects of continued cost reduction  efforts  combined with the impact of
higher  production  volumes and higher average selling  prices.  Operating rates
were near full capacity  during most of 2003,  setting a new Company  production
record.

     The Company's gross margins increased $73.5 million (59%) from 2002 to 2003
due to the net effects of the aforementioned  changes in sales and cost of sales
during such periods.

     As a percentage of net sales,  selling general and administrative  expenses
remained consistent at 12%, increasing  proportionately with the increased sales
and production volume.

     Certain of the sales generated by the Company's  operations are denominated
in the U.S. dollar, and such operations  routinely hold U.S.  dollar-denominated
receivables.  Primarily  as a result  of the  weakening  of the U.S.  dollar  as
compared to the euro throughout the year, the Company's results in 2003 included
net currency  transaction losses of $3.7 million. Due to a more stable dollar in
2002, the Company recognized net currency transaction gains of $12.4 million.

     The Company's  operations and assets are located  outside the United States
(primarily in Germany,  Belgium and Norway). The Company's sales are denominated
in currencies other than the U.S.  dollar,  principally the euro and other major
European  currencies.  A  portion  of the  Company's  sales  generated  from its
operations is denominated in the U.S. dollar.  Certain raw materials,  primarily
titanium-containing  feedstocks,  are purchased in U.S. dollars, while labor and
other   production  costs  are  denominated   primarily  in  local   currencies.
Consequently,  the  translated  U.S.  dollar  value of the  Company's  sales and
operating results are subject to currency  exchange rate fluctuations  which may
favorably or adversely impact reported earnings and may affect the comparability
of period-to-period operating results. Overall, fluctuations in the value of the
U.S. dollar  relative to other  currencies,  primarily the euro,  increased TiO2
sales in 2003 by a net $89 million  compared to 2002.  Fluctuations in the value
of the U.S. dollar relative to other currencies similarly impacted the Company's
foreign  currency-denominated  operating expenses. The Company's operating costs
that are not denominated in the U.S. dollar,  when translated into U.S. dollars,
were higher in 2003  compared  to the same  periods of 2002.  Overall,  currency
exchange rate fluctuations resulted in a net increase in the Company's operating
income in 2003 of approximately $5 million as compared to 2002.

     Year ended December 31, 2002 compared to year ended December 31, 2001

     The Company's  sales  increased $25.1 million (5%) in 2002 compared to 2001
due primarily to higher TiO2 sales volumes, offset by lower average TiO2 selling
prices.  The Company's  TiO2 sales  volumes in 2002 were 12% higher  compared to
2001 primarily due to higher volumes in European and North American markets.  By
volume,  approximately  75%  of the  Company's  2002  TiO2  sales  volumes  were
attributable  to markets in Europe,  with 10%  attributable to North America and
the balance to other  regions.  The lower TiO2 sales volumes in 2001 were due in
part to the effect of a fire at the Company's  Leverkusen,  Germany  facility in
March 2001 that disrupted operations.  See Note 11 to the Consolidated Financial
Statements. Excluding the effect of fluctuations in the value of the U.S. dollar
relative to other  currencies,  the Company's average TiO2 selling price in 2002
was 10% lower than 2001, with prices lower in all major regions. When translated
from billing  currencies to U.S. dollars using actual foreign currency  exchange
rates  prevailing  during the  respective  periods,  the Company's  average TiO2
selling prices in 2002 also decreased 10% compared to 2001.

     The Company's cost of sales  increased $74.7 million (20%) in 2002 compared
to 2001 due to the higher sales  volume,  partially  offset by lower unit costs,
which resulted primarily from the higher production levels. The effects of lower
TiO2 sales and production  volumes in 2001 were  partially  offset by receipt of
business interruption insurance proceeds subsequent to the fire at the Company's
Leverkusen,  Germany facility discussed above. The Company's cost of sales, as a
percentage of net sales, increased from 68% in 2001 to 78% in 2002 primarily due
to the impact on net sales of the lower average selling prices  partially offset
by lower unit costs.

     The Company's gross margin declined $49.6 million (28%) in 2002 compared to
2001 as the effect of lower  average  TiO2  selling  prices more than offset the
effect of higher  TiO2 sales and  production  volumes.  The effect of the higher
sales and production volumes was offset in part by the $27.3 million of business
interruption insurance proceeds received in 2001, as discussed below.

     The Company's TiO2  production  volume in 2002 was 9% higher than 2001. The
Company's  operating  rates in 2001 were lower as compared to 2002 primarily due
to lost production resulting from the Leverkusen fire.

     The Company's  income from  operations  in 2001  includes  $27.3 million of
business  interruption  insurance  proceeds as payment  for losses  (unallocated
period costs and lost margin) caused by the Leverkusen  fire. The effects of the
lower TiO2 sales and  production  volumes  were  offset in part by the  business
interruption  insurance proceeds. Of such $27.3 million of business interruption
insurance  proceeds,  $20.1 million was recorded as a reduction of cost of sales
to offset unallocated  period costs that resulted from lost production,  and the
remaining  $7.2  million,  presenting  recovery of lost  margin,  is included in
income from operations (as shown on the table above). The business  interruption
insurance  proceeds  distorted the income from operations  margin  percentage in
2001 as there  are no sales  associated  with the $7.2  million  of lost  margin
recognized. See Note 11 to the Consolidated Financial Statements.

     The Company also recognized  insurance  recoveries of $29.1 million in 2001
for property damage and related cleanup and other extra expenses  related to the
Leverkusen  fire,  resulting  in an  insurance  gain of  $17.5  million,  as the
insurance  recoveries  exceeded the carrying value of the property destroyed and
the  cleanup and other  extra  expenses  incurred.  Such  insurance  gain is not
reported  as a  component  of income  from  operations  but is included in other
income and expense, as discussed below. The Company does not expect to recognize
any additional  insurance recoveries related to the Leverkusen fire. See Note 11
to the Consolidated Financial Statements.

     The  Company's  selling,   general  and   administrative   expenses  ("SG&A
expenses") increased $3.7 million (5%) in 2002 as compared to 2001 primarily due
to higher selling and  distribution  expenses  associated  with the higher sales
volume  in  2002  and  higher  administrative   expenses.   SG&A  expenses  were
approximately 12% of sales in both 2001 and 2002.

     As discussed above, the Company's operations and assets are located outside
the United States  (primarily in Germany,  Belgium and Norway) and consequently,
the translated U.S.  dollar value of the Company's  sales and operating  results
are  subject to  currency  exchange  rate  fluctuations  that may  favorably  or
adversely  impact  reported   earnings  and  may  affect  the  comparability  of
period-to-period  operating results.  Overall,  fluctuations in the value of the
U.S. dollar  relative to other  currencies,  primarily the euro,  increased TiO2
sales in 2002 by a net $22 million  compared to 2001.  Fluctuations in the value
of the U.S. dollar relative to other currencies similarly impacted the Company's
foreign  currency-denominated  operating expenses. The Company's operating costs
that are not denominated in the U.S. dollar,  when translated into U.S. dollars,
were higher in 2003  compared  to the same  periods of 2002.  Overall,  currency
exchange rate fluctuations on the Company's operating income comparisons was not
significant in 2002 as compared to 2001.

Outlook

     The Company  expects its TiO2 production  volumes in 2004 will  approximate
its 2003  production  volumes,  and sales  volumes  are  expected to be slightly
higher in 2004 as compared to 2003. The  Company's'  average Ti02 selling price,
which  declined  during the second  half of 2003,  is  expected  to  continue to
decline  during the first  quarter  of 2004.  The  Company  is hopeful  that its
average  selling prices will cease to decline  sometime during the first half of
2004 and will rise  thereafter.  Nevertheless,  the Company  expects its average
TiO2 selling prices, in billing currencies, will be lower in 2004 as compared to
2003.  Overall,  the Company expects its operating  income in 2004 will be lower
than 2003. The Company's  expectations as to the future prospects of the Company
and the TiO2  industry  are based upon a number of factors  beyond its  control,
including  worldwide  growth  of  gross  domestic  product,  competition  in the
marketplace,   unexpected  or   earlier-than-expected   capacity  additions  and
technological  advances.  If  actual  developments  differ  from  the  Company's
expectations, the Company's results of operations could be unfavorably affected.

Other income (expense)

     The following table sets forth certain  information  regarding other income
and expense items.


<TABLE>
<CAPTION>

                                                   Years ended December 31,                     Change
                                              ---------------------------------       -----------------------
                                              2001          2002          2003         2001-02        2002-03
                                                                       (In millions)
<S>                                         <C>           <C>           <C>            <C>            <C>
Trade interest income                       $  2.1        $  1.6        $   .7         $  (.5)        $  (.9)
Interest income from affiliates               36.2          22.8            -           (13.4)         (22.8)
Currency transaction gains                      -            2.7            -             2.7           (2.7)
Insurance recoveries, net                     17.5            -             -           (17.5)            -
Interest expense                              (4.3)        (16.7)        (32.5)         (12.4)         (15.8)
Interest expense to affiliates               (34.1)        (18.7)          (.1)          15.4           18.6
                                            ------        ------        ------         ------         ------

                                            $ 17.4        $ (8.3)       $(31.9)        $(25.7)        $(23.6)
                                            ======        ======        ======         ======         ======
</TABLE>


     The Company had certain loans to affiliates  that were  outstanding  during
2001 and 2002. The Company  transferred such notes receivable from affiliates to
Kronos in July 2002, and  accordingly no longer reports  interest income on such
loans to affiliates after that date.

     Interest income  fluctuates in part based upon the amount of funds invested
and yields  thereon.  Aggregate  interest  income declined $23.7 million in 2003
compared to 2002 and $13.9 million in 2002  compared with 2001  primarily due to
lower  average  yields  on  invested  funds and  lower  average  levels of funds
available for investment.  The Company expects  interest income will be lower in
2004 than 2003 due to lower average funds  available for investment and to lower
average yields and lower average levels of funds available for investment.

     In June 2002,  the  Company  sold  (euro)285  million of its 8.875%  Senior
Secured  Notes (the  "Notes")  due 2009.  KII used the net proceeds of the Notes
offering to repay  certain  intercompany  indebtedness  owed to NL, a portion of
which NL used to  redeem at par all of its  outstanding  11.75%  Senior  Secured
Notes due 2003,  plus  accrued  interest.  As a result of the  refinancing,  the
Company  recognized a foreign currency  transaction gain of $2.7 million in 2002
related to the extinguishment of certain intercompany indebtedness.

     The insurance recoveries, net of $17.5 million in 2001 related to insurance
proceeds  received from property damage  resulting from the Leverkusen fire. The
insurance  proceeds  received  exceeded  the  carrying  value  of  the  property
destroyed and cleanup costs incurred.  See Note 11 to the Consolidated Financial
Statements.

     Aggregate  interest expense in 2003 decreased $2.8 million compared to 2002
primarily  due  to  lower  levels  of  outstanding  affiliate  indebtedness  and
associated  currency  effects and lower interest rates. As discussed  above, the
Company extinguished  certain  intercompany  indebtedness in 2002 and therefore,
interest  expense to affiliates  decreased  significantly in 2003 as compared to
2002.  Aggregate  interest  expense in 2002 decreased $3.0 million compared with
2001 primarily due to lower levels of outstanding indebtedness, partially offset
by  higher  levels  of  bank  debt.  See  Note 6 to the  Consolidated  Financial
Statements.  Assuming no significant change in interest rates,  interest expense
in 2004 is expected to be higher compared with 2003 due to higher average levels
of outstanding indebtedness, partially offset by lower average interest rates.

     Provision  for income  taxes.  The  principal  reasons  for the  difference
between the Company's  effective income tax rates and the U.S. federal statutory
income  tax  rates  are  explained  in  Note  9 to  the  Consolidated  Financial
Statements.  Income tax rates vary by jurisdiction  (country and/or state),  and
relative  changes in the  geographic mix of the Company's  pre-tax  earnings can
result in fluctuations in the effective income tax rate.

     During 2003, the Company  reduced its deferred  income tax asset  valuation
allowance by approximately $6.7 million, primarily as a result of utilization of
certain  income tax  attributes  for which the benefit had not  previously  been
recognized.  In  addition,  the Company  recognized a $38.0  million  income tax
benefit related to the net refund of certain prior year German income taxes.

     During 2002, the Company  reduced its deferred  income tax asset  valuation
allowance by approximately $2.8 million, primarily as a result of utilization of
certain  income tax  attributes  for which the benefit had not  previously  been
recognized.  The provision for income taxes in 2002 also includes a $2.3 million
deferred income tax benefit related to certain changes in the Belgian tax law.

     During 2001, the Company  reduced its deferred  income tax asset  valuation
allowance  by $23.2  million.  This  entire  reduction  related  to a change  in
estimate  of  the  Company's  ability  to  utilize  certain  German  income  tax
attributes following the completion of a restructuring of its German operations,
the   benefit  of  which  had  not   previously   been   recognized   under  the
"more-likely-than-not" recognition criteria.

     At December 31, 2003, the Company had the equivalent of approximately  $438
million of income tax loss  carryforwards  in Germany with no  expiration  date.
However,  the Company has provided a deferred tax  valuation  allowance  against
substantially  all of these  income tax loss  carryforwards  because the Company
currently  believes  they do not  meet  the  "more-likely-than-not"  recognition
criteria.   The  Company  periodically   evaluates  the   "more-likely-than-not"
recognition  criteria  with  respect to such tax loss  carryforwards,  and it is
possible that in the future the Company may conclude such  carryforwards do meet
the  recognition  criteria,  at which time the  Company  would  reverse all or a
portion of such deferred tax valuation allowance.

     In  January  2004,  the  German  federal  government  enacted  new  tax law
amendments  that limit the annual  utilization  of income tax loss  carryforward
effective  January 1, 2004. The new law may  significantly  affect the Company's
future income tax expense and cash tax payments.

     Related party transactions.  The Company is a party to certain transactions
with related parties. See Note 12 to the Consolidated Financial Statements.

     Accounting   principles   newly  adopted  in  2003.  See  Note  15  to  the
Consolidated Financial Statements.

     Accounting  principles  not  yet  adopted:  See  Note  16  to  Consolidated
Financial Statements.

     Defined  benefit  pension  plans.  The Company  maintains  various  defined
benefit pension plans in the Europe.  See Note 10 to the Consolidated  Financial
Statements.

     The Company  accounts for its defined  benefit pension plans using SFAS No.
87,  "Employer's  Accounting for Pensions."  Under SFAS No. 87, defined  benefit
pension plan expense and prepaid and accrued  pension costs are each  recognized
based on certain actuarial  assumptions,  principally the assumed discount rate,
the assumed  long-term rate of return on plan assets and the assumed increase in
future compensation levels. The Company recognized  consolidated defined benefit
pension  plan  expense of $4.6  million in 2001,  $5.7  million in 2002 and $5.8
million in 2003. The amount of funding  requirements  for these defined  benefit
pension plans is generally based upon applicable  regulations  (such as ERISA in
the U.S.), and will generally differ from pension expense  recognized under SFAS
No. 87 for financial  reporting  purposes.  Contributions made by the Company to
all of its plans aggregated $7.0 million in 2001, $7.8 million in 2002 and $10.2
million in 2003.

     The discount rates the Company  utilizes for  determining  defined  benefit
pension  expense  and the  related  pension  obligations  are  based on  current
interest  rates  earned on  long-term  bonds that receive one of the two highest
ratings given by recognized rating agencies in the applicable  country where the
defined  benefit  pension  benefits  are being paid.  In  addition,  the Company
receives advice about appropriate discount rates from the Company's  third-party
actuaries,  who may in some cases utilize their own market indices. The discount
rates  are  adjusted  as of each  valuation  date  (September  30th) to  reflect
then-current  interest  rates on such long-term  bonds.  Such discount rates are
used to determine the actuarial  present value of the pension  obligations as of
December 31st of that year,  and such discount  rates are also used to determine
the interest  component of defined  benefit  pension  expense for the  following
year.

     At December 31, 2003,  approximately  75% and 20% of the projected  benefit
obligation  related to Company  plans in Germany and Norway,  respectively.  The
Company uses several  different  discount rate  assumptions in  determining  its
consolidated  defined benefit  pension plan  obligations and expense because the
Company maintains  defined benefit pension plans in several different  countries
in Europe and the interest rate environment differs from country to country.

     The Company  used the  following  discount  rates for its  defined  benefit
pension plans:
<TABLE>
<CAPTION>

                                                Discount rates used for:
            ---------------------------------------------------------------------------------------------
            ----------------------------------------------------------------------------------------------
                    Obligations at                   Obligations at                   Obligations at
            December 31, 2001 and expense     December 31, 2002 and expense       December 31, 2003 and
                      in 2002                           in 2003                     expense in 2004
            -------------------------------  --------------------------------  -----------------------------


<S>                    <C>                               <C>                               <C>
  Germany              5.8%                              5.5%                              5.3%
  Norway               6.0%                              6.0%                              5.5%
</TABLE>


     The  assumed  long-term  rate of  return  on  plan  assets  represents  the
estimated  average rate of earnings  expected to be earned on the funds invested
or to be invested  in the plans'  assets  provided to fund the benefit  payments
inherent in the projected benefit  obligations.  Unlike the discount rate, which
is adjusted each year based on changes in current long-term  interest rates, the
assumed  long-term  rate of return on plan  assets will not  necessarily  change
based upon the actual,  short-term  performance  of the plan assets in any given
year.  Defined  benefit  pension  expense  each year is based  upon the  assumed
long-term  rate of return on plan assets for each plan and the actual fair value
of the plan  assets as of the  beginning  of the year.  Differences  between the
expected  return on plan  assets  for a given  year and the  actual  return  are
deferred  and  amortized  over future  periods  based  either upon the  expected
average  remaining  service life of the active plan  participants (for plans for
which  benefits  are still  being  earned by active  employees)  or the  average
remaining  life  expectancy  of the inactive  participants  (for plans for which
benefits are not still being earned by active employees).

     At December 31, 2003,  approximately 70% and 26% of the plan assets related
to plan assets for the Company's plans in Germany and Norway, respectively.  The
Company  uses  several  different  long-term  rates  of  return  on  plan  asset
assumptions in determining its consolidated defined benefit pension plan expense
because the Company maintains defined benefit pension plans in several different
countries in Europe,  the plan assets in different  countries  are invested in a
different mix of  investments  and the  long-term  rates of return for different
investments differ from country to country.

     In  determining  the  expected  long-term  rate of  return  on  plan  asset
assumptions,  the Company  considers  the long-term  asset mix (e.g.  equity vs.
fixed  income) for the assets for each of its plans and the  expected  long-term
rates of return for such asset  components.  In addition,  the Company  receives
advice  about   appropriate   long-term  rates  of  return  from  the  Company's
third-party actuaries. Such assumed asset mixes are summarized below:

o    In Germany,  the composition of the Company's plan assets is established to
     satisfy the requirements of the German insurance commissioner.  The current
     plan asset  allocation at December 31, 2003 was 25% to equity  managers and
     75% to fixed income managers.

o    In Norway,  the Company currently has a plan asset target allocation of 14%
     to equity  managers  and 86% to fixed  income  managers,  with an  expected
     long-term rate of return for such  investments of  approximately 8% and 6%,
     respectively.  The current plan asset  allocation  at December 31, 2003 was
     15% to equity managers and 85% to fixed income managers.

     The Company  regularly  reviews its actual asset allocation for each of its
plans  and will  periodically  rebalance  the  investments  in each plan to more
accurately reflect the targeted allocation when considered appropriate.

     The Company's  assumed  long-term  rates of return on plan assets for 2001,
2002 and 2003 were as follows:
<TABLE>
<CAPTION>

                            2001                  2002                   2003

<S>                         <C>                   <C>                    <C>
  Germany                   7.3%                  6.8%                   6.5%
  Norway                    7.0%                  7.0%                   6.0%
</TABLE>


     The Company  currently expects to utilize the same long-term rate of return
on plan asset assumptions in 2004 as it used in 2003 for purposes of determining
the 2004 defined benefit pension plan expense.

     To the extent that a plan's particular  pension benefit formula  calculates
the pension benefit in whole or in part based upon future  compensation  levels,
the projected benefit  obligations and the pension expense will be based in part
upon expected increases in future compensation  levels. For all of the Company's
plans for which the benefit  formula is so  calculated,  the  Company  generally
bases the assumed expected increase in future  compensation  levels upon average
long-term inflation rates for the applicable country.

     In addition  to the  actuarial  assumptions  discussed  above,  because the
Company maintains its defined benefit pension plans outside the U.S., the amount
of  recognized  defined  benefit  pension  expense and the amount of prepaid and
accrued pension costs will vary based upon relative  changes in foreign currency
exchange rates.

     Based  on the  actuarial  assumptions  described  above  and the  Company's
current expectation for what actual average foreign currency exchange rates will
be during 2004, the Company  expects its defined  benefit  pension  expense will
approximate  $10  million in 2004.  In  comparison,  the  Company  expects to be
required to make  approximately $4 million of contributions to such plans during
2004.

     As noted above,  defined benefit pension expense and the amount  recognized
as prepaid and accrued  pension costs are based upon the  actuarial  assumptions
discussed above. The Company believes all of the actuarial  assumptions used are
reasonable and appropriate. If the Company had lowered the assumed discount rate
by 25 basis points for all of its plans as of December 31, 2003,  the  Company's
aggregate  projected  benefit  obligations would have increased by approximately
$7.9 million at that date, and the Company's  defined  benefit  pension  expense
would be expected  to  increase  by  approximately  $1.0  million  during  2004.
Similarly,  if the Company lowered the assumed  long-term rate of return on plan
assets by 25 basis points for all of its plans,  the Company's  defined  benefit
pension expense would be expected to increase by  approximately  $500,000 during
2004.

Foreign operations

     The  Company's  operations  are  located  in Europe  where  the  functional
currency  is not the U.S.  dollar.  As a  result,  the  reported  amount  of the
Company's assets and liabilities,  and therefore the Company's  consolidated net
assets,  will fluctuate  based upon changes in currency  exchange  rates.  As of
January 1, 2001, the functional currency of the Company's German, Belgian, Dutch
and French  operations  had been  converted  to the euro from  their  respective
national  currencies.  At December 31,  2003,  the Company had  substantial  net
assets  denominated  in the euro,  Norwegian  kroner  and United  Kingdom  pound
sterling.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated cash flows

     The Company's  consolidated cash flows for each of the past three years are
presented below:
<TABLE>
<CAPTION>

                                                                           Years ended December 31,
                                                                       2001          2002         2003
                                                                                (In millions)

<S>                                                                 <C>          <C>          <C>
Operating activities                                                $  76.0      $  68.2      $ 104.8
Investing activities                                                  (28.5)       (29.7)       (31.7)
Financing activities                                                  (52.8)       (57.5)       (54.9)
                                                                    -------      -------      -------

Net cash provided (used) by operating, investing and financing
    activities                                                      $  (5.3)     $ (19.0)     $  18.2
                                                                    =======      =======      =======
</TABLE>


     Operating  activities.  Certain items included in the  determination of net
income do not  represent  current  inflows or  outflows  of cash.  For  example,
insurance  recoveries,  net of $17.5  million  in 2001,  are  excluded  from the
determination of operating cash flow. These insurance  proceeds are shown in the
statement of cash flows under investing  activities to partially offset the cash
outflow impact of capital  expenditures  related to the Leverkusen sulfate plant
reconstruction.  Certain other items included in the determination of net income
have an impact on cash flows from operating  activities,  but the impact of such
items on cash will differ  from their  impact on net income.  For  example,  the
amount of income or expense  recorded for pension assets and obligations  (which
depend upon a number of factors,  including actuarial  assumptions used to value
obligations)  will generally differ from the outflows of cash for such benefits.
See Note 10 to the Company's Consolidated Financial Statements.

     The TiO2 industry is cyclical and changes in economic conditions within the
industry  significantly  impact the  earnings  and  operating  cash flows of the
Company. Cash flow from operations is considered the primary source of liquidity
for the Company. Changes in TiO2 pricing, production volume and customer demand,
among other things, could significantly affect the liquidity of the Company.

     Relative changes in assets and liabilities generally result from the timing
of production,  sales, purchases and income tax payments.  Such relative changes
can  significantly  impact the  comparability  of cash flow from operations from
period to period,  as the income  statement  impact of such items may occur in a
different period from when the underlying cash transaction  occurs. For example,
raw  materials  may be  purchased  in one  period,  but the payment for such raw
materials may occur in a subsequent period. Similarly,  inventory may be sold in
one period,  but the cash collection of the receivable may occur in a subsequent
period.

     Cash flows from operating  activities  increased from $68.2 million in 2002
to $104.8 million in 2003. This $36.6 million  increase was due primarily to the
effect of (i) higher  net  income of $29.5  million,  (ii)  higher  depreciation
expense  of $6.5  million,  (iii) a lower  amount  of net  cash  generated  from
relative  changes  in  the  Company's  inventories,  receivables,  payables  and
accruals and accounts  with  affiliates  of $22.6 million in 2003 as compared to
2002 and (iv)  lower  cash  paid for  income  taxes of $18.3  million.  Relative
changes in accounts  receivable are affected by, among other things,  the timing
of sales and the  collection of the resulting  receivable.  Relative  changes in
inventories and accounts payable and accrued  liabilities are affected by, among
other  things,  the timing of raw  material  purchases  and the payment for such
purchases  and the  relative  difference  between  production  volume  and sales
volume.

     Cash flows from operating  activities  decreased from $76.0 million in 2001
to $68.2  million in 2002.  This $7.8 million  decrease was due primarily to the
net effect of (i) lower net income of $61.4  million,  (ii) higher  depreciation
expense of $3.0 million,  (iii)  insurance  recoveries,  net of $17.5 million in
2001 as compared to nil in 2002 and (iv) a higher  amount of net cash  generated
from relative changes in the Company's  inventories,  receivables,  payables and
accruals and accounts  with  affiliates  of $33.9 million in 2002 as compared to
2001.  Relative  changes in accounts  receivable  are  affected  by, among other
things, the timing of sales and the collection of the resulting receivable.

     Investing  cash  flows.  The  Company's  capital  expenditures  were  $48.4
million,  $27.6 million and $31.5 million in 2001, 2002 and 2003,  respectively.
Capital expenditures in 2001 and 2002 included an aggregate of $22.3 million and
$3.1 million,  respectively,  for the  rebuilding  of the Company's  Leverkusen,
Germany sulfate plant.  In 2001 the Company  received $23.4 million of insurance
proceeds for property  damage  resulting from the Leverkusen  fire and paid $3.2
million of expenses related to repairs and clean-up costs.

     The Company's capital  expenditures  during the past three years include an
aggregate of approximately  $13 million ($4.9 million in 2003) for the Company's
ongoing  environmental   protection  and  compliance  programs.   The  Company's
estimated 2004 capital expenditures are $32 million and include approximately $4
million in the area of environmental protection and compliance.

     Financing cash flows. In March 2003, the Company's  operating  subsidiaries
in Germany,  Belgium and Norway  borrowed  (euro)15  million ($16.1 million when
borrowed),  in April 2003, repaid NOK 80 million ($11.0 million when repaid) and
in the third quarter of 2003,  repaid  (euro)30.0  million  ($33.9  million when
repaid) under its three-year  (euro)80 million secured revolving credit facility
("European  Credit  Facility").   See  Note  6  to  the  Consolidated  Financial
Statements.

     In March 2002 the Company repaid $25 million  principal amount of affiliate
indebtedness to Kronos.  In June 2002 the Company repaid $169 million  principal
amount, plus accrued interest of affiliate indebtedness, to Kronos with proceeds
from the June 2002 issuance of the (euro)285 million principal amount of the KII
8.875% Senior Secured Notes ($280 million when issued) (the  "Notes").  Further,
in June 2002, the Company repaid (euro)113.8 million ($111.8 million), including
interest,  of a  euro-denominated  note payable to Kronos with proceeds from the
Notes offering.

     Also in June 2002, the Company's operating subsidiaries in Germany, Belgium
and Norway  borrowed  (euro)13  million  ($13  million) and NOK 200 million ($26
million) which, along with available cash, was used to repay and terminate KII's
short term notes  payable  ($53.2  million when  repaid).  In 2002,  the Company
repaid a net  euro-equivalent  12.7 million  ($12.4 million when repaid) and 1.7
million  ($1.6  million  when  repaid),  respectively,  of the  European  Credit
Facility.

     Deferred  financing  costs of $10.0  million for the Notes and the European
Credit Facility are being amortized over the lives of the respective  agreements
and are included in other noncurrent assets as of December 31, 2003.

     In 2001 the Company repaid  (euro)7.6  million ($6.5 million when paid) and
(euro)16.4   million   ($14.9   million   when  paid),   respectively,   of  its
euro-denominated short-term debt with excess cash flow from operations.

     Other  than  operating  lease  commitments  disclosed  in  Note  13 to  the
Consolidated  Financial  Statements,  the  Company is not party to any  material
off-balance sheet financing arrangements.

     Cash dividends  paid during 2003 totaled $25.0 million.  (No dividends were
paid in 2001 or 2002). In January 2004, the Company paid a $60 million  dividend
to Kronos. The declaration and payment of future dividends is discretionary, and
the amount,  if any, will be dependent upon the Company's results of operations,
financial condition,  contractual restrictions and other factors deemed relevant
by the Company's Board of Directors.

     Cash flows related to capital  contributions  and other  transactions  with
affiliates aggregated a net cash outflow of $35.6 million in 2001 and a net cash
inflow of $2.9 million in 2002. Such amounts related principally to dividends or
loans  KII  received  from,  or  capital  contributions  or  loans  KII  made to
affiliates  (such notes  receivable from affiliates being reported as reductions
to the Company's  stockholder's  equity, and therefore considered financing cash
flows).  As discussed in Note 1 to the Consolidated  Financial  Statements,  KII
transferred its Canadian operations to Kronos in April 2002, and accordingly KII
no longer  reports  any such  capital  transaction  cash  flows  related to such
Canadian operations  subsequent to April 2002.  Additionally,  settlement of the
above-mentioned   notes  receivable  from  affiliates  was  not  then  currently
contemplated in the foreseeable future. In July 2002, KII transferred such notes
receivable from affiliates to Kronos in one or more non-cash  transactions,  and
as a result KII no longer  reports cash flows  related to such notes  receivable
from affiliates.

     Cash,  cash  equivalents,  restricted  cash and restricted  marketable debt
securities  and borrowing  availability.  At December 31, 2003,  the Company had
current  cash  and cash  equivalents  aggregating  $37.1  million,  had  current
restricted cash equivalents of $1.3 million and noncurrent restricted marketable
debt securities of $2.6 million.  At December 31, 2003, certain of the Company's
subsidiaries had approximately  $100 million available for borrowing,  including
approximately $97 million under the European Credit Facility (based on borrowing
availability).  At December 31, 2003, the Company had  approximately $70 million
available for payment of dividends and other  restricted  payments as defined in
the Notes  indenture.  At December 31, 2003,  the Company had complied  with all
financial covenants governing its debt agreements.

     Based upon the Company's expectations for the TiO2 industry and anticipated
demands on the Company's cash resources as discussed herein, the Company expects
to  have  sufficient  liquidity  to meet  its  near-term  obligations  including
operations,  capital expenditures,  debt service and current dividend policy. To
the extent that actual  developments  differ from  Company's  expectations,  the
Company's liquidity could be adversely affected.

     Legal   proceedings  and  environmental   matters.   See  Note  13  to  the
Consolidated   Financial   Statements   for  certain   legal   proceedings   and
environmental matters with respect to the Company.

     Foreign  operations.  As discussed  above,  the  Company's  operations  are
located  outside the United States for which the functional  currency is not the
U.S.  dollar.  As a result,  the  reported  amount of the  Company's  assets and
liabilities related to its operations,  and therefore the Company's consolidated
net assets,  will fluctuate based upon changes in currency exchange rates. As of
January 1, 2001, the functional currency of the Company's German, Belgian, Dutch
and French  operations  have been  converted  to the euro from their  respective
national  currencies.  At December 31,  2003,  the Company had  substantial  net
assets  denominated  in the euro,  Norwegian  kroner  and United  Kingdom  pound
sterling.

     Redeemable  preferred stock,  profit  participation  certificates and notes
receivable from affiliates.  The Company had issued and outstanding Series A and
Series B  redeemable  preferred  stock  and  profit  participation  certificates
totaling  $694.8  million and $617.4  million at June 30, 2002 and  December 31,
2001,  respectively,  including  cumulative and unpaid  dividends.  The Series A
redeemable  preferred stock was issued to Kronos in February 1999 as a result of
a capital  contribution  to the Company  through the  reduction of the Company's
affiliate  notes  payable to NL and Kronos.  The Series B  redeemable  preferred
stock was issued to Kronos in  February  1999 as a result of a  contribution  of
intellectual  property by Kronos to the Company.  The intellectual  property was
contributed  to the  Company  at Kronos'  carryover  basis of zero due to common
control of the Company and Kronos.  The profit  participation  certificates were
issued to Kronos in December 1999 as part of a recapitalization. The Company had
$753.0  million  and  $700.8  million  of  outstanding   notes  receivable  from
affiliates at June 30, 2002 and December 31, 2001,  respectively.  Settlement of
such notes  receivable was not currently  contemplated  in the then  foreseeable
future,  and consequently such notes receivable from affiliates were reported in
the  Company's  consolidated  balance  sheet  as a  reduction  of the  Company's
stockholder's  equity in  accordance  with GAAP.  These notes arose  between the
Company,  NL and Kronos  through a series of  transactions  with  affiliates,  a
substantial  portion of which were noncash in nature.  The Company  periodically
converted  accrued interest  receivable from affiliates to notes receivable from
affiliates.  See Note 8 to the Consolidated  Financial Statements for the effect
of the recapitalization in July 2002 on the Company.

     Other.  The Company  periodically  evaluates  its  liquidity  requirements,
alternative uses of capital, capital needs and availability of resources in view
of,  among other  things,  its  dividend  policy,  its debt  service and capital
expenditure  requirements and estimated future operating cash flows. As a result
of this process, the Company in the past has sought, and in the future may seek,
to reduce, refinance,  repurchase or restructure indebtedness;  raise additional
capital;  issue additional securities;  restructure ownership interests;  modify
its dividend policy;  sell interests in subsidiaries or other assets;  or take a
combination  of such steps or other  steps to manage its  liquidity  and capital
resources.  In the  normal  course  of its  business,  the  Company  may  review
opportunities for the acquisition,  divestiture, joint venture or other business
combinations in the chemicals or other industries, as well as the acquisition of
interests in related companies. In the event of any acquisition or joint venture
transaction,  the Company may consider  using  available  cash,  issuing  equity
securities  or  increasing  its  indebtedness  to the  extent  permitted  by the
agreements governing the Company's existing debt. See Note 6 to the Consolidated
Financial Statements.

Summary of debt and other contractual commitments

     As  more  fully  described  in  the  notes  to the  Consolidated  Financial
Statements,  the Company is a party to various debt,  lease and other agreements
which  contractually  and  unconditionally  commit the  Company  to pay  certain
amounts  in  the  future.  See  Notes  6 and 13 to  the  Consolidated  Financial
Statements.  The following table summarizes such contractual  commitments of the
Company and its consolidated  subsidiaries that are unconditional  both in terms
of timing and amount by the type and date of payment.
<TABLE>
<CAPTION>

                                                               Unconditional payment due date
                                                                                          2009 and
        Contractual commitment               2004        2005/2006      2007/2008           after         Total
                                            -----       ----------      ---------         --------       -------
                                                                        (In millions)

<S>                                      <C>              <C>             <C>             <C>            <C>
Third-party indebtedness                 $    .3          $    .3         $    -          $ 356.1        $ 356.7

Operating leases                             2.9              3.6             2.5            19.9           28.9

Fixed asset acquisitions                     5.9               -               -               -             5.9

Asset retirement obligations and other        -                -               -              5.8            5.8
                                         -------          -------         -------         -------        -------

                                         $   9.1          $   3.9         $   2.5         $ 381.8        $ 397.3
                                         =======          =======         =======         =======        =======
</TABLE>



     The above table does not reflect any amounts that the Company  might pay to
fund its defined  benefit  pension  plans,  as the timing and amount of any such
future  fundings are unknown and dependent  on, among other  things,  the future
performance of defined  benefit pension plan assets,  interest rate  assumptions
and actual future retiree medical costs.  Such defined benefit pension plans are
discussed above in greater detail.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     General.  The  Company is exposed  to market  risk from  changes in foreign
currency exchange rates, interest rates and equity security prices. In the past,
the Company has periodically  entered into interest rate swaps or other types of
contracts  in order to  manage a  portion  of its  interest  rate  market  risk.
Otherwise, the Company does not generally enter into forward or option contracts
to manage such market  risks,  nor does the Company enter into any such contract
or other type of  derivative  instrument  for trading or  speculative  purposes.
Other than as  described  below,  the  Company  was not a party to any  material
forward  or  derivative  option  contract  related to  foreign  exchange  rates,
interest  rates or equity  security  prices at December  31, 2002 and 2003.  See
Notes 1 and 14 to the Consolidated Financial Statements.

     Interest  rates.  The  Company is exposed  to market  risk from  changes in
interest  rates,  primarily  related to  indebtedness.  At  December  31,  2003,
substantially  all of the  Company's  aggregate  indebtedness  was  comprised of
fixed-rate  instruments (2002 - 92% of fixed-rate instruments and 8% of variable
rate borrowings).  The large percentage of fixed-rate debt instruments minimizes
earnings  volatility  that would  result  from  changes in interest  rates.  The
following table presents  principal  amounts and weighted average interest rates
for the Company's  aggregate  outstanding  indebtedness at December 31, 2003. At
December  31,  2002  and  2003,  all  outstanding  fixed-rate  indebtedness  was
denominated  in  euros,  and  the  outstanding  variable  rate  borrowings  were
denominated  in the euro or the Norwegian  kroner.  Information  shown below for
such foreign currency  denominated  indebtedness is presented in its U.S. dollar
equivalent at December 31, 2003 using  exchange  rates of 1.25 U.S.  dollars per
euro. Certain Norwegian kroner  denominated  capital leases totaling $700,000 in
2003 have been excluded from the table below.



<TABLE>
<CAPTION>

                                                              Amount
                                                    -------------------------
                                                     Carrying           Fair           Interest          Maturity
                  Indebtedness                         value           value             rate              date
                                                    ---------        --------         ----------        ----------
                                                            (In millions)

Fixed-rate indebtedness:
  Euro-denominated
<S>                                                 <C>              <C>                  <C>               <C>
   Senior Secured Notes                             $ 356.1          $ 356.1              8.9%              2009
                                                    =======          =======
</TABLE>


     At December 31, 2002,  fixed rate  indebtedness  aggregated  $296.9 million
(fair value - $299.9 million) with a weighted-average interest rate of 8.9%; and
variable  rate  indebtedness  at  such  date  aggregated  $27.1  million,  which
approximates fair value, with a  weighted-average  interest rate of 6.5%. All of
such fixed rate  indebtedness  was  denominated  in euros.  Such  variable  rate
indebtedness  was  denominated  in the euro (58% of the total) or the  Norwegian
kroner (42%).

     Foreign  currency  exchange  rates.  The  Company is exposed to market risk
arising  from  changes  in  foreign  currency  exchange  rates  as a  result  of
manufacturing  and  selling  its  products  worldwide.  Earnings  are  primarily
affected by  fluctuations  in the value of the U.S. dollar relative to the euro,
the Norwegian kroner and the United Kingdom pound sterling.

     As described above, at December 31, 2003, the Company had the equivalent of
$356.1  million  of  outstanding  euro-denominated   indebtedness  (2002  -  the
equivalent of $312.5 million of euro-denominated  indebtedness and $11.5 million
of Norwegian  kroner-denominated  indebtedness).  The potential  increase in the
U.S.  dollar  equivalent of the principal  amount  outstanding  resulting from a
hypothetical  10%  adverse  change  in  exchange  rates  at such  date  would be
approximately $35.6 million at December 31, 2003 (2002 - $32.4 million).

     At December  31, 2003,  the Company had entered into a short-term  currency
contract  maturing  on January 2, 2004 to  exchange  an  aggregate  of  (euro)40
million  into U.S.  dollars at an  exchange  rate of U.S.  $1.25 per euro.  Such
contract  was entered  into in  conjunction  with the January 2004 payment of an
intercompany  dividend  from  one of the  Company's  European  subsidiaries.  At
December  31,  2003,  the  actual  exchange  rate was U.S.  $1.25 per euro.  The
estimated fair value of such foreign  currency forward contract was not material
at December 31, 2003.

     Other. The Company believes there may be a certain amount of incompleteness
in the sensitivity  analysis  presented  above.  For example,  the  hypothetical
effect of changes in exchange rates discussed above ignores the potential effect
on other  variables  which affect the Company's  results of operations  and cash
flows,  such as demand for the  Company's  products,  sales  volumes and selling
prices and operating expenses.  Accordingly, the amounts presented above are not
necessarily  an accurate  reflection of the  potential  losses the Company would
incur  assuming  the  hypothetical  changes in exchange  rates were  actually to
occur.

     The above  discussion and estimated  sensitivity  analysis  amounts include
forward-looking  statements of market risk which assume hypothetical  changes in
currency  exchange  rates.  Actual future market  conditions  will likely differ
materially from such assumptions.  Accordingly,  such forward-looking statements
should not be  considered  to be  projections  by the Company of future  events,
gains or losses.

     Non-GAAP  financial  measures.  In an  effort  to  provide  investors  with
additional  information  regarding the Company's  results as determined by GAAP,
the  Company  has  disclosed  certain  non-GAAP  information  which the  Company
believes provides useful information to financial  statement users. As discussed
above, the Company  discloses  percentage  changes in its average TiO2 prices in
billing currencies,  which excludes the effects of foreign currency translation.
Such disclosure of the percentage  change in the Company's  average TiO2 selling
price in billing  currencies is considered a "non-GAAP"  financial measure under
regulations of the SEC. The disclosure of the percentage change in the Company's
average  TiO2  selling  prices  using actual  foreign  currency  exchange  rates
prevailing  during  the  respective  periods  is  considered  the most  directly
comparable GAAP measure. The Company discloses percentage changes in its average
TiO2 prices in billing  currencies  because the Company believes such disclosure
provides  useful  information  to  financial  statement  users to allow  them to
analyze such changes without the impact of changes in foreign currency  exchange
rates, thereby facilitating period-to-period comparisons of the relative changes
in average selling prices in the actual various billing  currencies.  Generally,
when the U.S. dollar either strengthens or weakens against other currencies, the
percentage change in average selling prices in billing currencies will be higher
or lower, respectively, than such percentage changes using actual exchange rates
prevailing during the respective periods.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information  called for by this Item is contained in a separate section
of this Annual Report.  See "Index of Financial  Statements and Schedules" (page
F-1).

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

         None.

ITEM 9A. CONTROLS AND PROCEDURES

     The Company maintains a system of disclosure  controls and procedures.  The
term "disclosure controls and procedures," as defined by regulations of the SEC,
means controls and other procedures that are designed to ensure that information
required to be disclosed in the reports that the Company files or submits to the
SEC under the  Securities  Exchange  Act of 1934,  as amended  (the  "Act"),  is
recorded,  processed,  summarized and reported within the time periods specified
in the SEC's  rules and  forms.  Disclosure  controls  and  procedures  include,
without limitation,  controls and procedures designed to ensure that information
required to be  disclosed by the Company in the reports that it files or submits
to the SEC  under  the Act is  accumulated  and  communicated  to the  Company's
management,   including  its  principal  executive  officer  and  its  principal
financial officer, as appropriate to allow timely decisions to be made regarding
required  disclosure.  Each of Harold C. Simmons,  the Company's Chief Executive
Officer,  and  Gregory M.  Swalwell,  the  Company's  Vice  President  and Chief
Financial  Officer,   have  evaluated  the  Company's  disclosure  controls  and
procedures as of December 31, 2003. Based upon their evaluation, these executive
officers have  concluded that the Company's  disclosure  controls and procedures
are effective as of the date of such evaluation.

     The Company also  maintains a system of internal  controls  over  financial
reporting.  The term "internal control over financial  reporting," as defined by
regulations  of the SEC, means a process  designed by, or under the  supervision
of, the  Company's  principal  executive and principal  financial  officers,  or
persons  performing  similar  functions,  and effected by the Company's board of
directors,  management  and other  personnel,  to provide  reasonable  assurance
regarding  the  reliability  of  financial  reporting  and  the  preparation  of
financial  statements  for  external  purposes  in  accordance  with  accounting
principles  generally  accepted in the United  States of America  ("GAAP)",  and
includes those policies and procedures that:

o    Pertain to the maintenance of records that in reasonable  detail accurately
     and fairly reflect the  transactions  and dispositions of the assets of the
     Company,
o    Provide reasonable assurance that transactions are recorded as necessary to
     permit  preparation  of financial  statements in accordance  with GAAP, and
     that  receipts  and  expenditures  of the  Company  are being  made only in
     accordance with  authorizations of management and directors of the Company,
     and
o    Provide reasonable  assurance  regarding  prevention or timely detection of
     unauthorized  acquisition,  use or disposition of the Company's assets that
     could  have a  material  effect  on the  Company's  consolidated  financial
     statements.

     There has been no change to the Company's system of internal  controls over
financial  reporting  during  the  quarter  ended  December  31,  2003  that has
materially affected, or is reasonably likely to materially affect, the Company's
system of internal controls over financial reporting.

                                                               PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Omitted pursuant to the General Instruction I of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

         Omitted pursuant to the General Instruction I of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Omitted pursuant to the General Instruction I of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Omitted pursuant to the General Instruction I of Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

     The following  table shows the aggregate fees   LL  LLP,
the Company's independent accountants ("PwC"), has billed or is expected to bill
to the Company and its subsidiaries for services  rendered for 2002 and 2003. No
fees were billed or  expected  to be billed by PwC to the  Company for  services
performed  in 2002  and  2003  for  financial  information  systems  design  and
implementation.

<TABLE>
<CAPTION>

                                                                          December 31,
                                                                     2002               2003
                                                                         (In thousands)

<S>           <C>                                                   <C>                <C>
         Audit(1)                                                   $1,409             $  633
         Audit related(2)                                               43                 26
         Tax(3)                                                         36                 32
         All                                                             4                -
                                                                    ------             ------
         other(4)

         Total                                                      $1,492             $  691
                                                                    ======             ======
</TABLE>


1)   Fees for the following services:

     a)   audits of the Company's  consolidated  year-end financials  statements
          for each year;
     b)   reviews of the unaudited quarterly financial  statements  appearing in
          the Company's  Forms 10-Q for each of the first three quarters of each
          year;
     c)   consents and assistance with  registration  statements  filed with the
          Commission;
     d)   normally provided  statutory or regulatory  filings or engagements for
          each year; and
     e)   the  estimated  out-of-pocket  costs PwC incurred in providing  all of
          such services for which the Company reimburses PwC.

2)   Fees for assurance and related services  reasonably related to the audit or
     review of the Company's financial  statements for each year. These services
     include employee benefit plan audits,  accounting  consultations and attest
     services concerning financial accounting and reporting standards and advice
     concerning internal controls.

3)   Fees for tax compliance, tax advice and tax planning services.

4)   Fees for all  services  not  described  in the  other  categories.





                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) and (d)    Financial Statements and Schedules

               The Registrant

               The  consolidated  financial  statements  and  schedules  of  the
               Registrant   listed  on  the  accompanying   Index  of  Financial
               Statements and Schedules (see page F-1) are filed as part of this
               Annual Report.

               Financial Statements of Guarantors

               The  consolidated  financial  statements of Kronos Titan GmbH and
               Kronos Denmark ApS listed on the accompanying  Index of Financial
               Statements and Schedules (see page F-1) are filed as part of this
               Annual  Report  pursuant  to Rule  3-16 of  Regulation  S-X.  The
               Registrant  is  not  required  to  provide  any  other  financial
               statements pursuant to Rule 3-16 of Regulation S-X.


 (b)           Reports on Form 8-K

               Reports  on Form 8-K filed for the  quarter  ended  December  31,
               2003.

                     None.


 (c)           Exhibits

               Included as exhibits are the items  listed in the Exhibit  Index.
               the Company  will  furnish a copy of any of the  exhibits  listed
               below upon payment of $4.00 per exhibit to cover the costs to the
               Company   of   furnishing   the   exhibits.   Pursuant   to  Item
               601(b)(4)(iii)  of Regulation  S-K, any  instrument  defining the
               rights of holders of long-term  debt issues and other  agreements
               related to  indebtedness  which do not exceed 10% of consolidated
               total  assets as of December  31, 2003 will be  furnished  to the
               Commission upon request.


Item No.                          Exhibit Index

3.1       Certificate  of  Incorporation  of the  Registrant -  incorporated  by
          reference to Exhibit 3.1 to the Registrant's Registration Statement on
          Form S-4 (File No. 333-100047).

3.2       Certificate  of  Amendment  to  Certificate  of  Incorporation  of the
          Registrant,  dated  March 15,  1989 -  incorporated  by  reference  to
          Exhibit 3.2 to the  Registrant's  Registration  Statement  on Form S-4
          (File No. 333-100047).

3.3       Certificate  of  Amendment  to  Certificate  of  Incorporation  of the
          Registrant,  dated  January 1, 1999 -  incorporated  by  reference  to
          Exhibit 3.3 to the  Registrant's  Registration  Statement  on Form S-4
          (File No. 333-100047).

3.4       Certificate  of  Amendment  to  Certificate  of  Incorporation  of the
          Registrant,  dated  February 8, 1999 -  incorporated  by  reference to
          Exhibit 3.4 to the  Registrant's  Registration  Statement  on Form S-4
          (File No. 333-100047).

3.5       Certificate  of  Amendment  to  Certificate  of  Incorporation  of the
          Registrant,  dated  December 15, 1999 -  incorporated  by reference to
          Exhibit 3.5 to the  Registrant's  Registration  Statement  on Form S-4
          (File No. 333-100047).

3.6       Amended  and  Restated  Bylaws of the  Registrant  -  incorporated  by
          reference to Exhibit 3.6 to the Registrant's Registration Statement on
          Form S-4 (File No. 333-100047).

4.1       Indenture governing the 8.875% Senior Secured Notes due 2009, dated as
          of June 28, 2002,  between the Registrant and The Bank of New York, as
          trustee -  incorporated  by reference to Exhibit 4.1 to the  Quarterly
          Report on Form 10-Q of NL Industries,  Inc. for the quarter ended June
          30, 2002.

4.2       Form of  certificate  of 8.875% Senior Secured Note due 2009 (included
          as Exhibit A to Exhibit  4.1) -  incorporated  by reference to Exhibit
          4.2 to the Registrant's  Registration  Statement on Form S-4 (File No.
          333-100047).

4.3       Form of  certificate  of 8.875% Senior Secured Note due 2009 (included
          as Exhibit B to Exhibit  4.1) -  incorporated  by reference to Exhibit
          4.3 to the Registrant's  Registration  Statement on Form S-4 (File No.
          333-100047).

4.4       Purchase  Agreement,  dated as of June 19, 2002, among the Registrant,
          Deutsche  Bank  AG  London,  Dresdner  Bank  AG,  London  Branch,  and
          Commerzbank  Aktiengesellschaft,   London  Branch  -  incorporated  by
          reference  to Exhibit 4.4 to the  Quarterly  Report on Form 10-Q of NL
          Industries, Inc. for the quarter ended June 30, 2002.

4.5       Collateral Agency Agreement, dated as of June 28, 2002, among The Bank
          of New York, U.S. Bank,  N.A. and the Registrant  (filed herewith only
          with  respect to  Sections  2, 5, 6 and 8 thereof) -  incorporated  by
          reference  to Exhibit 4.6 to the  Quarterly  Report on Form 10-Q of NL
          Industries, Inc. for the quarter ended June 30, 2002.

4.6       Security Over Shares Agreement (shares of Kronos Limited),  dated June
          28, 2002,  between the Registrant  and The Bank of New York,  U.S., as
          trustee -  incorporated  by reference to Exhibit 4.7 to the  Quarterly
          Report on Form 10-Q of NL Industries,  Inc. for the quarter ended June
          30, 2002.

4.7       Pledge of Shares (shares of Kronos Denmark ApS),  dated June 28, 2002,
          between the  Registrant  and U.S.  Bank,  N.A., as collateral  agent -
          incorporated  by reference to Exhibit 4.8 to the  Quarterly  Report on
          Form 10-Q of NL Industries, Inc. for the quarter ended June 30, 2002.

4.8       Pledge Agreement (pledge of shares of Societe  Industrielle du Titane,
          S.A.),  dated June 28, 2002,  between the  Registrant  and U.S.  Bank,
          N.A., as collateral  agent - incorporated  by reference to Exhibit 4.9
          to the Quarterly  Report on Form 10-Q of NL  Industries,  Inc. for the
          quarter ended June 30, 2002.

4.9       Partnership   Interest  Pledge  Agreement  (pledge  of  fixed  capital
          contribution  in Kronos  Titan GmbH & Co.  OHG),  dated June 28, 2002,
          between the  Registrant  and U.S.  Bank,  N.A., as collateral  agent -
          incorporated  by reference to Exhibit 4.10 to the Quarterly  Report on
          Form 10-Q of NL Industries, Inc. for the quarter ended June 30, 2002.

4.10      Recapitalization  Agreement,  dated as of June 5,  2002,  between  the
          Registrant  and Kronos,  Inc. -  incorporated  by reference to Exhibit
          4.12 to the Registrant's  Registration Statement on Form S-4 (File No.
          333-100047).

4.11      Redemption Agreement, dated as of June 6, 2002, between the Registrant
          and NL Industries, Inc. - incorporated by reference to Exhibit 4.13 to
          the  Registrant's   Registration  Statement  on  Form  S-4  (File  No.
          333-100047).

4.12      Form of Profit  Participation  Certificate  (English  translation from
          German language  document) - incorporated by reference to Exhibit 4.14
          to the  Registrant's  Registration  Statement  on Form S-4  (File  No.
          333-100047).

10.1     (euro)80,000,000 Facility Agreement, dated June 25, 2002, among Kronos
          Titan GmbH & Co. OHG,  Kronos Europe  S.A./N.V.,  Kronos Titan A/S and
          Titania A/S, as borrowers,  Kronos Titan GmbH & Co. OHG, Kronos Europe
          S.A./N.V.  and Kronos Norge AS, as guarantors,  Kronos Denmark ApS, as
          security  provider,  Deutsche  Bank AG,  as  mandated  lead  arranger,
          Deutsche Bank Luxembourg  S.A., as agent and security  agent,  and KBC
          Bank NV, as fronting  bank, and the financial  institutions  listed in
          Schedule 1 thereto,  as lenders - incorporated by reference to Exhibit
          10.1 to the Quarterly  Report on Form 10-Q of NL Industries,  Inc. for
          the quarter ended June 30, 2002.

10.2      Lease  Contract,  dated June 21, 1952,  between  Farbenfabriken  Bayer
          Aktiengesellschaft  and  Titangesellschaft  mit  beschrankter  Haftung
          (German   language   version  and  English   translation   thereof)  -
          incorporated  by  reference to Exhibit  10.14 to the Annual  Report on
          Form 10-K of NL Industries, Inc. for the year ended December 31, 1985.

10.3      Contract on Supplies and  Services,  dated as of June 30, 1995,  among
          Bayer AG,  Kronos  Titan-GmbH  & Co. OHG and the  Registrant  (English
          translation from German language document) - incorporated by reference
          to Exhibit  10.1 to  Quarterly  Report on Form 10-Q of NL  Industries,
          Inc. for the quarter ended September 30, 1995.

10.4      Master Technology  Exchange  Agreement,  dated as of October 18, 1993,
          among Kronos,  Inc., Kronos Louisiana,  Inc., the Registrant,  Tioxide
          Group Limited and Tioxide Group  Services  Limited -  incorporated  by
          reference to Exhibit 10.8 to the  Quarterly  Report on Form 10-Q of NL
          Industries, Inc. for the quarter ended September 30, 1993.

10.5      Services  Agreement,  dated as of January 1, 1995, amended as of April
          1,  2002,  among  NL  Industries,  Inc.,  Kronos  (US),  Inc.  and the
          Registrant  -  incorporated  by  reference  to  Exhibit  10.6  to  the
          Registrant's Registration Statement on Form S-4 (File No. 333-100047).

10.6      Tax Agreement,  dated as of May 28, 2002, between Kronos, Inc. and the
          Registrant  -  incorporated  by  reference  to  Exhibit  10.7  to  the
          Registrant's Registration Statement on Form S-4 (File No. 333-100047).

10.7      Form of Kronos  Cost  Sharing  Agreement,  effective  as of January 1,
          2002,  among the  Registrant,  Kronos Europe  S.A./N.V.,  Kronos (US),
          Inc.,  NL  Industries,  Inc.,  Kronos  Titan GmbH & Co.  OHG,  Societe
          Industrielle du Titane,  S.A.,  Kronos Titan A/S,  Titania A/S, Kronos
          Limited,  Kronos Canada, Inc., Kronos Denmark ApS and Kronos Louisiana
          Inc. - incorporated  by reference to Exhibit 10.8 to the  Registrant's
          Registration Statement on Form S-4 (File No. 333-100047).

10.8      Form of Assignment  and Assumption  Agreement,  dated as of January 1,
          1999,  between Kronos (US),  Inc. and the Registrant - incorporated by
          reference to Exhibit 10.9 to the Registrant's  Registration  Statement
          on Form S-4 (File No. 333-100047).

10.9      Form of Cross  License  Agreement,  effective  as of  January 1, 1999,
          between  Kronos Inc.  (formerly  known as Kronos (USA),  Inc.) and the
          Registrant  -  incorporated  by  reference  to  Exhibit  10.10  to the
          Registrant's Registration Statement on Form S-4 (File No. 333-100047).

10.10**   NL Industries, Inc. 1998 Long-Term Incentive Plan - incorporated by
          reference  to Appendix A to the Proxy  Statement on Schedule 14A of NL
          Industries, Inc. for the annual meeting of shareholders held on May 6,
          1998.

10.11**   Form  of  Kronos  Worldwide,   Inc.  Long-Term  Incentive  Plan  -
          incorporated by reference to Exhibit 10.4 of Kronos Worldwide,  Inc.'s
          Registration Statement on Form 10 (File No. 001-31763).

10.12**   Form of Indemnity Agreement between the Registrant and the officers
          and directors of the Registrant - incorporated by reference to Exhibit
          10.12 to the Registrant's Registration Statement on Form S-4 (File No.
          333-100047).

10.13*    Richards  Bay Slag  Sales  Agreement,  dated May 1,  1995,  between
          Richards Bay Iron and Titanium  (Proprietary) Limited and Kronos, Inc.
          -  incorporated  by reference to Exhibit 10.17 to the Annual Report on
          Form 10-K for NL  Industries,  Inc.  for the year ended  December  31,
          1995.

10.14*    Amendment to Richards Bay Slag Sales  Agreement,  dated May 1, 1999,
          between  Richards  Bay Iron and  Titanium  (Proprietary)  Limited  and
          Kronos, Inc. - incorporated by reference to Exhibit 10.4 to the Annual
          Report  on Form  10-K  for NL  Industries,  Inc.  for the  year  ended
          December 31, 1999.

10.15*    Amendment to Richards Bay Slag Sales Agreement,  dated June 1, 2001,
          between  Richards  Bay Iron and  Titanium  (Proprietary)  Limited  and
          Kronos, Inc. - incorporated by reference to Exhibit 10.5 to the Annual
          Report  on Form  10-K  for NL  Industries,  Inc.  for the  year  ended
          December 31, 2001.

10.16*    Amendment to Richards Bay Slag Sales  Agreement  dated  December 20,
          2002 between Richards Bay Iron and Titanium  (Proprietary) Limited and
          Kronos, Inc. - incorporated by reference to Exhibit 10.7 to the Annual
          Report  on Form  10-K  for NL  Industries,  Inc.  for the  year  ended
          December 31, 2002.

10.17*    Amendment to Richards  Bay Slag Sales  Agreement  dated  October 31,
          2003 between Richards Bay Iron and Titanium  (Proprietary) Limited and
          Kronos,  Inc -  incorporated  by reference to Exhibit  10.17 to Kronos
          Worldwide,  Inc.'s  Annual  Report  on Form  10-K for the  year  ended
          December 31, 2003.

10.18     Agreement  between   Sachtleben  Chemie  GmbH  and  Kronos  Titan-GmbH
          effective  December  30, 1986 -  incorporated  by reference to Exhibit
          10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter
          ended September 30, 2002.

10.19     Supplementary  Agreement to the Agreement of December 30, 1986 between
          Sachtleben  Chemie  GmbH and  Kronos  Titan-GmbH  dated  May 3, 1996 -
          incorporated  by  reference  to  Exhibit  10.2  of  the   Registrant's
          Quarterly  Report on Form 10-Q for the  quarter  ended  September  30,
          2002.

10.20     Second Supplementary Agreement to the Contract dated December 30, 1986
          between  Sachtleben Chemie GmbH and Kronos Titan-GmbH dated January 8,
          2002 - incorporated  by reference to Exhibit 10.3 of the  Registrant's
          Quarterly  Report on Form 10-Q for the  quarter  ended  September  30,
          2002.

10.21     Amendment  dated  August 11,  2003 to the  Contract  on  Supplies  and
          Services  among  Bayer AG,  Kronos  Titan - GmbH & Co.  OHG and Kronos
          International  (English  translation  of German  language  document) -
          incorporated  by reference to Exhibit  10.32 to the Kronos  Worldwide,
          Inc. Registration Statement on Form 10 (File No. 001-31763).

10.22**   Summary of  Consulting  Arrangement,  beginning  on August 1, 2003,
          between Lawrence A. Wigdor and Kronos  Worldwide,  Inc. - incorporated
          by reference to Exhibit 10.50 to NL  Industries,  Inc.'s Annual Report
          on Form 10-K for the year ended December 31, 2003.

31.1      Certification.

31.2      Certification.

32.1      Certification.



*    Portions  of the  exhibit  have been  omitted  pursuant  to a  request  for
     confidential treatment.

**   Management contract, compensatory plan or arrangement




                                                     SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.

                                                    Kronos International, Inc.
                                                     (Registrant)


                                                    By:/s/ Harold C. Simmons
                                                    ----------------------------
                                                       Harold C. Simmons
                                                       March 12, 2004
                                                      (Chief Executive Officer)


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated:



/s/ Dr. Henry Basson                        /s/ Gregory M. Swalwell
---------------------------------           -----------------------------------
Dr. Henry Basson , March 12, 2004           Gregory M. Swalwell, March 12, 2004
(Director)                                  (Vice President, Finance;
                                            Principal Financial and
                                            Accounting Officer)

/s/ Andrew Kasprowiak                       /s/ Volker Roth
---------------------------------           -----------------------------------
Andrew Kasprowiak, March 12, 2004           Volker Roth, March 12, 2004
(Director)                                  (Director)

/s/ Dr. Ulfert Fiand
---------------------------------
Dr. Ulfert Fiand, March 12, 2004
(Director)




                           KRONOS INTERNATIONAL, INC.

                           Annual Report on Form 10-K

                            Items 8, 14(a) and 14(d)

                   Index of Financial Statements and Schedules


Financial Statements                                                      Page

  Report of Independent Auditors                                          F-2

  Consolidated Balance Sheets - December 31, 2002 and 2003                F-3

  Consolidated Statements of Income -
   Years ended December 31, 2001, 2002 and 2003                           F-5

  Consolidated Statements of Comprehensive Income -
   Years ended December 31, 2001, 2002 and 2003                           F-6

  Consolidated Statements of Stockholder's Equity -
   Years ended December 31, 2001, 2002 and 2003                           F-7

  Consolidated Statements of Cash Flows -
   Years ended December 31, 2001, 2002 and 2003                           F-8

  Notes to Consolidated Financial Statements                              F-11


Financial Statement Schedules


  Report of Independent Auditors                                          S-1

  Schedule I - Condensed Financial Information of Registrant              S-2

  Schedule II - Valuation and Qualifying Accounts                         S-7

  Schedules III and IV are omitted because they are not applicable.


Other Financial Statements filed pursuant to Rule 3-16 of Regulation S-X


  Financial Statements of Kronos Titan GmbH                               FA-1

  Financial Statements of Kronos Denmark ApS                              FB-1


                         REPORT OF INDEPENDENT AUDITORS



To the Stockholder and Board of Directors of Kronos International, Inc.:

     In our  opinion,  the  accompanying  consolidated  balance  sheets  and the
related consolidated statements of income,  comprehensive income,  stockholder's
equity and cash flows present fairly,  in all material  respects,  the financial
position of Kronos International,  Inc. and Subsidiaries as of December 31, 2002
and 2003,  and the results of their  operations and their cash flows for each of
the three years in the period  ended  December  31,  2003,  in  conformity  with
accounting principles generally accepted in the United States of America.  These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits. We conducted our audits of these financial  statements in accordance
with  auditing  standards  generally  accepted in the United  States of America,
which require that we plan and perform the audit to obtain reasonable  assurance
about whether the financial  statements  are free of material  misstatement.  An
audit includes examining,  on a test basis,  evidence supporting the amounts and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.





                                                      PricewaterhouseCoopers LLP

Dallas, Texas
March 5, 2004




                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2002 and 2003

                        (In thousands, except share data)

<TABLE>
<CAPTION>

              ASSETS
                                                                             2002                  2003

Current assets:
<S>                                                                        <C>                   <C>
  Cash and cash equivalents                                                $ 15,023              $ 37,121
  Restricted cash                                                             1,226                 1,313
  Accounts and other receivables                                             92,493               112,797
  Receivable from affiliates                                                    972                 1,884
  Refundable income taxes                                                     1,718                35,150
  Inventories                                                               143,664               168,131
  Prepaid expenses                                                            4,040                 3,349
  Deferred income taxes                                                         695                   943
                                                                           --------              --------

      Total current assets                                                  259,831               360,688
                                                                           --------              --------

Other assets:
   Prepaid pension cost                                                      17,572                     -
   Deferred financing costs, net                                              9,879                 9,761
   Restricted marketable debt securities                                      2,492                 2,586
   Unrecognized net pension obligation                                          292                 7,812
   Other                                                                      3,472                 1,266
                                                                           --------              --------

      Total other assets                                                     33,707                21,425
                                                                           --------              --------

Property and equipment:
  Land                                                                       25,487                31,106
  Buildings                                                                 115,812               139,665
  Equipment                                                                 536,835               644,733
  Mining properties                                                          65,296                63,701
  Construction in progress                                                    7,749                 7,565
                                                                           --------              --------
                                                                            751,179               886,770
  Less accumulated depreciation and amortization                            433,416               518,383
                                                                           --------              --------

      Net property and equipment                                            317,763               368,387
                                                                           --------              --------

                                                                           $611,301              $750,500
                                                                           ========              ========
</TABLE>

See accompanying notes to consolidated financial statements.



                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2002 and 2003

                        (In thousands, except share data)


<TABLE>
<CAPTION>

   LIABILITIES AND STOCKHOLDER'S EQUITY
                                                                               2002                2003

Current liabilities:
<S>                                                                        <C>                <C>
  Current maturities of long-term debt                                     $    1,298         $      288
  Accounts payable and accrued liabilities                                     93,563            103,804
  Payable to affiliates                                                        21,430              8,697
  Income taxes                                                                  5,845             12,007
  Deferred income taxes                                                         3,219              3,436
                                                                           ----------         ----------

      Total current liabilities                                               125,355            128,232
                                                                           ----------         ----------

Noncurrent liabilities:
  Long-term debt                                                              324,608            356,451
  Deferred income taxes                                                        49,688             86,622
  Accrued pension cost                                                         21,486             53,010
  Other                                                                        12,933             14,098
                                                                           ----------         ----------

      Total noncurrent liabilities                                            408,715            510,181
                                                                           ----------         ----------

Minority interest                                                                 383                525
                                                                           ----------         ----------

Stockholder's equity:
  Common stock, $100 par value; 100,000 shares
   authorized; 2,968 shares issued                                                297                297
  Additional paid-in capital                                                1,944,185          1,944,185
  Retained deficit                                                         (1,721,859)        (1,665,098)
  Accumulated other comprehensive loss:
    Currency translation                                                     (139,025)          (133,425)
    Pension liabilities                                                        (6,750)           (34,397)
                                                                           ----------         ----------

      Total stockholder's equity                                               76,848            111,562
                                                                           ----------         ----------

                                                                           $  611,301         $  750,500
                                                                           ----------         ----------
</TABLE>


Commitments and contingencies (Notes 9 and 13)

See accompanying notes to consolidated financial statements.


                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)
<TABLE>
<CAPTION>

                                                                       2001             2002             2003

<S>                                                                    <C>              <C>              <C>
Net sales                                                              $ 554,637        $579,665         $715,906
Cost of sales                                                            379,558         454,154          516,864
                                                                       ---------        --------         --------

    Gross margin                                                         175,079         125,511          199,042

Selling, general and administrative expense                               68,277          72,008           86,965
Other operating income (expense):
  Currency transaction gains (losses), net                                (9,098)         12,439           (3,721)
  Disposition of property and equipment                                     (548)           (534)            (394)
  Insurance recoveries, net                                                7,222               -             -
  Royalty income                                                           5,421           5,779            6,122
  Other income                                                             1,120             458              489
  Other expense                                                              (69)           (169)            (130)
                                                                       ---------        --------         --------

    Income from operations                                               110,850          71,476          114,443

Other income (expense):
  Currency transaction gain                                            -                   2,718             -
  Insurance recoveries, net                                               17,468            -                -
  Trade interest income                                                    2,148           1,597              700
  Other interest income                                                        5               -             -
  Interest expense to affiliates                                         (34,145)        (18,698)             (81)
  Interest income from affiliates                                         36,220          22,754               30
  Interest expense                                                        (4,305)        (16,696)         (32,529)
                                                                       ---------        --------         --------

    Income before income taxes and minority interest                     128,241          63,151           82,563

Provision for income taxes                                                14,497          10,805              730

Minority interest                                                             16              55               72
                                                                       ---------        --------         --------

    Net income                                                           113,728          52,291           81,761

Dividends and accretion applicable to redeemable preferred stock
    and profit participation certificates                               (112,466)        (78,600)            -
                                                                       ---------        --------         --------

       Net income (loss) available to
         common stock                                                  $   1,262        $(26,309)       $  81,761
                                                                       =========        ========        =========
</TABLE>
See accompanying notes to consolidated financial statements.



                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)


<TABLE>
<CAPTION>

                                                                          2001             2002             2003

<S>                                                                     <C>             <C>              <C>
Net income                                                             $113,728        $   52,291       $  81,761
                                                                       --------        ----------       ---------

Other comprehensive (loss) income, net of tax:

  Minimum pension liabilities adjustment                                 (3,969)           (2,781)        (27,647)
  Currency translation adjustment                                        (3,153)           30,733           5,600
                                                                       --------        ----------       ---------

      Total other comprehensive income (loss)                            (7,122)           27,952         (22,047)
                                                                       --------        ----------       ---------

          Comprehensive income                                         $106,606        $   80,243       $  59,714
                                                                       ========        ==========       =========
</TABLE>

See accompanying notes to consolidated financial statements.





                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

                  Years ended December 31, 2001, 2002 and 2003
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                      Common stockholder's equity (deficit)
                                              -------------------------------------------------------------------------------------
                                       Redeemable                                               Accumulated other
                                       preferred                                                  comprehensive            Total
                                       stock and                                     Notes        income (loss)           common
                                        profit                Additional           receivable ------------------------ stockholder's
                                     participation  Common   paid-in      Retained    from        Currency     Pension     equity
                                      certificates  stock    capital      earnings  affiliates   translation  liabilities  (deficit)



<S>                 <C> <C>          <C>           <C>      <C>         <C>           <C>          <C>         <C>              <C>
Balance at December 31, 2000         $  504,943    $ 320    $1,966,464  $(1,884,071)  $(343,777)   $(166,605)  $      -  $ (427,669)

Net income                                    -       -              -      113,728           -            -          -     113,728
Other comprehensive loss, net of tax          -       -              -            -           -       (3,153)    (3,969)     (7,122)
Preferred dividends and accretion       112,466       -       (112,466)           -           -            -          -    (112,466)
Change in notes receivable
  from affiliates                             -       -              -            -    (357,066)           -          -    (357,066)
Capital contribution                          -       -         16,937            -           -            -          -      16,937
Common dividends declared                     -       -              -       (3,807)          -            -          -      (3,807)
                                     ----------    -----    ----------  -----------   ---------    ---------   --------  -----------

Balance at December 31, 2001            617,409      320     1,870,935   (1,774,150)   (700,843)    (169,758)    (3,969)   (777,465)

Net income                                    -       -              -       52,291           -            -          -      52,291
Other comprehensive income (loss),
  net of tax                                  -       -              -            -           -       30,733     (2,781)     27,952
Change in notes receivable
  from affiliates                             -       -              -            -     156,661            -          -     156,661
Preferred dividends and accretion        78,600       -        (78,600)           -           -            -          -     (78,600)
Capital contribution                          -       -        217,000            -    (217,000)           -          -           -
Recapitalization                       (696,009)     (23)      (65,150)           -     761,182            -          -     696,009
                                     ----------    -----    ----------  -----------   ---------    ---------   --------  -----------

Balance at December 31, 2002                  -      297     1,944,185   (1,721,859)          -     (139,025)    (6,750)     76,848

Net income                                    -       -              -       81,761           -            -          -      81,761
Other comprehensive income (loss),
  net of tax                                  -       -              -            -                    5,600    (27,647)    (22,047)
Cash dividends                                -       -              -      (25,000)          -            -          -     (25,000)
                                     ----------    -----    ----------  -----------   ---------    ---------   --------  -----------

Balance at December 31, 2003         $       -     $ 297    $1,944,185  $(1,665,098)  $       -    $(133,425)  $(34,397) $  111,562
                                     ==========    =====    ==========  ===========   =========    =========   ========  ==========
</TABLE>
See accompanying notes to consolidated financial statements.



                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                      2001               2002              2003

Cash flows from operating activities:
<S>                                                                <C>                <C>               <C>
  Net income                                                       $ 113,728          $  52,291         $  81,761
  Depreciation and amortization                                       24,119             27,144            33,634
  Noncash currency transaction (gain) loss                             9,355            (13,121)             -
  Noncash interest expense to affiliates                                -                 5,521              -
  Noncash interest income from affiliates                            (25,044)           (21,849)             -
  Noncash interest expense                                              -                   860             1,944
  Deferred income taxes                                               (6,565)             5,514            38,690
  Minority interest                                                       16                 55                72
  Net loss from disposition of property and equipment                    548                534               394
  Pension cost, net                                                   (2,342)            (2,118)           (3,805)
  Insurance recoveries, net                                          (17,468)              -                 -
  Change in assets and liabilities:
    Accounts and other receivables                                    (1,797)            10,726             1,104
    Inventories                                                       (7,617)            (1,907)              232
    Prepaid expenses                                                  (1,546)               903             1,345
    Accounts payable and accrued liabilities                           4,088             (5,784)            5,745
    Income taxes                                                         386             (2,114)          (37,231)
    Accounts with affiliates                                         (13,332)            12,189           (14,424)
    Other noncurrent assets                                              366                162            (3,779)
    Other noncurrent liabilities                                        (932)              (788)             (894)
                                                                   ---------          ---------         ---------

      Net cash provided by operating activities                       75,963             68,218           104,788
                                                                   ---------          ---------         ---------

 Cash flows from investing activities:
   Capital expenditures                                              (48,417)           (27,632)          (31,518)
   Property damaged by fire:
     Insurance proceeds                                               23,361               -                 -
     Other, net                                                       (3,205)              -                 -
     Change in restricted cash equivalents and restricted
       marketable debt securities, net                                  (577)            (2,891)             (554)
     Proceeds from disposition of property and equipment                 364                864               383
                                                                   ---------          ---------         ---------

         Net cash used by investing activities                       (28,474)           (29,659)          (31,689)
                                                                   =========          =========         =========
</TABLE>




                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                           2001           2002             2003
Cash flows from financing activities:
  Indebtedness:
<S>                                                                    <C>              <C>              <C>
    Borrowings                                                         $   1,437        $335,768         $  16,106
    Principal payments                                                   (22,428)        (84,814)          (46,006)
    Deferred financing fees                                                 -             (9,963)             -
  Repayments on loans from affiliates                                       -           (301,432)             -
  Capital contribution                                                     3,815               -              -
  Other capital transactions with affiliates, net                        (35,631)          2,925              -
  Dividends paid                                                            -               -              (25,000)
  Distributions to minority interests                                         (5)            (11)              (14)
                                                                       ---------         --------        ---------

          Net cash used by financing activities                          (52,812)        (57,527)          (54,914)
                                                                       ---------         --------        ---------

Cash and cash equivalents - net change from:
  Operating, investing and financing activities                           (5,323)        (18,968)           18,185
  Currency translation                                                    (1,065)          3,648             3,913
                                                                       ---------         --------        ---------

                                                                          (6,388)        (15,320)           22,098

   Balance at beginning of year                                           36,731           30,343           15,023
                                                                       ---------         --------        ---------

   Balance at end of year                                              $  30,343         $ 15,023        $  37,121
                                                                       =========         ========        =========

Supplemental disclosures - cash paid  (received) for:
   Interest                                                            $  38,607         $ 34,061        $  28,147
   Income taxes                                                           20,690            6,748          (11,480)
</TABLE>

See accompanying notes to consolidated financial statements.



                   KORNOS INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Summary of significant accounting policies:

     Organization and basis of presentation.  Kronos International, Inc. ("KII")
is incorporated in the state of Delaware, U.S.A., with its seat of management in
Leverkusen,  Germany. KII is a wholly-owned subsidiary of Kronos Worldwide, Inc.
("Kronos") (NYSE:KRO). At December 31, 2003, NL Industries, Inc. (NYSE: NL) held
51% of the outstanding  common stock of Kronos. NL conducts its titanium dioxide
pigments ("TiO2")  operations through Kronos. KII conducts Kronos' European TiO2
operations.  At December 31, 2003, Valhi, Inc. and a wholly-owned  subsidiary of
Valhi,  held  approximately  84% of NL's  outstanding  common stock, and Contran
Corporation and its subsidiaries held  approximately 90% of Valhi's  outstanding
common stock. At December 31, 2003, Valhi and a wholly-owned subsidiary of Valhi
held  an  additional  approximate  42%  of  Kronos'  outstanding  common  stock.
Substantially  all of  Contran's  outstanding  voting  stock  is held by  trusts
established for the benefit of certain  children and  grandchildren of Harold C.
Simmons, of which Mr. Simmons is sole trustee.  Mr. Simmons, the Chairman of the
Board of Valhi,  Contran,  NL,  Kronos and the  Company may be deemed to control
each of such companies.

     Management's   estimates.   The  preparation  of  financial  statements  in
conformity with accounting principles generally accepted in the United States of
America  ("GAAP")  requires  management to make estimates and  assumptions  that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the reported amount of revenues and expenses during the reporting period. Actual
results may differ from previously-estimated amounts under different assumptions
or conditions.

     Principles of consolidation.  The consolidated financial statements include
the  accounts  of KII  and  its  wholly-owned  and  majority-owned  subsidiaries
(collectively,  the "Company").  All material intercompany accounts and balances
have been eliminated.

     Translation of foreign  currencies.  Assets and liabilities of subsidiaries
whose  functional  currency  is other  than the U.S.  dollar are  translated  at
year-end  rates of exchange and revenues and expenses are  translated at average
exchange rates prevailing during the year. Resulting translation adjustments are
accumulated in stockholder's  equity as part of accumulated other  comprehensive
income  (loss),  net of related  deferred  income taxes and  minority  interest.
Currency transaction gains and losses are recognized in income currently.

     Net sales. Sales are recorded when products are shipped and title and other
risks and rewards of ownership have passed to the customer, or when services are
performed.  Shipping terms of products shipped are generally FOB shipping point,
although in some instances  shipping terms are FOB destination  point (for which
sales are not recognized until the product is received by the customer). Amounts
charged to customers for shipping and handling are included in net sales.  Sales
are stated net of price,  early  payment and  distributor  discounts  and volume
rebates.

     Inventories and cost of sales.  Inventories are stated at the lower of cost
(principally   average  cost)  or  market,  net  of  allowance  for  slow-moving
inventories. Amounts are removed from inventories at average cost. Cost of sales
includes  costs for  materials,  packing and  finishing,  utilities,  salary and
benefits, maintenance and depreciation.

     Cash and cash  equivalents.  Cash  equivalents  include bank  deposits with
original maturities of three months or less.

     Restricted   marketable  debt   securities.   Restricted   marketable  debt
securities  are  primarily  invested in corporate  debt  securities  and include
amounts restricted in accordance with applicable Norwegian law regarding certain
requirements  of the Company's  Norwegian  defined  benefit  pension plans ($2.5
million and $2.6  million at  December  31,  2002 and 2003,  respectively).  The
restricted  marketable  debt  securities  are  generally  classified as either a
current or noncurrent  asset  depending upon the maturity date of each such debt
security and are carried at market which approximates cost.

     Accounts  receivable.  The  Company  provides  an  allowance  for  doubtful
accounts  for  known  and  estimated  potential  losses  arising  from  sales to
customers based on a periodic review of these accounts.

     Property and equipment and depreciation.  Property and equipment are stated
at cost.  The Company has a  governmental  concession  with an unlimited term to
operate an ilmenite mine in Norway.  Mining properties  consist of buildings and
equipment  used in the  Company's  Norwegian  ilmenite  mining  operations.  The
Company  does  not  own  the  ilmenite   reserves   associated  with  the  mine.
Depreciation  of  property  and  equipment  for  financial   reporting  purposes
(including  mining  properties)  is computed  principally  by the  straight-line
method over the  estimated  useful  lives of ten to 40 years for  buildings  and
three to 20 years for equipment.  Accelerated  depreciation methods are used for
income tax  purposes,  as permitted.  Upon sale or  retirement of an asset,  the
related cost and accumulated  depreciation are removed from the accounts and any
gain or loss is recognized in income currently.

     The Company performs planned major maintenance  activities during the year.
Repair and maintenance costs estimated to be incurred in connection with planned
major maintenance  activities are accrued in advance and are included in cost of
sales.  Accrued  repair  and  maintenance  costs,   included  in  other  current
liabilities,  was $3.3  million and $4.5  million at December 31, 2002 and 2003,
respectively.

     Interest costs related to major long-term capital projects and renewals are
capitalized as a component of  construction  costs.  Interest costs  capitalized
were not significant in 2001, 2002 or 2003.

     When  events or  changes  in  circumstances  indicate  that  assets  may be
impaired,  an evaluation is performed to determine if an impairment exists. Such
events or changes in circumstances  include, among other things, (i) significant
current  and prior  periods or current  and  projected  periods  with  operating
losses,  (ii) a significant  decrease in the market value of an asset or (iii) a
significant  change  in the  extent  or  manner  in which an asset is used.  All
relevant  factors  are  considered.  The test for  impairment  is  performed  by
comparing the estimated  future  undiscounted  cash flows (exclusive of interest
expense)  associated  with  the  asset  to the  asset's  net  carrying  value to
determine  if a  write-down  to market  value or  discounted  cash flow value is
required.  Effective January 1, 2002, the Company commenced assessing impairment
of  other  long-lived   assets  (such  as  property  and  equipment  and  mining
properties) in accordance  with SFAS No. 144,  "Accounting for the Impairment or
Disposal of Long-Lived Assets."

     Long-term  debt.  Amortization  of deferred  financing  costs,  included in
interest  expense,  is  computed  by the  interest  method  over the term of the
applicable issue.

     Derivatives  and hedging  activities.  Derivatives are recognized as either
assets or  liabilities  and measured at fair value in  accordance  with SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended.
The  accounting  for  changes  in fair  value of  derivatives  depends  upon the
intended use of the  derivative,  and such changes are recognized  either in net
income  or  other   comprehensive   income.   As  permitted  by  the  transition
requirements  of SFAS No. 133, the Company has  exempted  from the scope of SFAS
No. 133 all host contracts  containing embedded  derivatives that were issued or
acquired prior to January 1, 1999.

     Income  taxes.  Prior to  December  2003,  KII,  Kronos and its  qualifying
subsidiaries  were members of NL's  consolidated  U.S.  federal income tax group
(the "NL Tax Group").  As a member of the NL Tax Group,  the Company was a party
to a tax sharing agreement (the "NL Tax Agreement").  Effective January 1, 2001,
the NL Tax Group,  including KII, was included in the consolidated  U.S. federal
tax return of Contran (the "Contran Tax Group").  As a member of the Contran Tax
Group,  NL is a party to a separate  tax sharing  agreement  (the  "Contran  Tax
Agreement").  The  Contran Tax  Agreement  provides  that NL and its  qualifying
subsidiaries,  including  KII,  compute  provisions  for U.S.  income taxes on a
separate-company basis using the tax elections made by Contran.  Pursuant to the
NL Tax Sharing  Agreement and using the tax elections made by Contran,  KII made
payments  to or  received  payments  from NL in amounts it would have paid to or
received from the U.S. Internal Revenue Service had it not been a member of NL's
consolidated tax group but instead was a separate taxpayer.  Refunds are limited
to amounts previously paid under the NL Tax Sharing Agreement. See Note 9.

     Effective  December  2003,  following  NL's  distribution  of  48.8% of the
outstanding  shares of Kronos common stock to NL  stockholders,  KII, Kronos and
its qualifying  subsidiaries  ceased being members of the NL Tax Group, but KII,
Kronos and its  qualifying  subsidiaries  remained as members of the Contran Tax
Group.  Kronos entered into a new tax sharing  agreement with Valhi and Contran,
which contains similar terms to the NL Tax Agreement.

     Deferred  income tax assets and liabilities are recognized for the expected
future tax  consequences  of  temporary  differences  between the income tax and
financial  reporting  carrying  amounts  of assets  and  liabilities,  including
investments in the Company's  subsidiaries and affiliates who are not members of
the  Contran  Tax  Group  and  including   undistributed   earnings  of  foreign
subsidiaries  which are not deemed to be  permanently  reinvested.  The  Company
periodically   evaluates   its  deferred  tax  assets  in  the  various   taxing
jurisdictions in which it operates and adjusts any related  valuation  allowance
based on the estimate of the amount of such deferred tax assets that the Company
believes does not meet the "more-likely-than-not" recognition criteria. Earnings
of foreign  subsidiaries deemed to be permanently  reinvested  aggregated $133.2
million at December 31, 2002 and $190.2 million at December 31, 2003.

     Stock  options.  The  Company  has not issued any stock  options.  However,
certain  employees of the Company have been granted options by NL to purchase NL
common stock. The Company has elected the disclosure  alternative  prescribed by
SFAS No. 123,  "Accounting for  Stock-Based  Compensation,"  as amended,  and to
account for its stock-based  employee  compensation  related to stock options in
accordance with Accounting Principles Board Opinion ("APBO") No. 25, "Accounting
for Stock Issued to Employees," and its various interpretations.  Under APBO No.
25, no  compensation  cost is generally  recognized  for fixed stock  options in
which the  exercise  price is not less than the market  price on the grant date.
During the fourth quarter of 2002, and following NL's cash settlement of options
to purchase NL common  stock held by certain  individuals,  NL and the  Company,
commenced  accounting for its stock options using the variable accounting method
because NL could not overcome the  presumption  that it would not similarly cash
settle its remaining stock options.  Under the variable  accounting  method, the
intrinsic  value of all  unexercised  stock  options  (including  those  with an
exercise  price at least  equal to the  market  price on the date of grant)  are
accrued as an expense  over their  vesting  period,  with  subsequent  increases
(decreases) in NL's market price  resulting in additional  compensation  expense
(income).  Upon  exercise of such  options to  purchase NL common  stock held by
employees of the Company,  the Company pays NL an amount equal to the difference
between the market  price of NL's common  stock on the date of exercise  and the
exercise price of such stock option.  Aggregate  compensation expense related to
NL stock  options held by employees of the Company was nil in 2001,  $400,000 in
2002 and $300,000 in 2003.

     The following  table presents what the Company's  consolidated  net income,
and related  per share  amounts,  would have been in 2001,  2002 and 2003 if the
Company had applied the fair value-based recognition provisions of SFAS No. 123,
for all awards granted subsequent to January 1, 1995.
<TABLE>
<CAPTION>

                                                                Years ended December 31,
                                                         2001             2002             2003
                                                                     (In millions)

<S>                                                   <C>               <C>            <C>
Net income (loss) as reported                         $  1.3            $(26.3)        $  81.8

Adjustments, net of applicable income
 tax effects and minority interest:
  Stock-based employee compensation expense
   determined under APBO No. 25                          -                  .3              .1
  Stock-based employee compensation expense
   determined under SFAS No. 123                         (.3)              (.3)            (.1)
                                                      ------           -------         -------

Pro forma net income (loss)                           $  1.0           $(26.3)         $  81.8
                                                      ======           ======          =======
</TABLE>


     Selling, general and administrative expenses;  shipping and handling costs.
Selling, general and administrative expenses include costs related to marketing,
sales, distribution,  shipping and handling, research and development, legal and
administrative functions such as accounting,  treasury and finance, and includes
costs for salaries and benefits, travel and entertainment, promotional materials
and  professional  fees.  Shipping and  handling  costs are included in selling,
general  and  administrative  expense  and were $33  million in each of 2001 and
2002,  and $43 million in 2003.  Advertising  costs are expensed as incurred and
were $1  million  in each of 2001,  2002 and  2003.  Research,  development  and
certain sales technical  support costs are expensed as incurred and approximated
$5 million in 2001, $6 million in 2002 and $7 million in 2003.

     Other.  Accounting and funding  policies for retirement plans are described
in Note 10.

Note 2 - Geographic information:

     The Company's  operations  are  associated  with the production and sale of
TiO2.  Titanium  dioxide pigments are used to impart  whiteness,  brightness and
opacity to a wide variety of products, including paints, plastics, paper, fibers
and ceramics. All of the Company's net assets are located in Europe.

     For  geographic  information,  net  sales  are  attributed  to the place of
manufacture  (point  of  origin)  and the  location  of the  customer  (point of
destination); property and equipment are attributed to their physical location.


<TABLE>
<CAPTION>

                                                                              Years ended December 31,
                                                                   ---------------------------------------------
                                                                   2001                2002                2003
                                                                               (In thousands)
       Geographic areas

Net sales - point of origin:
<S>                                                             <C>                <C>                 <C>
    Germany                                                     $  398,470         $  404,299          $  510,105
    Belgium                                                        126,782            123,760             150,728
    Norway                                                         102,843            111,811             131,457
    Other                                                           82,320             89,560             110,358
    Eliminations                                                  (155,778)          (149,765)           (186,742)
                                                                ----------         ----------          ----------

                                                                $  554,637         $  579,665          $  715,906
                                                                ==========         ==========          ==========
</TABLE>

<TABLE>
<CAPTION>

                                                                              Years ended December 31,
                                                                   ---------------------------------------------
                                                                   2001                2002                2003
                                                                               (In thousands)
Net sales - point of destination:

<S>                                                             <C>                <C>                 <C>
    Europe                                                      $  424,888         $  456,299          $  567,630
    United States                                                   32,052             39,104              58,293
    Latin America                                                   16,039             12,808              12,258
    Asia                                                            42,686             39,832              42,974
    Other                                                           38,972             31,622              34,751
                                                                ----------         ----------          ----------

                                                                $  554,637         $  579,665          $  715,906
                                                                ==========         ==========          ==========
</TABLE>


<TABLE>
<CAPTION>

                                                                                            December 31,
                                                                                   -----------------------------
                                                                                     2002                 2003
                                                                                     ----                 ----

                                                                                           (In thousands)

Identifiable assets -
  net property and equipment:

<S>                                                                                 <C>                  <C>
      Germany                                                                       $213,170             $252,411
      Belgium                                                                         54,625               64,895
      Norway                                                                          49,737               50,811
      Other                                                                              231                  270
                                                                                    --------             --------

                                                                                    $317,763             $368,387
                                                                                    ========             ========
</TABLE>

Note 3 -       Accounts and other receivables:
<TABLE>
<CAPTION>

                                                                                            December 31,
                                                                                   -----------------------------
                                                                                     2002                 2003
                                                                                     ----                 ----

                                                                                           (In thousands)

<S>                                                                                 <C>                  <C>
Trade receivables                                                                   $ 83,929             $106,246
Insurance claims                                                                         312                   58
Recoverable VAT and other receivables                                                 10,159                8,715
Allowance for doubtful accounts                                                       (1,907)              (2,222)
                                                                                    --------             --------

                                                                                    $ 92,493             $112,797
                                                                                    ========             ========
</TABLE>





Note 4 -       Inventories
<TABLE>
<CAPTION>

                                                                                            December 31,
                                                                                   -----------------------------
                                                                                     2002                 2003
                                                                                     ----                 ----

                                                                                          (In thousands)

<S>                                                                                 <C>                  <C>
Raw materials                                                                       $ 36,960             $ 30,261
Work in process                                                                       14,009               15,623
Finished products                                                                     67,469               92,009
Supplies                                                                              25,226               30,238
                                                                                    --------             --------

                                                                                    $143,664             $168,131
                                                                                    ========             ========
</TABLE>

Note 5 -       Accounts payable and accrued liabilities:
<TABLE>
<CAPTION>

                                                                                           December 31,
                                                                                   -----------------------------
                                                                                     2002                 2003
                                                                                     ----                 ----
                                                                                         (In thousands)

<S>                                                                                 <C>                  <C>
Accounts payable                                                                    $ 49,630             $ 50,626
Employee benefits                                                                     20,131               23,592
Other                                                                                 23,802               29,586
                                                                                    --------             --------

                                                                                    $ 93,563             $103,804
                                                                                    ========             ========
</TABLE>

Note 6 -       Long-term debt:
<TABLE>
<CAPTION>

                                                                                            December 31,
                                                                                   -----------------------------
                                                                                     2002                 2003
                                                                                     ----                 ----
                                                                                          (In thousands)

Long-term debt:
<S>                                                                                 <C>                  <C>
  8.875% Senior Secured Notes                                                       $296,942             $356,136
  Bank credit facility                                                                27,077                 -
  Other                                                                                1,887                  603
                                                                                    --------             --------

                                                                                     325,906              356,739
  Less current maturities                                                              1,298                  288
                                                                                    --------             --------

                                                                                    $324,608             $356,451
                                                                                    ========             ========
</TABLE>

     In June 2002,  KII issued euro 285 million  principal  amount ($280 million
when issued) of its 8.875%  Senior  Secured  Notes (the  "Notes") due 2009.  The
Notes are  collateralized  by first priority liens on 65% of the common stock or
other ownership interests of certain of KII's first-tier operating subsidiaries.
In addition,  the indenture  contains  customary  cross-default  provisions with
respect to other debt and obligations of KII or its subsidiaries.  The Notes are
issued  pursuant  to an  indenture  which  contains  a number of  covenants  and
restrictions  which,  among other  things,  restricts the ability of KII and its
subsidiaries to incur debt,  incur liens,  pay dividends or merge or consolidate
with, or sell or transfer all or  substantially  all of their assets to, another
entity. The Notes are redeemable, at KII's option, on or after December 30, 2005
at redemption prices ranging from 104.437% of the principal amount, declining to
100% on or after December 30, 2008. In addition, on or before June 30, 2005, KII
may redeem up to 35% of the Notes with the net  proceeds of a  qualified  public
equity offering at 108.875% of the principal amount. In the event of a change of
control of KII, as  defined,  KII would be required to make an offer to purchase
its Notes at 101% of the principal amount. KII would also be required to make an
offer to purchase a specified portion of its Notes at par value in the event KII
generates a certain  amount of net proceeds from the sale of assets  outside the
ordinary  course of business,  and such net proceeds are not otherwise  used for
specified purposes within a specified time period. At December 31, 2003, KII was
in compliance  with all the covenants,  and the quoted market price of the Notes
was  approximately   (euro)1,000  per  (euro)1,000   principal  amount  (2002  -
(euro)1,010 per (euro)1,000  principal amount).  The Notes require cash interest
payments on June 30 and December 30. KII completed an exchange offer in November
2002 to  exchange  the Notes for  registered  publicly  traded  notes  that have
substantially identical terms as the Notes.

     Also in June 2002,  KII's operating  subsidiaries  in Germany,  Belgium and
Norway  (collectively,  the "Borrowers") entered into a (euro)80 million secured
revolving  bank credit  facility  that  matures in June 2005  ("European  Credit
Facility").  Borrowings  under  this  facility  were  used in part to repay  and
terminate Kronos' short-term non-U.S. bank credit agreements.  Borrowings may be
denominated in euros,  Norwegian kroners or U.S.  dollars,  and bear interest at
the applicable  interbank market rate plus 1.75%. The facility also provides for
the issuance of letters of credit up to (euro)5  million.  The  European  Credit
Facility is  collateralized  by the accounts  receivable and  inventories of the
borrowers,  plus a  limited  pledge of all of the  other  assets of the  Belgian
borrower.  The European Credit Facility contains certain  restrictive  covenants
which, among other things, restricts the ability of the borrowers to incur debt,
incur liens, pay dividends or merge or consolidate with, or sell or transfer all
or  substantially  all of their assets to,  another  entity.  In  addition,  the
European  Credit  Facility  contains  customary  cross-default  provisions  with
respect  to  other  debt  and  obligations  of  Borrowers,  KII  and  its  other
subsidiaries.  At December  31,  2003,  no amounts  were  outstanding  under the
European Credit Facility,  and the equivalent of $97.5 million was available for
additional borrowing by the subsidiaries.

     Under  the  cross-default  provisions  of  the  Notes,  the  Notes  may  be
accelerated  prior to their stated maturity if KII or any of KII's  subsidiaries
default under any other  indebtedness  in excess of $20 million due to a failure
to pay such  other  indebtedness  at its due date  (including  any due date that
arises  prior to the stated  maturity as a result of a default  under such other
indebtedness).  Under  the  cross-default  provisions  of  the  European  Credit
Facility,  any outstanding  borrowings under the European Credit Facility may be
accelerated prior to their stated maturity if the Borrowers or KII default under
any other indebtedness in excess of (euro)5 million due to a failure to pay such
other  indebtedness at its due date (including any due date that arises prior to
the stated maturity as a result of a default under such other indebtedness).  In
the event the  cross-default  provisions  of  either  the Notes or the  European
Credit Facility become  applicable,  and such  indebtedness is accelerated,  the
Company  would be  required  to repay such  indebtedness  prior to their  stated
maturity.

     Deferred  financing  costs of $10.0  million for the Notes and the European
Credit Facility are being  amortized over the life of the respective  agreements
and are included in other noncurrent assets as of December 31, 2003.

     Unused lines of credit available for borrowing under the Company's non-U.S.
credit  facilities  approximated  $99.9 million at December 31, 2003  (including
approximately $97.5 million under the European Credit Facility).

     In January  and  February  2004,  certain of KII's  operating  subsidiaries
borrowed  (euro)40 million ($50 million when borrowed) under the European Credit
Facility at an interest rate of 3.825%.

     Aggregate  maturities  of long-term  debt at December 31, 2003 are shown in
the table below.



<TABLE>
<CAPTION>


Years ending December 31,                                        Amount
                                                            ---------------
                                                             (In thousands)

<S>                                                              <C>
  2004                                                           $    288
  2005                                                                153
  2006                                                                145
  2007                                                                 18
  2008                                                                  -
  2009 and thereafter                                             356,135
                                                                 --------

                                                                 $356,739
                                                                 ========
</TABLE>


Note 7 - Other noncurrent liabilities:

<TABLE>
<CAPTION>

                                                                                            December 31,
                                                                                   -----------------------------
                                                                                     2002                 2003
                                                                                     ----                 ----
                                                                                           (In thousands)

<S>                                                                                    <C>               <C>
Insurance claims and expenses                                                          $   889           $ 1,222
Employee benefits                                                                        4,025             4,849
Other                                                                                    8,019             8,027
                                                                                       -------           -------

                                                                                       $12,933           $14,098
                                                                                       =======           =======
</TABLE>

Note 8 - Common stock and notes receivable from affiliates:

     NL common stock  options held by employees of the Company.  At December 31,
2003,  employees of the Company held options to purchase  approximately  124,000
shares  of NL  common  stock,  of  which  60,000  were  granted  in 2001 and are
exercisable  at various  dates  through 2011 at an exercise  price of $11.49 per
share.  The  remaining  exercisable  options are  exercisable  at various  dates
through 2010 at an exercise price ranging from $2.66 to $9.34 per share.

     The  pro  forma  information  required  by  SFAS  No.  123 is  based  on an
estimation  of the fair value of options  issued  subsequent to January 1, 1995.
See Note 1. The fair value of options  granted  during  2001 (none were  granted
during  2002 or 2003) was $7.52 per  share.  The fair  value of  employee  stock
options was calculated using the Black-Scholes stock option valuation model with
the  following  weighted  average  assumptions  for grants in 2001:  stock price
volatility of 46%;  risk-free rate of return of 5%;  dividend yield of 4.0%; and
an  expected  term of 9  years.  For  purposes  of pro  forma  disclosures,  the
estimated  fair value of the options is  amortized  to expense over the options'
vesting periods.

     Common stock dividends.  KII paid $25.0 million in cash dividends to Kronos
during 2003.  On January 2, 2004,  KII paid a cash  dividend of $60.0 million to
Kronos, as approved by the Company's Board of Directors.

     Preferred stock. In July 2002, KII and Kronos agreed to a  recapitalization
of the Company as contemplated in the (euro)285 million Notes offering. See Note
6. In connection with the recapitalization agreement, KII converted the Series A
(738 shares) and Series B (647 shares)  redeemable  preferred  stock  (including
liquidation and redemption preferences and accrued and unpaid dividends) held by
Kronos totaling $411.7 million into 1,385 shares of KII, $100 par value,  common
stock.  As a result of the conversion,  the Series A and B redeemable  preferred
stock certificates were canceled. Further, KII redeemed its profit participation
certificates  held by Kronos  totaling  $284.3  million in exchange  for various
notes   receivable  from  NL.  As  a  result  of  the  redemption,   the  profit
participation certificates were canceled.  Finally, KII redeemed 1,613 shares of
KII common stock held by Kronos in exchange for its remaining  notes  receivable
from NL and Kronos totaling $479.4 million. As a result of the  recapitalization
in July 2002, KII's common stockholder's equity increased a net $696.0 million.

     Notes receivable from affiliates - contra equity. The Company  periodically
converted   interest   receivable  from  affiliates  to  notes  receivable  from
affiliates. For the years ended 2001, 2002 and 2003, the interest transferred to
notes receivable from affiliates  totaled $25.0 million,  $12.6 million and nil,
respectively.

     Cash flows  related to such loans  made to  affiliates  included  in contra
equity were reflected in "Other capital  transactions  with affiliates,  net" in
the accompanying Consolidated Statements of Cash Flows.

Note 9 - Income taxes:
<TABLE>
<CAPTION>

                                                                             Years ended December 31,
                                                                         2001           2002          2003
                                                                                   (In millions)
Pre-tax income (loss):
<S>                                                                      <C>           <C>           <C>
  Germany                                                                $ 88.3        $ 46.8        $ 45.8
  Non-U.S.                                                                 39.9          16.4          36.8
                                                                         ------        ------        ------

                                                                         $128.2        $ 63.2        $ 82.6
                                                                         ======        ======        ======

Expected tax expense (benefit), at U.S.
 federal statutory income tax rate of 35%                                $ 44.9        $ 22.1        $ 28.9
Non-U.S. tax rates                                                         (8.4)         (5.2)          (.9)
Refund of prior year German income taxes                                   -               -          (38.0)
Nontaxable income                                                          (3.2)           -             -
Nondeductible expenses                                                       .1           2.8           2.7
Change in deferred income tax valuation allowance, net
                                                                          (23.2)         (2.8)         (6.7)
Currency transaction gains and losses for which no income taxes are
    provided                                                                3.2          (4.6)           -
Change in Belgian income tax law                                            -            (2.3)           -
NL tax contingency reserve adjustment, net                                 (1.7)           .1          13.4
Other, net                                                                  2.8            .7           1.3
                                                                         ------        ------        ------

                                                                         $ 14.5        $ 10.8        $   .7
                                                                         ======        ======        ======
Components of income tax expense (benefit):
  Currently payable (refundable):
    Germany                                                              $ 10.3        $ (1.2)       $(56.9)
    Other non - U.S.                                                       10.8           6.5          18.9
                                                                         ------        ------        ------
                                                                           21.1           5.3         (38.0)
                                                                         ------        ------        ------
  Deferred income taxes (benefit):
    Germany                                                                (6.2)          7.9          44.4
    Other non - U.S.                                                        (.4)         (2.4)         (5.7)
                                                                         ------        ------        ------
                                                                           (6.6)          5.5          38.7
                                                                         ------        ------        ------

                                                                         $ 14.5        $ 10.8        $   .7
                                                                         ======        ======        ======
Comprehensive provision for
 income taxes (benefit) allocable to:
  Net income                                                             $ 14.5        $ 10.8        $   .7
  Other comprehensive income -
    pension liabilities                                                    (1.1)          (.7)         (9.5)
                                                                         ------        ------        ------

                                                                         $ 13.4        $ 10.1        $ (8.8)
                                                                         ======        ======        ======
</TABLE>


     The  components  of the net deferred tax liability at December 31, 2002 and
2003, and changes in the deferred income tax valuation allowance during the past
three years, are summarized in the following tables.




<TABLE>
<CAPTION>

                                                                                 December 31,
                                                                       2002                        2003
                                                              ---------------------     -----------------------
                                                               Assets    Liabilities     Assets     Liabilities
                                                                                (In millions)
Tax effect of temporary differences
 related to:
<S>                                                            <C>       <C>            <C>         <C>
  Inventories                                                  $   .7    $   (3.3)      $   .9      $  (3.4)
  Property and equipment                                         43.9       (17.2)        46.0        (21.6)
  Accrued (prepaid) pension cost                                   .2       (24.8)        11.3        (33.5)
  Other accrued liabilities and deductible differences            1.8          -           3.8         -
  Other taxable differences                                       -         (32.2)         -          (67.2)
Tax loss and tax credit carryforwards                           134.3          -         137.3         -
Valuation allowance                                            (153.7)        -         (162.7)        -
                                                              -------    --------       ------      -------
  Adjusted gross deferred tax assets
    (liabilities)                                                27.2       (77.5)        36.6       (125.7)
Netting of items by tax jurisdiction                            (24.6)       24.6        (35.7)        35.7
                                                              -------    --------       ------      -------
                                                                  2.6       (52.9)          .9        (90.0)
Less net current deferred tax
 asset (liability)                                                 .7        (3.2)          .9         (3.4)
                                                              -------    --------       ------      -------

    Net noncurrent deferred tax asset
     (liability)                                               $  1.9    $  (49.7)      $  -        $ (86.6)
                                                              =======    ========       ======      =======
</TABLE>

<TABLE>
<CAPTION>

                                                                               Years ended December 31,
                                                                          2001          2002           2003
                                                                                    (In millions)

Increase (decrease) in valuation allowance:
  Recognition of certain deductible tax
   attributes for which the benefit had not
   previously been recognized under the
<S>                                                                     <C>              <C>         <C>
   "more-likely-than-not" recognition criteria                          $(23.2)          $(2.8)      $ (6.7)
  Foreign currency translation                                            (7.5)           21.6         28.2
  Offset to the change in gross deferred
   income tax assets due principally to
   redeterminations of certain tax attributes
   and implementation of certain tax
   planning strategies                                                    (3.2)           13.2         (12.5)
                                                                        ------           -----        ------

                                                                        $(33.9)          $32.0        $  9.0
                                                                        ======           =====        ======
</TABLE>

     A reduction  in the Belgian  income tax rate from 40% to 34% was enacted in
December  2002 and became  effective  in January  2003.  This  reduction  in the
Belgian  income tax rate  resulted in a $2.3 million  decrease in the  Company's
income tax expense in 2002 because the Company had  previously  recognized a net
deferred income tax liability with respect to Belgian temporary differences.

     In 2001, the Company completed a restructuring of its German  subsidiaries,
and as a result the Company  recognized a $17.6  million net income tax benefit.
This benefit is comprised of a $23.2 million decrease in the Company's  deferred
income  tax  asset  valuation  allowance  due to a  change  in  estimate  of the
Company's  ability to utilize  certain German income tax attributes that did not
previously meet the "more-likely-than-not"  recognition criteria, offset by $5.6
million of incremental U.S. taxes on  undistributed  earnings of certain foreign
subsidiaries.

     In the first  quarter  of 2003,  the  Company  was  notified  by the German
Federal  Fiscal Court (the  "Court")  that the Court had ruled in the  Company's
favor  concerning a claim for refund suit in which the Company sought refunds of
prior taxes paid during the periods 1990  through  1997.  KII and the  Company's
German  operating  subsidiary were required to file amended tax returns with the
German tax  authorities in order to receive its refunds for such years,  and all
of such amended returns were filed during 2003.  Such amended returns  reflected
an  aggregate  refund of taxes and  related  interest  to the  Company's  German
operating  subsidiary of (euro)103.2 million ($123.0 million),  and an aggregate
additional  liability of taxes and related interest to KII of (euro)91.9 million
($109.6  million).  Assessments  and refunds  will be  processed  by year as the
respective  returns  are  reviewed  by the  tax  authorities.  Certain  interest
components  may also be refunded  separately.  The German tax  authorities  have
reviewed and accepted the amended  return with respect to the 1990 tax year.  In
February 2004, the Company's German operating  subsidiary  received  interest of
(euro)16.8 million ($19.2 million). The Company believes it will receive the net
refunds of taxes and related  interest for the  remaining  years during 2004. In
addition  to the  refunds for the 1990 to 1997  periods,  the court  ruling also
resulted in a refund of 1999 income taxes and interest, and the Company received
(euro)21.5  million  ($24.6  million) in 2003.  The Company has  recognized  the
aggregate  (euro)32.8  million ($38 million)  benefit of such net refunds in its
2003 results of operations.

     Certain of the Company's  non-U.S.  tax returns are being  examined and tax
authorities have or may propose tax deficiencies,  including  non-income related
items and interest. For example:

o    The Company has received a preliminary tax assessment  related to 1993 from
     the Belgian tax authorities proposing tax deficiencies, including interest,
     of  approximately  (euro)6  million ($8 million at December 31, 2003).  The
     Company  has  filed  a  protest  to this  assessment  and  believes  that a
     significant  portion of the  assessment is without  merit.  The Belgian tax
     authorities have filed a lien on the fixed assets of the Company's  Belgian
     TiO2  operations in connection  with this  assessment.  In April 2003,  the
     Company  received a notification  from the Belgian tax authorities of their
     intent to assess a tax deficiency related to 1999 that, including interest,
     is expected to be approximately (euro)13 million ($16 million). The Company
     believes the proposed  assessment is  substantially  without merit, and the
     Company has filed a written  response.  In December  2003,  the Belgian tax
     authorities agreed to a settlement of certain tax assessments separate from
     the assessments  noted  previously,  for the years 1991 to 1997.  Including
     interest,  the proposed (euro)10.1 million tax deficiency ($12.6 million at
     December 31, 2003) was settled for (euro)5.0 million ($6.3 million).

o    The Norwegian tax authorities  have notified the Company of their intent to
     assess tax deficiencies of  approximately  kroner 12 million ($2 million at
     December  31,  2003)  relating  to the years 1998 to 2000.  The Company has
     filed a written protest to this proposed assessment.

     No  assurance  can be given that these tax matters  will be resolved in the
Company's  favor in view of the inherent  uncertainties  involved in  settlement
initiatives,  court  and  tax  proceedings.  The  Company  believes  that it has
provided  adequate  accruals for additional  taxes and related  interest expense
which may  ultimately  result from all such  examinations  and believes that the
ultimate  disposition of such  examinations  should not have a material  adverse
effect  on  its  consolidated  financial  position,  results  of  operations  or
liquidity.

     At December 31,  2003,  the Company had the  equivalent  of $438 million of
German income tax loss  carryforwards  with no expiration  date. The Company has
provided a deferred tax  valuation  allowance of $153.7  million at December 31,
2002 and $162.7  million at December 31, 2003,  principally  related to Germany,
partially  offsetting deferred tax assets which the Company believes do not meet
the "more-likely-than-not" recognition criteria.

     In  January  2004,  the  German  federal  government  enacted  new  tax law
amendments  that limit the annual  utilization  of income tax loss  carryforward
effective  January 1, 2004. The new law may  significantly  affect the Company's
future income tax expense and cash tax payments.

Note 10 - Employee benefit plans:

     Defined  benefit  plans.  The Company  maintains  various  defined  benefit
pension  plans.  Non-U.S.  employees  are  covered by plans in their  respective
countries  and a majority of U.S.  employees  are eligible to  participate  in a
contributory  savings plan. Variances from actuarially assumed rates will result
in increases or decreases in accumulated  pension  obligations,  pension expense
and funding  requirements in future  periods.  At December 31, 2003, the Company
currently  expects to contribute the equivalent of  approximately  $4 million to
all of its defined benefit pension plans during 2004.

     The funded status of the  Company's  defined  benefit  pension  plans,  the
components of net periodic defined benefit pension cost related to the Company's
consolidated  business  segments and charged to  continuing  operations  and the
rates used in determining the actuarial present value of benefit obligations are
presented in the tables  below.  The Company uses a September  30th  measurement
date for their defined benefit pension plans.
<TABLE>
<CAPTION>

                                                                                     Years ended December 31,
                                                                                      2002              2003
                                                                                          (In thousands)
Change in projected benefit obligations ("PBO"):
<S>                                                                                 <C>               <C>
  Benefit obligations at beginning of the year                                      $ 180,586         $  213,183
  Service cost                                                                          3,395              4,060
  Interest cost                                                                        10,965             12,378
  Participant contributions                                                             1,016              1,295
  Plan amendments                                                                           -              3,200
  Actuarial (gains) losses                                                             (7,118)            17,337
  Change in foreign exchange rates                                                     36,054             36,547
  Benefits paid                                                                       (11,715)           (15,796)
                                                                                    ---------          ---------

      Benefit obligations at end of the year                                        $ 213,183          $ 272,204
                                                                                    =========          =========

Change in plan assets:
  Fair value of plan assets at beginning of the year                                $ 137,158          $ 160,860
  Actual return on plan assets                                                           (717)           (12,559)
  Employer contributions                                                                7,768             10,240
  Participant contributions                                                             1,016              1,295
  Change in foreign exchange rates                                                     27,350             23,262
  Benefits paid                                                                       (11,715)           (15,796)
                                                                                    ---------          ---------

      Fair value of plan assets at end of year                                      $ 160,860          $ 167,302
                                                                                    =========          =========

Funded status at end of the year:
  Plan assets less than PBO                                                         $ (52,323)         $(104,902)
  Unrecognized actuarial losses                                                        45,809             98,368
  Unrecognized prior service cost                                                       3,221              6,678
  Unrecognized net transition obligations                                               1,638              1,228
                                                                                    ---------          ---------

                                                                                    $  (1,655)         $   1,372
                                                                                    =========          =========

Amounts recognized in the balance sheet:
  Prepaid pension costs                                                             $  17,572          $    -
  Unrecognized net pension obligations                                                    292              7,812
  Accrued pension costs:
    Current                                                                            (6,568)            (7,877)
    Noncurrent                                                                        (21,486)           (53,010)
  Accumulated other comprehensive income                                                8,535             54,447
                                                                                    ---------          ---------

                                                                                    $  (1,655)         $   1,372
                                                                                    =========          =========
</TABLE>


<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                        -------------------------------------
                                                                        2001            2002             2003
                                                                                    (In thousands)

Net periodic pension cost:
<S>                                                                     <C>              <C>             <C>
  Service cost benefits                                               $  3,087       $  3,395        $  4,060
  Interest cost on PBO                                                  10,268         10,965          12,378
  Expected return on plan assets                                        (9,676)       (10,294)        (12,264)
  Amortization of prior service cost                                       201            223             255
  Amortization of net transition obligations                               320            332             527
  Recognized actuarial losses                                              415          1,029             827
                                                                      --------       --------        --------

                                                                      $  4,615       $  5,650        $  5,783
                                                                      ========       ========        ========
</TABLE>

     The  weighted-average  rate  assumptions  used in determining the actuarial
present  value of  benefit  obligations  as of  December  31,  2002 and 2003 are
presented in the table below. Such weighted-average  rates were determined using
the projected benefit obligations at each date.
<TABLE>
<CAPTION>

                                                                                           December 31,
                                                                                     ------------------------
                                                                                     2002                2003

<S>                                                                                  <C>                 <C>
Discount rate                                                                        5.8%                5.4%
Increase in future compensation levels                                               2.6%                2.8%
</TABLE>

     The weighted-average  rate assumptions used in determining the net periodic
pension  cost for 2001,  2002 and 2003 are  presented  in the table  below.  The
weighted-average  discount  rate and the  weighted-average  increase  in  future
compensation  levels were determined using the projected benefit  obligations as
of the beginning of each year, and the weighted-average long-term return on plan
assets was determined using the fair value of plan assets as of the beginning of
each year.
<TABLE>
<CAPTION>

                                                                                      December 31,
                                                                      ----------------------------------------
                                                                      2001               2002             2003

<S>                                                                   <C>                <C>              <C>
Discount rate                                                         6.2%               6.0%             5.8%
Increase in future compensation levels                                3.0%               2.8%             2.6%
Long-term return on plan assets                                       7.5%               7.3%             6.9%
</TABLE>

     Selected information related to the Company's defined benefit pension plans
that have accumulated benefit obligations in excess of fair value of plan assets
is presented below. At December 31, 2002 and 2003, 100% of the projected benefit
obligations of such plans relate to non-U.S. plans.
<TABLE>
<CAPTION>

                                                                                           December 31,
                                                                                      ----------------------
                                                                                      2002             2003
                                                                                          (In thousands)

<S>                                                                                  <C>            <C>
  Projected benefit obligation                                                       $163,122       $272,204
  Accumulated benefit obligation                                                      143,530        230,893
  Fair value of plan assets                                                           113,536        167,302
</TABLE>

Note 11 - Leverkusen fire and insurance claim:

     In March 2001, the Company suffered a fire at its Leverkusen,  Germany TiO2
facility.  Production at the facility's  chloride-process plant returned to full
capacity  on  April  8,  2001.  The  facility's   sulfate-process  plant  became
approximately 50% operational in September 2001, and became fully operational in
late October 2001. The damages to property and the business  interruption losses
caused by the fire were covered by  insurance,  but the effect on the  financial
results of the Company on a quarter-to-quarter  basis was impacted by the timing
and amount of  insurance  recoveries.  The  Company's  operating  income in 2001
includes $27.3 million of business interruption  insurance recoveries related to
the  Leverkusen  fire.  Of such business  interruption  proceeds  amount,  $20.1
million  was  recorded  as a  reduction  of cost of sales to offset  unallocated
period costs that resulted from lost production; and the remaining $7.2 million,
representing  recovery of lost margin, was recorded as other income. The Company
also  recognized  insurance  recoveries  of $29.1  million in 2001 for  property
damage and related cleanup and other extra costs, resulting in an insurance gain
of $17.5 million as such recoveries  exceeded the carrying value of the property
destroyed and the cleanup and other extra expenses incurred.

Note 12 - Related party transactions:

     The Company may be deemed to be controlled  by Harold C. Simmons.  See Note
1.  Corporations  that may be deemed to be controlled by or affiliated  with Mr.
Simmons sometimes engage in (a) intercorporate  transactions such as guarantees,
management and expense  sharing  arrangements,  shared fee  arrangements,  joint
ventures,  partnerships,  loans, options, advances of funds on open account, and
sales,  leases and  exchanges  of assets,  including  securities  issued by both
related  and  unrelated  parties  and  (b)  common  investment  and  acquisition
strategies,   business   combinations,    reorganizations,    recapitalizations,
securities  repurchases,  and  purchases and sales (and other  acquisitions  and
dispositions)  of  subsidiaries,   divisions  or  other  business  units,  which
transactions  have involved both related and unrelated parties and have included
transactions  which  resulted  in the  acquisition  by one  related  party  of a
publicly-held  minority  equity  interest  in another  related  party.  While no
transactions of the type described above are planned or proposed with respect to
the Company other than as set forth in these financial  statements,  the Company
continuously considers,  reviews and evaluates, and understands that Contran and
related entities consider, review and evaluate such transactions. Depending upon
the business,  tax and other  objectives then relevant,  it is possible that the
Company might be a party to one or more such transactions in the future.

     It is the policy of the  Company  to engage in  transactions  with  related
parties  on terms,  in the  opinion of the  Company,  no less  favorable  to the
Company than could be obtained from unrelated parties.

     The Company is a party to a cost  sharing  agreement  with  Kronos  whereby
Kronos provides  certain  management,  financial,  insurance and  administrative
services to the Company on a fee basis. The Company's expense was $.2 million in
2001, $1.1 million in 2002 and $1.2 million in 2003.

     Sales of TiO2 to Kronos  (US),  Inc.  ("KUS"),  an  affiliate,  were  $32.0
million in 2001,  $38.5 million in 2002 and $57.8 million in 2003. Sales of TiO2
to Kronos Canada,  Inc.  ("KC") were $7.2 million in 2001,  $7.7 million in 2002
and $10.9 million in 2003.

     KUS purchases the rutile and slag  feedstock  used as a raw material in all
of the Company's  chloride process TiO2 facilities.  The Company  purchases such
feedstock  from KUS for use in its  facilities for an amount equal to the amount
paid by KUS to the  third-party  supplier plus a 2.5%  administrative  fee. Such
feedstock purchases were $91.5 million in 2001, $102.5 million in 2002 and $93.3
million in 2003.

     Purchases of TiO2 from KUS were $1.2 million in 2001,  $2.6 million in 2002
and  $100,000  in 2003.  Purchases  of TiO2  from KC were  $100,000  in 2001 and
$500,000 in each of 2002 and 2003.

     Royalty  income  received  from  KC for  use of  certain  of the  Company's
intellectual  property was $5.4  million in 2001,  $5.8 million in 2002 and $6.1
million in 2003.

     The Company is party to master global NL insurance  coverage  policies with
regard to property, business interruption, excess liability and other coverages.
The costs associated with these policies  aggregated $7.1 million,  $7.0 million
and $5.2 million in 2001, 2002 and 2003, respectively.

     Contran and  certain of its  subsidiaries  and  affiliates,  including  the
Company, purchase certain of their insurance policies as a group, with the costs
of  the  jointly-owned   policies  being  apportioned  among  the  participating
companies.  With  respect to  certain  of such  policies,  it is  possible  that
unusually  large losses  incurred by one or more insureds  during a given policy
period could leave the other  participating  companies without adequate coverage
under that policy for the balance of the policy period. As a result, Contran and
certain of its  subsidiaries  and its  affiliates,  including the Company,  have
entered into a loss sharing  agreement  under which any uninsured loss is shared
by those  entities who have  submitted  claims under the  relevant  policy.  The
Company  believes  the  benefits  in the form of reduced  premiums  and  broader
coverage associated with the group coverage for such policies justifies the risk
associated with the potential for uninsured loss.

     Net amounts  between the Company and KUS were generally  related to product
sales and raw material  purchases.  Net amounts  between the Company and KC were
generally  related to product sales and royalties.  See Note 8 for discussion of
notes receivable from affiliates.

     Current  receivables  from and payables to affiliates are summarized in the
table below.

<TABLE>
<CAPTION>

                                                                                             December 31,
                                                                                         ---------------------
                                                                                          2002           2003
                                                                                            (In thousands)

Current receivables from affiliates:
<S>                                                                                       <C>               <C>
  NL                                                                                      $    98        $  -
  KC                                                                                          815          1,877
  Other                                                                                        59              7
                                                                                          -------        -------

                                                                                          $   972        $ 1,884
                                                                                          =======        =======

Current payables to affiliates:
  KUS                                                                                     $21,430        $ 8,697
                                                                                          =======        =======
</TABLE>


     Interest  income on all loans to related parties was $36.2 million in 2001,
$22.8  million in 2002 and less than  $50,000 in 2003.  Interest  expense on all
loans from related parties was $34.1 million in 2001,  $18.7 million in 2002 and
less than $100,000 in 2003.

     In July 2002,  all  outstanding  Series A shares and Series B shares  (with
aggregate values of $219.0 million and $192.7 million, respectively, at the time
of conversion)  were converted into 1,385 shares of KII, $100 par value,  common
stock. As a result of the  conversion,  the Series A and B shares were canceled.
See Note 8.

     Profit  Participation  Certificates  ("PPCs")  - PPCs with DM100 par value:
5,500,000  shares  authorized,  issued and outstanding are designated  nonvoting
cumulative  preferred PPCs and yielded an annual  dividend of 4% per share based
on  earnings of the Company  and before any common  stock  dividends  to Kronos.
Kronos waived its right to dividend  distributions for all periods presented and
through  December  2002.  The PPCs were  issued to Kronos  ($284.3  million)  in
December  1999 as part of a  recapitalization  of the Company.  In July 2002 all
outstanding  PPCs  (with an  aggregate  value of $284.3  million  at the time of
redemption) were redeemed in exchange for various notes receivable from NL. As a
result of the redemption, the PPCs were canceled.

Note 13 - Commitments and contingencies:

     Environmental  matters.  The Company's  operations  are governed by various
environmental laws and regulations.  Certain of the Company's businesses are, or
have been engaged in the handling, manufacture or use of substances or compounds
that may be  considered  toxic or  hazardous  within the  meaning of  applicable
environmental  laws.  As with other  companies  engaged  in similar  businesses,
certain  past and  current  operations  and  products  of the  Company  have the
potential to cause  environmental  or other damage.  The Company has implemented
and  continues  to  implement  various  policies  and  programs  in an effort to
minimize these risks. The Company's policy is to comply with  environmental laws
and regulations at all its facilities and to strive to improve its environmental
performance in association  with applicable  industry  initiatives.  The Company
believes that its  operations  are in  substantial  compliance  with  applicable
requirements  of  environmental  laws.  From time to time,  the  Company  may be
subject  to  environmental   regulatory   enforcement  under  various  statutes,
resolution of which typically involves the establishment of compliance programs.
It is  possible  that future  developments,  such as  stricter  requirements  of
environmental laws and enforcement policies  thereunder,  could adversely affect
the  Company's  production,  handling,  use,  storage,  transportation,  sale or
disposal of such substances.

     The  Company's  production   facilities  operate  within  an  environmental
regulatory  framework in which  governmental  authorities  typically are granted
broad  discretionary  powers that allow them to issue  operating  permits  under
which the  plants  must  operate.  The  Company  believes  all its plants are in
substantial  compliance with applicable  environmental laws. With respect to the
Company's  plants,  neither the Company  nor any of its  subsidiaries  have been
notified of any environmental  claim by any applicable  foreign authority or any
provincial or local authority.

     While the laws  regulating  operations of  industrial  facilities in Europe
vary from country to country, a common regulatory denominator is provided by the
European Union (the "EU").  Germany and Belgium are members of the EU and follow
its  initiatives.   Norway,  although  not  a  member,  generally  patterns  its
environmental  regulatory actions after the EU. The Company believes that it has
obtained all required  permits and is in substantial  compliance with applicable
EU requirements,  including EU Directive 92/112/EEC  regarding  establishment of
procedures for reduction and eventual  elimination of pollution  caused by waste
from the TiO2 industry.

     Litigation  matters.  The Company's Belgian  subsidiary and various Belgian
employees  are the  subject  of civil and  criminal  proceedings  related  to an
accident that resulted in two  fatalities in such facility in 2000. At a hearing
held in January 2004, the government  requested the court to impose fines on the
Company's  subsidiary  and  certain  of its  employees  in an  amount  equal  to
approximately  (euro)367,500 ($460,000). The Company's subsidiary has undertaken
the defense of and liability  for any fines and costs  incurred by its employees
arising out of these  proceedings.  The court's decision is anticipated in April
2004.

     The Company is also involved in various other  environmental,  contractual,
product liability and other claims and disputes incidental to its business.

     The Company currently  believes the disposition of all claims and disputes,
individually or in the aggregate,  should not have a material  adverse effect on
its consolidated financial condition, results of operations or liquidity.

     Concentrations of credit risk. Sales of TiO2 accounted for more than 90% of
net sales from continuing  operations  during each of the past three years.  The
remaining  sales result from the mining and sale of ilmenite ore (a raw material
used in the sulfate pigment production process), and the manufacture and sale of
iron-based  water  treatment  chemicals  (derived from  co-products  of the TiO2
production  processes).  TiO2 is generally sold to the paint, plastics and paper
industries.  Such markets are  generally  considered  "quality-of-life"  markets
whose demand for TiO2 is influenced by the relative  economic  well-being of the
various geographic regions.  TiO2 is sold to over 4,000 customers,  with the top
ten customers approximating 23%, 21% and 20%, respectively of net sales in 2001,
2002 and 2003.  Approximately  73% of the Company's TiO2 sales by volume were to
Europe in each of the past three years and  approximately 13% of sales by volume
were attributable to North America in 2001, 2002 and 2003.

     Capital  expenditures.  At December 31, 2003 the estimated cost to complete
capital projects in process approximated $5.9 million.

     Long-term  contracts.  KUS has long-term  supply contracts that provide for
certain affiliates'  chloride-process TiO2 feedstock  requirements through 2007.
The agreements  require KUS to purchase certain minimum  quantities of feedstock
with average minimum annual purchase commitments aggregating  approximately $165
million.  The agreements  require that the Company and certain of its affiliates
purchase  chloride  feedstock  underlying  these long-term supply contracts from
KUS.

     Operating  leases.  The Company's  principal  German  operating  subsidiary
leases the land under its  Leverkusen  TiO2  production  facility  pursuant to a
lease expiring in 2050. The Leverkusen facility,  with approximately one-half of
the Company's current TiO2 production  capacity,  is located within the lessor's
extensive   manufacturing   complex.   Rent  for  the  Leverkusen   facility  is
periodically  established  by agreement  with the lessor for periods of at least
two years at a time. Under a separate supplies and services  agreement  expiring
in 2011,  the  lessor  provides  some raw  materials,  auxiliary  and  operating
materials and utilities services  necessary to operate the Leverkusen  facility.
Both the lease and the supplies and services  agreements  restrict the Company's
ability to transfer ownership or use of the Leverkusen facility.

     The  Company  also  leases  various  other  manufacturing   facilities  and
equipment.  Some of the leases  contain  purchase  and/or  various  term renewal
options at fair market and fair rental values,  respectively.  In most cases the
Company  expects  that,  in the normal  course of business,  such leases will be
renewed or replaced by other leases. Net rent expense approximated $6 million in
2001,  $7 million in 2002 and $9 million in 2003.  At December 31, 2003,  future
minimum  payments  under  noncancellable  operating  leases having an initial or
remaining term of more than one year were as follows:

<TABLE>
<CAPTION>

Years ending December 31,                                                         Amount
                                                                             (In thousands)

<S>                                                                                 <C>
  2004                                                                              $ 2,950
  2005                                                                                2,168
  2006                                                                                1,389
  2007                                                                                1,285
  2008                                                                                1,184
  2009 and thereafter                                                                19,881
                                                                                    -------

                                                                                    $28,857
                                                                                    =======
</TABLE>

     Approximately  $19  million of the $29  million  aggregate  future  minimum
rental  commitments  at December  31, 2003 relates to the  Company's  Leverkusen
facility lease discussed  above. The minimum  commitment  amounts for such lease
included in the table above for each year  through  the 2050  expiration  of the
lease are based upon the current annual rental rate as of December 31, 2003.

Note 14 - Financial instruments:

     Summarized below is the estimated fair value and related net carrying value
of the Company's financial instruments.
<TABLE>
<CAPTION>

                                                                     December 31,                December 31,
                                                                         2002                        2003
                                                              ---------------------------  -------------------------
                                                                Carrying        Fair         Carrying      Fair
                                                                 amount        value          amount       value
                                                              ------------- -------------  -------------------------
                                                                                  (In millions)
Cash, cash equivalents, and current and noncurrent restricted
<S>                                                               <C>           <C>            <C>          <C>
   marketable debt securities                                     $  17.5       $  17.5        $ 39.7       $ 39.7

Long-term debt:
  Fixed rate with market quotes -
    8.875% Senior Secured Notes                                  $  296.9      $  299.9       $ 356.1      $ 356.1
  Variable rate debt                                                 29.0          29.0            .6           .6
</TABLE>


     Fair  value  of  the  Company's  noncurrent   restricted   marketable  debt
securities  and 8.875% Senior  Secured Notes are based upon quoted market prices
at each balance sheet date.

     At December  31, 2003,  the Company had entered into a short-term  currency
forward  contract  maturing  January 2, 2004 to exchange an aggregate of euro 40
million for an  equivalent  amount of U.S.  dollars at an exchange  rate of U.S.
$1.25 per euro.  Such contract was entered into in conjunction  with the January
2004 payment of an  intercompany  dividend  from one of the  Company's  European
subsidiaries.  At December 31, 2003, the actual exchange rate was U.S. $1.25 per
euro.  The  estimated  fair  value of such  foreign  currency  contract  was not
material at December 31, 2003. The Company held no other significant  derivative
financial instruments at December 31, 2002 or 2003. See Note 1.

Note 15 - Accounting principles newly adopted in 2003:

     Asset retirement obligations.  The Company adopted SFAS No. 143, Accounting
for Asset  Retirement  Obligations,  on January 1, 2003. Under SFAS No. 143, the
fair value of a liability for an asset retirement  obligation  covered under the
scope of SFAS No.  143 is  recognized  in the period in which the  liability  is
incurred,  with an  offsetting  increase in the  carrying  amount of the related
long-lived  asset.  Over time,  the  liability  would be accreted to its present
value,  and the  capitalized  cost is  depreciated  over the useful  life of the
related asset.  Upon  settlement of the liability,  an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.

     Under the transition provisions of SFAS No. 143, at the date of adoption on
January 1, 2003 the Company  recognized (i) an asset retirement cost capitalized
as an increase to the carrying value of its property, plant and equipment,  (ii)
accumulated  depreciation on such capitalized cost and (iii) a liability for the
asset retirement  obligation.  Amounts resulting from the initial application of
SFAS No. 143 are measured using information,  assumptions and interest rates all
as of January 1, 2003.  The amount  recognized as the asset  retirement  cost is
measured as of the date the asset retirement obligation was incurred. Cumulative
accretion on the asset retirement  obligation,  and accumulated  depreciation on
the asset  retirement  cost, is recognized for the time period from the date the
asset  retirement  cost  and  liability  would  have  been  recognized  had  the
provisions  of SFAS  No.  143 been in  effect  at the  date  the  liability  was
incurred,  through January 1, 2003. The difference,  if any, between the amounts
to be recognized as described above and any associated amounts recognized in the
Company's  balance  sheet as of December 31, 2002 is  recognized as a cumulative
effect of a change in  accounting  principles  as of the date of  adoption.  The
effect of  adopting  SFAS No.  143 as of January  1, 2003 was not  material,  as
summarized  in  the  table  below,  and  is  not  separately  recognized  in the
accompanying Statement of Income.
<TABLE>
<CAPTION>

                                                                                        Amount
                                                                                       --------
                                                                                     (in millions)

Increase in carrying value of net property, plant and equipment:
<S>                                                                                      <C>
  Cost                                                                                   $ .4
  Accumulated depreciation                                                                (.1)
Decrease in carrying value of previously-accrued closure and
 post-closure activities                                                                   .3
Asset retirement obligation recognized                                                    (.6)
                                                                                         ----

  Net impact                                                                             $ -
                                                                                         ====
</TABLE>

     The  increase  in the asset  retirement  obligations  from  January 1, 2003
($600,000) to December 31, 2003  ($800,000) is due to accretion  expense and the
effects of  currency  translation.  Accretion  expense,  which is  reported as a
component of cost of goods sold in the  accompanying  Consolidated  Statement of
Operations,  approximated  $100,000 for the year ended December 31, 2003. If the
Company had  adopted  SFAS No. 143 as of January 1, 2001,  the asset  retirement
obligations would have been approximately $500,000 at December 31, 2001.

     Estimates  of the  ultimate  cost to be  incurred  to settle the  Company's
obligations require a number of assumptions, are inherently difficult to develop
and the  ultimate  outcome  may differ from  current  estimates.  As  additional
information becomes available,  cost estimates will be adjusted as necessary. It
is possible that  technological,  regulatory or  enforcement  developments,  the
results  of  studies  or  other  factors  could  necessitate  the  recording  of
additional liabilities.

     Costs associated with exit or disposal activities. The Company adopted SFAS
No. 146,  Accounting for Costs Associated with Exit or Disposal  Activities,  on
January 1, 2003 for exit or disposal activities initiated on or after that date.
Under SFAS No. 146, costs associated with exit activities,  as defined, that are
covered by the scope of SFAS No. 146 will be recognized  and measured  initially
at fair value, generally in the period in which the liability is incurred. Costs
covered by the scope of SFAS No. 146 include  termination  benefits  provided to
employees,  costs to consolidate facilities or relocate employees,  and costs to
terminate contracts (other than a capital lease).  Under prior GAAP, a liability
for such an exit cost is recognized  at the date an exit plan is adopted,  which
may or may not be the date at which the liability has been incurred.  The effect
of adopting  SFAS No. 146 as of January 1, 2003 was not  material as the Company
was not involved in any exit or disposal  activities covered by the scope of the
new standard as of such date.

Note 16 - Accounting principles not yet adopted:

     The Company is required to comply with the  consolidation  requirements  of
FASB  Interpretation  ("FIN")  No.  46R,  "Consolidation  of  Variable  Interest
Entities,  an interpretation of ARB No. 51," as amended at March 31, 2004. While
the Company  currently does not believe it has any involvement with any variable
interest entity (as that term is defined in FIN No. 46R) covered by the scope of
FIN No. 46R, the  interpretation is complex and therefore the impact of adopting
the  consolidation  requirements  of FIN No.  46R has not yet been  definitively
determined.




                         REPORT OF INDEPENDENT AUDITORS
                        ON FINANCIAL STATEMENT SCHEDULES



To the Stockholder and Board of Directors of Kronos International, Inc.:

     Our audits of the  consolidated  financial  statements  referred  to in our
report dated March 5, 2004,  appearing on page F-2 of the 2003 Annual  Report on
Form 10-K of Kronos International, Inc., also included an audit of the financial
statement  schedules  listed in the index on page F-1 of this Form 10-K.  In our
opinion,  these financial  statement  schedules  present fairly, in all material
respects,  the information  set forth therein when read in conjunction  with the
related consolidated financial statements.






                                                      PricewaterhouseCoopers LLP


Dallas, Texas
March 5, 2004




                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            Condensed Balance Sheets

                           December 31, 2002 and 2003

                                 (In thousands)
<TABLE>
<CAPTION>

                                                                        2002              2003
                                                                       -----             -----

Current assets:
<S>                                                                 <C>              <C>
  Cash and cash equivalents                                         $    2,445       $      548
  Accounts and notes receivable                                          6,349            7,553
  Receivable from subsidiaries                                          31,840            5,605
  Other                                                                    194               21
                                                                    ----------       ----------

      Total current assets                                              40,828           13,727
                                                                    ----------       ----------

Other assets:
  Notes receivable from subsidiary                                      74,799           89,710
  Investment in subsidiaries                                           249,644          563,171
  Deferred income taxes                                                  1,875                -
  Other                                                                  8,956            9,190
  Property and equipment, net                                            4,929            6,454
                                                                    ----------       ----------

      Total other assets                                               340,203          668,525
                                                                    ----------       ----------

                                                                    $  381,031       $  682,252
                                                                    ==========       ==========

Current liabilities:
  Payable to affiliates                                             $      164       $   32,218
  Accounts payable and accrued liabilities                               5,362            5,305
  Income taxes                                                               -           95,293
  Deferred income taxes                                                    900             -
                                                                    ----------       ----------

      Total current liabilities                                          6,426          132,816
                                                                    ----------       ----------

Noncurrent liabilities:
  Long-term debt                                                       296,942          356,136
  Deferred income taxes                                                      -           80,741
  Other                                                                    815              997
                                                                    ----------       ----------


      Total noncurrent liabilities                                     297,757          437,874
                                                                    ----------       ----------

Stockholder's equity                                                    76,848          111,562
                                                                    ----------       ----------

                                                                    $  381,031       $  682,252
                                                                    ==========       ==========
</TABLE>


Contingencies (Note 3)



                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                         Condensed Statements of Income

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                       2001             2002              2003
                                                                      -----            -----             -----

Revenues and other income:
<S>                                                                  <C>            <C>              <C>
    Net sales                                                        $ 26,179       $  28,326        $ 35,601
    Equity in income from continuing operations of subsidiaries       114,170          34,308         293,623
  Interest income from affiliates                                      43,901          28,405              50
  Royalty income                                                       13,603          14,370          16,568
  Currency translation gains (losses), net                             (9,084)         14,656            (599)
  Other income, net                                                     1,838             753             (38)
                                                                     --------       ---------        --------

                                                                      190,607         120,818         345,205
                                                                     --------       ---------        --------

Costs and expenses:
  Cost of sales                                                        12,454          13,903          18,306
  General and administrative                                           18,891          16,814          21,209
  Interest                                                              1,063          13,948          29,847
  Interest expense to affiliates                                       42,245          20,530            -
                                                                     --------       ---------        --------

                                                                       74,653          65,195          69,362
                                                                     --------       ---------        --------

  Income before income taxes                                          115,954          55,623         275,843

Provision for income taxes                                              2,226           3,332         194,082
                                                                     --------       ---------        --------

  Net income                                                          113,728          52,291          81,761

Dividends and accretion applicable to redeemable preferred
    stock and profit participation certificates                      (112,466)        (78,600)           -
                                                                     --------       ---------        --------

  Net income (loss) available to common stock                        $  1,262       $ (26,309)       $ 81,761
                                                                     ========       =========        ========

</TABLE>







                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                       Condensed Statements of Cash Flows

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)
<TABLE>
<CAPTION>

                                                                         2001             2002              2003
                                                                        -----            -----             -----

Cash flows from operating activities:
<S>                                                                 <C>               <C>              <C>
    Net income                                                      $ 113,728         $  52,291        $  81,761
    Distributions from subsidiaries                                    44,990            26,249              402
    Noncash currency transaction (gain) loss                            9,355           (13,121)            -
    Noncash interest income                                           (25,044)          (21,849)            -
    Noncash interest expense                                             -                6,174            1,472
    Deferred income taxes                                                (449)            5,037          238,814
    Equity in earnings of subsidiaries                               (114,170)          (34,308)        (293,623)
    Other, net                                                            292               451           (3,570)
                                                                       28,702            20,924           25,256
                                                                    ---------         ---------        ---------

  Net change in assets and liabilities                                 25,510             1,220              115
                                                                    ---------         ---------        ---------

       Net cash provided by operating activities
                                                                       54,212            22,144           25,371
                                                                    ---------         ---------        ---------

Cash flows from investing activities:
  Capital expenditures                                                   (883)           (1,730)          (2,406)
  Collection of loans to affiliates                                    21,406            12,090             -
  Investments in subsidiaries                                         (27,237)             -                -
  Other, net                                                             -                   13                9
                                                                    ---------         ---------        ---------

       Net cash provided (used) by investing activities                (6,714)           10,373           (2,397)
                                                                    ---------         ---------        ---------

Cash flows from financing activities:
  Indebtedness:
    Borrowings                                                           -              280,041             -
    Principal payments                                                (21,397)          (26,697)            -
    Deferred financing fees                                              -               (8,600)            -
  Repayments of loans from affiliates                                    -             (301,432)            -
  Capital contribution                                                  3,807              -                -
  Dividends paid                                                         -                 -             (25,000)
  Other capital transactions with affiliates, net                     (35,631)            2,925             -
                                                                    ---------         ---------        ---------

       Net cash used by financing activities                          (53,221)          (53,763)         (25,000)
                                                                    ---------         ---------        ---------

Net change during the year from operating investing and
    financing activities                                               (5,723)          (21,246)          (2,026)
Currency translation                                                     (421)            2,013              129
Balance at beginning of year                                           27,822            21,678            2,445
                                                                    ---------         ---------        ---------

Balance at end of year                                              $  21,678         $   2,445        $     548
                                                                    =========         =========        =========
</TABLE>




                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                    Notes to Condensed Financial Information


Note 1 - Basis of presentation:

     The Consolidated Financial Statements of Kronos International, Inc. and the
related Notes to Consolidated  Financial  Statements are incorporated  herein by
reference.

Note 2 - Investment in and advances to subsidiaries:
<TABLE>
<CAPTION>

                                                                                             December 31,
                                                                                        ---------------------
                                                                                         2002            2003
                                                                                        -----           -----
                                                                                            (In thousands)

Current:
    Receivable from:
<S>                      <C>                                                              <C>               <C>
       Kronos Titan GmbH ("TG")                                                           $ 27,914          $   -
       Kronos Titan A/S                                                                      1,525          1,567
       Kronos Europe S.A./N.V                                                                1,052          1,641
       KC                                                                                       91          1,354
       Kronos Denmark ApS ("KDK")                                                              514            635
       Titania A/S ("TIA")                                                                     360            360
       Other                                                                                   384             48
                                                                                          --------       --------

                                                                                          $ 31,840       $  5,605
                                                                                          ========       ========
    Payable to:
       TG                                                                                        -         31,974
       KUS                                                                                     130             48
       Kronos Chemie GmbH ("KCH")                                                                -            150
       Other                                                                                    34             46
                                                                                          --------       --------

                                                                                          $    164       $ 32,218
                                                                                          ========       ========

Noncurrent:
    Notes receivable from TG                                                              $ 74,799       $ 89,710
                                                                                          ========       ========
</TABLE>



<TABLE>
<CAPTION>

                                                                                                December 31,
                                                                                          -----------------------
                                                                                           2002           2003
                                                                                          -----          ------
                                                                                               (In thousands)

Investment in:
<S>                                                                                       <C>            <C>
    TG                                                                                    $150,575       $440,844
    KDK                                                                                     81,579        109,010
    Other                                                                                   17,490         13,317
                                                                                          --------       --------

                                                                                          $249,644       $563,171
                                                                                          ========       ========
</TABLE>



<TABLE>
<CAPTION>

                                                                                Years ended December 31,
                                                                         --------------------------------------
                                                                          2001            2002            2003
                                                                         -----           -----           ------
                                                                                     (In thousands)

Equity in income from continuing operations of subsidiaries:
<S>                                                                       <C>          <C>              <C>
    TG                                                                    $ 85,807     $  22,430        $270,541
    KDK                                                                     18,439        11,344          26,892
    Other                                                                    9,924           534          (3,810)
                                                                          --------     ---------        --------

                                                                          $114,170     $  34,308        $293,623
                                                                          ========     =========        ========
</TABLE>

Note 3 -       Long-term debt:

     The Company's  $194 million of 11.75% Senior  Secured Notes at December 31,
2001 were redeemed at par value in 2002.




                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (In thousands)
<TABLE>
<CAPTION>


                                                           Additions
                                             Balance at    charged to                                                Balance
                                              beginning     costs and         Net        Currency                     at end
           Description                        of year       expenses      deductions    translation      Other       of year
---------------------------------           -----------   -----------    -----------   ------------     -------     ---------

Year ended December 31, 2001:
<S>                                           <C>          <C>            <C>            <C>            <C>           <C>
  Allowance for doubtful accounts             $ 1,662      $   255        $  (195)       $   (96)       $   -         $ 1,626
                                              =======      =======        =======        =======        =======       =======


Year ended December 31, 2002:
  Allowance for doubtful accounts             $ 1,626      $   381        $  (397)       $   297        $   -         $ 1,907
                                              =======      =======        =======        =======        =======       =======


Year ended December 31, 2003:
  Allowance for doubtful accounts             $ 1,907      $   233        $  (281)       $   363        $   -         $ 2,222
                                              =======      =======        =======        =======        =======       =======
</TABLE>




Note - Certain  information  has been omitted from this  Schedule  because it is
     disclosed in the notes to the Consolidated Financial Statements.



<PAGE>






                        KRONOS TITAN GMBH AND SUBSIDIARY

                   Index of Consolidated Financial Statements


Financial Statements                                                 Pages

Report of Independent Auditors                                       FA-2

Consolidated Balance Sheets - December 31, 2002 and 2003             FA-3

Consolidated Statements of Income - Years ended
 December 31, 2001, 2002 and 2003                                    FA-5

Consolidated Statements of Comprehensive Income - Years ended
 December 31, 2001, 2002 and 2003                                    FA-6

Consolidated Statements of Partners' Capital/Owners'
 Equity - Years ended December 31, 2001, 2002 and 2003               FA-7

Consolidated Statements of Cash Flows - Years ended
 December 31, 2001, 2002 and 2003                                    FA-8

Notes to Consolidated Financial Statements                           FA-10










                         REPORT OF INDEPENDENT AUDITORS



To the Board of Directors and Owner of Kronos Titan GmbH:

     In our  opinion,  the  accompanying  consolidated  balance  sheets  and the
related consolidated statements of income,  comprehensive income, owners' equity
and cash flows present fairly, in all material respects,  the financial position
of Kronos  Titan GmbH and  Subsidiary  at December  31,  2002 and 2003,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2003 in  conformity  with  accounting  principles
generally accepted in the United States of America.  These financial  statements
are the  responsibility of the Company's  management;  our  responsibility is to
express  an  opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.





PricewaterhouseCoopers GmbH
Wirtschaftsprufungsgesellschaft

March 5, 2004

/s/Thomas Husemeyer                                     /s/ Hans-Peter Kreibich
(Wirtschaftsprufer)                                     (Wirtschaftsprufer)





                        KRONOS TITAN GMBH AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2002 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>

         ASSETS                                                                      2002              2003
                                                                                    -----             ------

Current assets:
<S>                                                                               <C>               <C>
  Cash and cash equivalents                                                       $  7,825          $ 30,859
  Accounts and notes receivable                                                     53,318            66,565
  Receivable from affiliates                                                        18,823            82,166
  Refundable income taxes                                                              215           128,956
  Inventories                                                                       85,542           100,133
  Prepaid expenses                                                                   3,004             2,389
                                                                                  --------          --------

    Total current assets                                                           168,727           411,068
                                                                                  --------          --------

Other assets:
  Unrecognized net pension obligations                                                 292             3,636
  Deferred income taxes                                                                  -            19,832
  Other                                                                              1,590             1,211
                                                                                  --------          --------

    Total other assets                                                               1,882            24,679
                                                                                  --------          --------

Property and equipment:
  Land                                                                              11,103            13,539
  Buildings                                                                         83,012           101,819
  Machinery and equipment                                                          363,321           422,838
  Construction in progress                                                           6,714             6,624
                                                                                  --------          --------

                                                                                   464,150           564,820

  Less accumulated depreciation and depletion                                      259,913           323,313
                                                                                  --------          --------

    Net property and equipment                                                     204,237           241,507
                                                                                  --------          --------

                                                                                  $374,846          $677,254
                                                                                  ========          ========
</TABLE>


See accompanying notes to consolidated financial statements.







                        KRONOS TITAN GMBH AND SUBSIDIARY

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2002 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>

LIABILITIES AND PARTNERS' CAPITAL/OWNERS' EQUITY                                     2002               2003
                                                                                    ------             ------

Current liabilities:
<S>                                                                                  <C>               <C>
  Accounts payable and accrued liabilities                                        $ 52,688          $  61,252
  Payable to affiliates                                                             44,082             21,685
  Deferred income taxes                                                                765              1,407
                                                                                  --------          ---------

    Total current liabilities                                                       97,535             84,344
                                                                                  --------          ---------

Noncurrent liabilities:
  Note payable to Kronos International, Inc.                                        74,799             89,710
  Deferred income taxes                                                             19,994                  -
  Accrued pension cost                                                              20,709             50,826
  Other                                                                             11,234             11,530
                                                                                  --------          ---------

    Total noncurrent liabilities                                                   126,736            152,066
                                                                                  --------          ---------

Partners' capital / owners' equity:
  Partners' capital                                                                118,589                  -
  Subscribed capital                                                                     -             12,496
  Paid in capital                                                                        -            376,634
  Accumulated other comprehensive income (loss):
    Currency translation                                                            37,850             75,524
    Pension liabilities                                                             (5,864)           (23,810)
                                                                                  --------          ---------

      Total partners' capital / owners' equity                                     150,575            440,844
                                                                                  --------          ---------

                                                                                  $374,846          $ 677,254
                                                                                  ========          =========
</TABLE>

Commitments and contingencies (Notes 6, 10 and 14)

See accompanying notes to consolidated financial statements.



                        KRONOS TITAN GMBH AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                          2001             2002             2003
                                                                        -------          -------          -------

<S>                                                                    <C>             <C>               <C>
Net sales                                                              $ 379,360       $ 384,361         $487,337
Cost of sales                                                            280,084         323,306          379,187
                                                                       ---------       ---------         --------

    Gross margin                                                          99,276          61,055          108,150

Selling, general and administrative expense                               31,166          34,633           42,925
Other operating income (expense):
  Currency transaction gains (losses), net                                   631              93           (3,519)
  Disposition of property and equipment                                     (512)           (300)            (390)
  Insurance recoveries, net                                                7,222            -                -
                                                                       ---------       ---------         --------

    Income from operations                                                75,451          26,215           61,316

Other income (expense):
  Insurance recoveries, net                                               17,468            -                -
  Trade interest income                                                      376             518              447
  Interest and other expense to affiliates                                (8,856)         (4,493)            (361)
  Interest and other income from affiliates                                2,135           3,694            3,918
  Interest expense                                                           (22)           (198)            (449)
                                                                       ---------       ---------         --------

    Income before income taxes                                            86,552          25,736           64,871

Income tax provision (benefit)                                               745           3,306         (205,670)
                                                                       ---------       ---------         --------

    Net income                                                         $  85,807       $  22,430         $270,541
                                                                       =========       =========         ========
</TABLE>

See accompanying notes to consolidated financial statements.





                        KRONOS TITAN GMBH AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                          2001             2002             2003
                                                                        -------          -------          -------


<S>                                                                     <C>               <C>              <C>
Net income                                                              $85,807           $22,430          $270,541
                                                                        -------           -------          --------

Other comprehensive income (loss), net of     tax:
   Minimum pension liabilities adjustment                                (2,949)           (2,915)          (17,946)
   Currency translation adjustment                                       (2,079)           22,892            37,674
                                                                        -------           -------          --------

     Total other comprehensive income (loss)                             (5,028)           19,977            19,728
                                                                        -------           -------          --------

Comprehensive income                                                    $80,779           $42,407          $290,269
                                                                        =======           =======          ========
</TABLE>


See accompanying notes to consolidated financial statements.




                        KRONOS TITAN GMBH AND SUBSIDIARY

          CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL / OWNERS' EQUITY

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                            Accumulated other
                                                                                              comprehensive
                                                            Owners' Equity                    income (loss)
                                     Partners'       ---------------------------        -------------------------
                                      capital        Subscribed         Paid in         Currency          Pension
                                     (deficit)         capital          capital        translation      liabilities        Total
                                    ----------      -----------        ---------     --------------    -------------    -----------

<S>                 <C> <C>          <C>             <C>               <C>               <C>            <C>             <C>
Balance at December 31, 2000         $ 17,489        $       -         $      -          $17,037        $      -        $ 34,526

Net income                             85,807                -                -                -               -          85,807
Other comprehensive loss,                   -                -                -           (2,079)         (2,949)         (5,028)
net of tax
Cash distribution                     (11,097)               -                -                -               -         (11,097)
Cash contribution                      16,666                -                -                -               -          16,666
                                     --------        ---------         --------         --------        --------        --------

Balance at December 31, 2001          108,865                -                -           14,958          (2,949)        120,874

Net income                             22,430                -                -                -               -          22,430
Other comprehensive income                  -                -                -           22,892          (2,915)         19,977
  (loss), net of tax
Cash distribution                     (12,706)               -                -                -               -         (12,706)
                                     --------        ---------         --------         --------        --------        --------

Balance at December 31, 2002          118,589                -                -           37,850          (5,864)        150,575

Net income                            270,541                -                -                -               -         270,541
Other comprehensive income                  -                -                -           37,674         (17,946)         19,728
(loss), net of tax
Partnership conversion               (389,130)          12,496          376,634                -               -               -
                                     --------        ---------         --------         --------        --------        --------

Balance at December 31, 2003         $      -        $  12,496         $376,634         $ 75,524        $(23,810)       $440,844
                                     ========        =========         ========         ========        ========        ========
</TABLE>



See accompanying notes to consolidated financial statements.





                        KRONOS TITAN GMBH AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 2001, 2002 and 2003
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                      2001              2002              2003
                                                                    -------           -------           -------
Cash flows from operating activities:
<S>                                                               <C>               <C>               <C>
  Net income                                                      $  85,807         $  22,430         $ 270,541
  Depreciation, depletion and amortization                           14,056            16,387            20,452
  Noncash interest expense                                                -                57               140
  Deferred income taxes                                              (6,273)            2,875           (39,770)
  Net loss from disposition of property and equipment                   512               300               390
  Pension, net                                                       (2,846)           (2,745)           (5,021)
  Insurance recoveries, net                                         (17,468)                -                 -
  Change in assets and liabilities:
    Accounts and notes receivable                                    (7,147)          (27,322)            1,827
    Inventories                                                      (4,730)           (2,678)            1,830
    Prepaid expenses                                                 (1,382)               25             1,107
    Accounts payable and accrued liabilities                          8,239            (4,652)            3,554
    Income taxes                                                        162            (1,164)         (130,136)
    Accounts with affiliates                                        (22,752)           25,616           (85,431)
    Accrued environmental costs                                           -               259              (905)
    Other noncurrent assets                                             190              (222)              481
    Other noncurrent liabilities                                       (827)           (1,018)             (555)
                                                                  ---------         ---------         ---------

      Net cash provided by operating activities                      45,541            28,148            38,504
                                                                  ---------         ---------         ---------

Cash flows from investing activities:
  Capital expenditures                                              (35,298)          (15,818)          (18,715)
  Loans to affiliates:
    Loans                                                           (16,677)                -                 -
    Collections                                                           -            18,097                 -
  Property damage by fire:
    Insurance proceeds                                               23,361                 -                 -
    Other, net                                                       (3,205)                -                 -
  Proceeds from disposition of property and equipment                   262                 3                 4
                                                                  ---------         ---------         ---------

      Net cash provided (used) by investing activities              (31,557)            2,282           (18,711)
                                                                  ---------         ---------         ---------
</TABLE>






                        KRONOS TITAN GMBH AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                        December 31, 2001, 2002 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                          2001             2002             2003
                                                                        -------          -------          -------

Cash flows from financing activities:
<S>                                                                   <C>               <C>              <C>
  Repayment of loans from affiliates                                  $ (21,406)        $ (12,090)       $       -
  Cash contributions                                                     16,666                 -                -
  Cash distributions                                                    (11,097)          (12,706)               -
  Deferred financing fees                                                     -              (410)               -
                                                                      ---------         ---------        ---------


    Net cash used by financing activities                               (15,837)          (25,206)               -
                                                                      ---------         ---------        ---------

Cash and cash equivalents:
  Net change during the year from:
    Operating, investing and financing
     activities                                                          (1,853)            5,224           19,793
    Currency translation                                                   (286)              924            3,241
  Balance at beginning of  period                                         3,816             1,677            7,825
                                                                      ---------         ---------        ---------

  Balance at end of period                                            $   1,677         $   7,825        $  30,859
                                                                      =========         =========        =========

Supplemental disclosures:
  Cash paid (received) for:
    Interest                                                          $   8,689         $   4,463        $     674
    Income taxes                                                          6,855               938             (166)
</TABLE>



                        KRONOS TITAN GMBH AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Organization and basis of presentation:

     Effective December 31, 2003, Kronos Titan GmbH & Co. OHG was converted from
a partnership into a limited liability company under German law, and was renamed
Kronos  Titan  GmbH  ("TG").  The  conversion  had no  material  affect  on TG's
consolidated  financial  statements,  other than with respect to deferred income
taxes. See Note 10. TG is majority owned (99.95%) by Kronos International,  Inc.
("KII"). KII is a wholly owned subsidiary of Kronos Worldwide,  Inc. ("Kronos"),
a majority owned subsidiary of NL Industries,  Inc. ("NL"). NL Industries Chemie
GmbH, another wholly owned subsidiary of NL, holds the remaining 0.05% ownership
interest in TG. NL conducts its titanium  dioxide pigments  ("TiO2")  operations
through Kronos. At December 31, 2003,  Valhi, Inc.  ("Valhi") and a wholly-owned
subsidiary of Valhi held  approximately 84% of NL's outstanding common stock. At
December 31, 2003,  Contran  Corporation  ("Contran") and its subsidiaries  held
approximately  90% of Valhi's  outstanding  common stock.  Substantially  all of
Contran's outstanding voting stock is held by trusts established for the benefit
of certain children and grandchildren of Harold C. Simmons, of which Mr. Simmons
is the sole trustee.  Mr. Simmons, the Chairman of the Board of each of Contran,
Valhi and NL, may be deemed to control each of such companies and TG.

     The accompanying  consolidated  financial  statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America  ("GAAP"),  with the U.S.  dollar  as the  reporting  currency.  TG also
prepares financial statements on other bases, as required in Germany.

     As part of the  restructuring of KII's German  operations,  KII implemented
certain  restructuring  transactions  in  1999  and  2001.  In  June  1999,  two
predecessors  of TG, which had operated in corporate form in Germany,  were each
converted   into   partnerships.   In  October  2001,   through   various  legal
transactions,  those two entities merged to form TG. There was no impact on TG's
consolidated  financial  statements  as a result of this 2001 merger  since both
companies were under common control.

     TG is not a registrant  with the U.S.  Securities  and Exchange  Commission
("SEC") and is not subject to the SEC's periodic reporting requirements,  except
as may be required by Rule 3-16 of Regulation S-X.

Note 2 - Summary of significant accounting policies:

     Principles of consolidation  and management's  estimates.  The accompanying
consolidated  financial  statements  include  the  accounts of TG and its wholly
owned  subsidiary  (collectively,  the  "Company").  All  material  intercompany
accounts and balances have been eliminated. Certain prior-year amounts have been
reclassified  to conform to the current year  presentation.  The  preparation of
financial  statements  in  conformity  with  GAAP  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements,  and the  reported  amount of revenues  and expenses
during the reporting period. Actual results may differ from previously estimated
amounts  under  different   assumptions  or  conditions.   The  Company  has  no
involvement  with any  variable  interest  entity  covered  by the scope of FASB
Interpretation ("FIN") No. 46R, "Consolidation of Variable Interest Entities."

     Translation of foreign  currencies.  The functional currency of the Company
is the euro.  Assets and  liabilities  of the  Company  are  translated  to U.S.
dollars at year-end  rates of exchange and revenues and expenses are  translated
at  weighted  average  exchange  rates  prevailing  during  the year.  Resulting
translation  adjustments are included in other comprehensive  income (loss), net
of related income taxes, if applicable.  Currency  transaction  gains and losses
are recognized in income currently.

     Cash  equivalents.  Cash  equivalents  include bank  deposits with original
maturities of three months or less.

     Inventories and cost of sales.  Inventories are stated at the lower of cost
(principally  average  cost)  or  market,  net  of  allowance  for  obsolete  or
slow-moving  inventories.  Amounts are removed from inventories at average cost.
Cost of sales includes costs for materials, packaging and finishing,  utilities,
salary and benefits, maintenance and depreciation.

     Property, equipment, depreciation and depletion. Property and equipment are
stated at cost. Interest costs related to major,  long-term capital projects are
capitalized as a component of construction costs.  Expenditures for maintenance,
repairs and minor renewals are expensed; expenditures for major improvements are
capitalized.   The  Company  performs  planned  major   maintenance   activities
throughout the year.  Repair and  maintenance  costs estimated to be incurred in
connection with planned major maintenance  activities are accrued in advance and
are included in cost of goods sold.  At December 31,  2003,  accrued  repair and
maintenance costs, included in other current liabilities, was $3.3 million (2002
- $3.2 million).

     Depreciation is computed  principally by the straight-line  method over the
estimated  useful lives of ten to forty years for  buildings and three to twenty
years for machinery and equipment.

     When  events or  changes  in  circumstances  indicate  that  assets  may be
impaired,  an evaluation is performed to determine if an impairment exists. Such
events or changes in circumstances  include, among other things, (i) significant
current  and prior  periods or current  and  projected  periods  with  operating
losses,  (ii) a significant  decrease in the market value of an asset or (iii) a
significant  change  in the  extent  or  manner  in which an asset is used.  All
relevant  factors  are  considered.  The test for  impairment  is  performed  by
comparing the estimated  future  undiscounted  cash flows (exclusive of interest
expense)  associated  with  the  asset  to the  asset's  net  carrying  value to
determine  if a  write-down  to market  value or  discounted  cash flow value is
required.  Effective January 1, 2002, the Company  commenced  accounting for the
impairment  of other  long-lived  assets  (such as property  and  equipment)  in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 144.

     Deferred  financing costs.  Deferred financing costs are amortized over the
term of the applicable issue by the interest method.

     Employee  benefit  plans.  Accounting  and funding  policies for retirement
plans are described in Note 8.

     The Company has not issued any stock options. However, certain employees of
the Company have been  granted  options by NL to purchase NL common  stock.  The
Company has  elected  the  disclosure  alternative  prescribed  by SFAS No. 123,
"Accounting for Stock-Based  Compensation,"  as amended,  and to account for its
stock-based  employee  compensation  related to stock options in accordance with
Accounting  Principles  Board  Opinion  ("APBO") No. 25,  "Accounting  for Stock
Issued to  Employees,"  and its various  interpretations.  Under APBO No. 25, no
compensation  cost is generally  recognized for fixed stock options in which the
exercise  price is not less than the market price on the grant date.  During the
fourth  quarter  of 2002,  and  following  NL's cash  settlement  of  options to
purchase  NL common  stock  held by  certain  individuals,  NL and the  Company,
commenced  accounting for its stock options using the variable accounting method
because NL could not overcome the  presumption  that it would not similarly cash
settle its remaining stock options.  Under the variable  accounting  method, the
intrinsic  value of all  unexercised  stock  options  (including  those  with an
exercise  price at least  equal to the  market  price on the date of grant)  are
accrued as an expense  over their  vesting  period,  with  subsequent  increases
(decreases) in NL's market price  resulting in additional  compensation  expense
(income).  Upon  exercise of such  options to  purchase NL common  stock held by
employees of the Company,  the Company pays NL an amount equal to the difference
between the market  price of NL's common  stock on the date of exercise  and the
exercise price of such stock option.  Aggregate  compensation expense related to
NL stock  options held by  employees of the Company was nil in 2001,  $25,000 in
2002 and $12,000 in 2003.

     The following table illustrates the effect on net income if the Company had
applied the fair value  recognition  provisions  of SFAS No. 123 to  stock-based
employee compensation.
<TABLE>
<CAPTION>

                                                              Years ended December 31,
                                                    --------------------------------------------
                                                     2001               2002              2003
                                                    ------             ------            ------
                                                                   (In thousands)

<S>                                                 <C>               <C>                <C>
Net income - as reported                            $85,807           $22,430            $270,541
Adjustments, net of applicable income
 tax effects:
  Stock-based employee compensation
   expense determined under APBO No. 25                   -                21                  10
  Stock-based employee compensation
   expense determined under SFAS No. 123                (25)              (21)                 (9)
                                                    -------           -------            --------

Pro forma net income                                $85,782           $22,430            $270,542
                                                    =======           =======            ========
</TABLE>


     Environmental  remediation  costs.   Environmental  remediation  costs  are
accrued  when  estimated   future   expenditures  are  probable  and  reasonably
estimable.  The estimated  future  expenditures  are generally not discounted to
present value.  Recoveries of remediation costs from other parties,  if any, are
reported as receivables when their receipt is deemed  probable.  At December 31,
2002 and 2003, no receivables for recoveries have been recognized.

     Net sales. Sales are recorded when products are shipped and title and other
risks and rewards of ownership  have passed to the customer.  Shipping  terms of
products shipped are generally FOB shipping point.  Amounts charged to customers
for shipping  and  handling  are included in net sales.  Sales are stated net of
price, early payment and distributor discounts and volume rebates.

     Accounts  receivable.  The  Company  provides  an  allowance  for  doubtful
accounts  for  known  and  estimated  potential  losses  arising  from  sales to
customers based on a periodic review of the accounts.

     Selling, general and administrative expenses;  shipping and handling costs.
Selling, general and administrative expenses include costs related to marketing,
sales, distribution,  shipping and handling, research and development, legal and
administrative functions, such as accounting, treasury and finance, and includes
costs for salary and benefits,  travel and entertainment,  promotional materials
and  professional  fees.  Shipping and  handling  costs are included in selling,
general and administrative expense and were $14.3 million in 2001, $15.1 million
in 2002 and $19.8 million in 2003.

     Income  taxes.  As a  partnership  under  German  law, TG is not subject to
corporate  income taxes,  but remains  subject to trade income  taxes.  Deferred
trade income tax assets and  liabilities  are recognized for the expected future
tax  consequences  of  temporary  differences  between the trade  income tax and
financial  reporting  carrying  amounts of assets and  liabilities.  The Company
periodically  evaluates  its  deferred  trade  income tax assets and adjusts any
related valuation  allowance.  The Company's valuation allowance is equal to the
amount of deferred  trade income tax assets which the Company  believes does not
meet the  "more-likely-than-not"  recognition  criteria.  Effective December 31,
2003,  the Company  was  converted  from a  partnership  to a limited  liability
company.  See Note 10.  Subsequent to that date,  the Company will be subject to
the German  corporation  tax,  with a  statutory  rate of 25%,  in  addition  to
solidarity-surcharge of 5.5% of corporate income tax and trade income taxes.

     Derivatives and hedging activities.  Derivative  instruments are recognized
as either assets or  liabilities  and measured at fair value in accordance  with
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended.  The  accounting  for changes in fair value of derivatives is dependent
upon the intended use of the derivative,  and such changes are recognized either
in net income or other  comprehensive  income.  As permitted  by the  transition
requirements of SFAS No. 133, as amended, the Company exempted from the scope of
SFAS No.  133 all host  contracts  containing  embedded  derivatives  which were
issued or acquired prior to January 1, 1999. See Note 15.

Note 3 - Accounts and notes receivable:
<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                    ------------------------
                                                                                    2002                2003
                                                                                   ------              ------
                                                                                         (In thousands)

<S>                                                                               <C>                <C>
Trade receivables                                                                 $47,152            $ 62,225
Insurance claims receivable                                                           147                   9
Recoverable VAT and other receivables                                               7,008               5,800
Allowance for doubtful accounts                                                      (989)             (1,469)
                                                                                  -------            --------

                                                                                  $53,318            $ 66,565
                                                                                  =======            ========
</TABLE>

Note 4 - Inventories:
<TABLE>
<CAPTION>

                                                                                           December 31,
                                                                                    ------------------------
                                                                                    2002                2003
                                                                                   ------              ------
                                                                                         (In thousands)

<S>                                                                                <C>                 <C>
Raw materials                                                                      $ 20,426            $ 13,424
Work in process                                                                      11,489              14,169
Finished products                                                                    41,471              57,267
Supplies                                                                             12,156              15,273
                                                                                   --------            --------

                                                                                   $ 85,542            $100,133
                                                                                   ========            ========
</TABLE>

Note 5 - Accounts payable and accrued liabilities:
<TABLE>
<CAPTION>

                                                                                           December 31,
                                                                                    ------------------------
                                                                                    2002                2003
                                                                                   ------              ------
                                                                                         (In thousands)

<S>                                                                               <C>                 <C>
Accounts payable                                                                  $28,118             $29,886
                                                                                  -------             -------
Accrued liabilities:
  Employee benefits                                                                10,152              13,180
  Waste acid recovery                                                               6,296               8,187
  Other                                                                             8,122               9,999
                                                                                  -------             -------

                                                                                   24,570              31,366
                                                                                  -------             -------

                                                                                  $52,688             $61,252
                                                                                  =======             =======
</TABLE>


Note 6 - Long-term debt:

     In June 2002 the Company and KII's  operating  subsidiaries  in Belgium and
Norway (Kronos Europe S.A./N.V.-"KEU",  Kronos Titan A/S - "TAS" and Titania A/S
- "TIA"),  referred to as the  "Borrowers",  entered into a three-year  (euro)80
million  secured  revolving  credit  facility  ("Credit  Facility").  The Credit
Facility is available in multiple currencies,  including U.S. dollars, euros and
Norwegian  kroner.  Borrowings bear interest at the applicable  interbank market
rate plus 1.75%. As of December 31, 2003, no amounts were outstanding  under the
Credit Facility.  At December 31, 2003,  (euro)77.5  million ($97.5 million) was
available for borrowing by the Borrowers.

     The Credit Facility is collateralized by accounts  receivable and inventory
of the  Borrowers,  plus a limited pledge of certain other assets of the Belgian
operating  subsidiary.  The Credit  Facility  contains,  among  others,  various
restrictive  covenants,  including restrictions on incurring liens, asset sales,
additional  financial  indebtedness,   mergers,  investments  and  acquisitions,
transactions   with   affiliates  and   dividends.   The  Company  and  KEU  are
unconditionally  jointly  and  severally  liable  for any  and  all  outstanding
borrowings under the Credit Facility.  The parent company of TAS and TIA, Kronos
Norge  A/S,  is  jointly  and  severally  liable  for any  and  all  outstanding
borrowings  under the Credit Facility to the extent  permitted by Norwegian law.
The Borrowers  have a (euro)5  million  sub-limit for issuing  letters of credit
with  (euro)2.5  million  letters of credit  issued at December  31,  2003.  The
Borrowers were in compliance with all the covenants as of December 31, 2003.

     Deferred  financing  costs of $1.4  million  for the Credit  Facility  ($.4
million  paid by the  Company,  with the  remaining  $1.0  million paid by KII's
Belgian and Norwegian operating  subsidiaries) are being amortized over the life
of the  Credit  Facility  and are  included  in other  noncurrent  assets  as of
December 31, 2003.

     In January 2004, the Company borrowed  (euro)40 million ($50 million,  when
borrowed)  under the Credit  Facility at an interest  rate of 3.86% and used the
proceeds to fund a $60 million  dividend to KII. In February  2004,  the Company
repaid the (euro)40 million  borrowing from proceeds  collected from KEU and TAS
in settlement of outstanding  intercompany  balances. KEU and TAS utilized funds
borrowed under the Credit Facility, (euro)26 million ($32 million when borrowed)
borrowed by KEU and (euro)14  million ($18  million when  borrowed)  borrowed by
TAS, to settle the outstanding intercompany balances.

     In June  2002,  KII issued  (euro)285  million  principal  amount of 8.875%
Senior  Secured Notes (the "Notes") due 2009.  The Notes are  collateralized  by
first  priority  liens on 65% of the common stock or other  equity  interests of
certain of KII's first-tier  subsidiaries,  including the Company. The Notes are
issued  pursuant  to an  indenture  which  contains  a number of  covenants  and
restrictions  which,  among other  things,  restricts the ability of KII and its
subsidiaries,  including the Company,  to incur debt,  incur liens,  or merge or
consolidate  with, or sell or transfer all or substantially  all of their assets
to, another entity.

Note 7 - Other noncurrent liabilities:
<TABLE>
<CAPTION>

                                                                                               December 31,
                                                                                        ------------------------
                                                                                        2002                2003
                                                                                       ------              ------
                                                                                              (In thousands)

<S>                                                                                   <C>                 <C>
Employee benefits                                                                     $ 3,286             $ 3,962
Insurance claims expense                                                                  813               1,112
Other                                                                                   7,135               6,456
                                                                                      -------             -------

                                                                                      $11,234             $11,530
                                                                                      =======             =======
</TABLE>


Note 8 - Employee benefit plans:

     Company-sponsored  pension plans.  The Company  maintains a defined benefit
pension plan and certain other benefits covering substantially all employees.

     Certain actuarial assumptions used in measuring the defined benefit pension
assets,  liabilities  and  expenses  are  presented  below.  The Company  uses a
September 30th measurement date for their defined benefit pension plans.

     The  weighted-average  rate  assumptions  used in determining the actuarial
present  value of  benefit  obligations  as of  December  31,  2002 and 2003 are
presented in the table below. Such weighted-average  rates were determined using
the projected benefit obligations at each date.

<TABLE>
<CAPTION>

                                                                                               December 31,
                                                                                           -------------------
                                           Rate                                             2002          2003
                                          ------                                           ------       ------

<S>                                                                                         <C>           <C>
Discount rate                                                                               5.5%          5.3%
Increase in future compensation levels                                                      2.5%          2.8%
</TABLE>

     The weighted-average  rate assumptions used in determining the net periodic
pension  cost for 2001,  2002 and 2003 are  presented  in the table  below.  The
weighted-average  discount  rate and the  weighted-average  increase  in  future
compensation  levels were determined using the projected benefit  obligations at
the beginning of each year, and the  weighted-average  long-term  return on plan
assets was  determined  using the fair value of plan assets at the  beginning of
each year.
<TABLE>
<CAPTION>

                                                                                      Years ended December 31,
                                                                                  -------------------------------
                                                                                  2001         2002          2003
                                                                                 -----        -----         -----
                                     Rate
                                    ------
<S>                                                                               <C>          <C>           <C>
  Discount rate                                                                   5.8%         5.5%          5.3%
  Increase in future compensation levels                                          2.8%         2.5%          2.8%
  Long-term return on plan assets                                                 7.3%         6.8%          6.5%
</TABLE>

     Plan assets are comprised  primarily of investments in corporate equity and
debt  securities,   short-term  investments,  mutual  funds  and  group  annuity
contracts.

     SFAS No. 87,  "Employers'  Accounting for Pension  Costs"  requires that an
additional pension liability be recognized when the unfunded accumulated pension
benefit  obligation   exceeds  the  unfunded  accrued  pension  liability.   The
accumulated benefit obligation of the Company's defined benefit pension plan was
$177.3  million at December  31, 2003 (2002 - $141.4  million).  Variances  from
actuarially assumed rates will change the actuarial valuation of accrued pension
liabilities, pension expense and funding requirements in future periods.

     The  components of the net periodic  defined  benefit  pension cost are set
forth below.
<TABLE>
<CAPTION>

                                                                               Years ended December 31,
                                                                       --------------------------------------
                                                                         2001            2002            2003
                                                                       -------         -------         -------
                                                                                    (In thousands)

Net periodic pension cost:
<S>                                                                     <C>            <C>             <C>
  Service cost benefits                                                 $ 1,924        $ 2,120         $ 2,621
  Interest cost on projected benefit
   obligation ("PBO")                                                     7,877          8,353           9,354
  Expected return on plan assets                                         (7,396)        (8,210)         (8,831)
  Amortization of net transition obligation                                 201            210             251
  Recognized actuarial losses                                                 -            329              20
                                                                        -------        -------         -------

                                                                        $ 2,606        $ 2,802         $ 3,415
                                                                        =======        =======         =======
</TABLE>

     The funded  status of the  Company's  defined  benefit  pension plan is set
forth below.
<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                   --------------------------
                                                                                    2002                2003
                                                                                   -----               ------
                                                                                         (In thousands)

Change in PBO:
<S>                                                                             <C>                  <C>
  Beginning of year                                                             $ 139,472            $ 160,871
  Service cost                                                                      2,120                2,621
  Interest                                                                          8,353                9,354
  Participant contributions                                                           904                1,156
  Plan amendments                                                                       -                3,200
  Actuarial losses (gains)                                                         (5,885)               6,398
  Benefits paid                                                                    (9,115)             (10,947)
  Change in currency exchange rates                                                25,022               32,787
                                                                                ---------            ---------

    End of year                                                                 $ 160,871            $ 205,440
                                                                                ---------            ---------

Change in fair value of plan assets:
  Beginning of year                                                             $  98,704            $ 112,674
  Actual return on plan assets                                                     (1,274)             (15,643)
  Employer contributions                                                            5,547                8,919
  Participant contributions                                                           904                1,156
  Benefits paid                                                                    (9,115)             (10,947)
  Change in currency exchange rates                                                17,908               20,116
                                                                                ---------            ---------

    End of year                                                                 $ 112,674            $ 116,275
                                                                                ---------            ---------

Funded status at year end:
  Plan assets less than PBO                                                     $ (48,197)           $ (89,165)
  Unrecognized actuarial loss                                                      28,522               68,627
  Unrecognized prior service cost                                                       -                3,566
  Unrecognized net transition obligation                                              292                   70
                                                                                ---------            ---------

                                                                                $ (19,383)           $ (16,902)
                                                                                =========            =========


Amounts recognized in the balance sheet:
  Accrued pension cost:
    Current                                                                     $  (6,189)           $  (7,878)
    Noncurrent                                                                    (20,709)             (50,826)
  Unrecognized net pension obligations                                                292                3,636
  Accumulated other comprehensive loss                                              7,223               38,166
                                                                                ---------            ---------

                                                                                $ (19,383)           $ (16,902)
                                                                                =========            =========
</TABLE>

     At December 31,  2003,  the Company  currently  expects to  contribute  the
equivalent of  approximately  $2.6 million to its defined  benefit  pension plan
during 2004.

Note 9 - Other items:

     Advertising  costs are expensed as incurred and were $.3 million in each of
2001, 2002 and 2003.

     Interest  capitalized in connection with long-term capital projects was nil
in each of 2001, 2002 and 2003.

Note 10 - Income taxes:

     The components of (i) the difference between the provision for income taxes
attributable  to pretax income and the amounts that would be expected  using the
German  statutory  corporation  tax rate of 25%,  (ii) the  provision for income
taxes and (iii) the comprehensive tax provision are presented below.
<TABLE>
<CAPTION>

                                                                               Years ended December 31,
                                                                       --------------------------------------
                                                                         2001            2002            2003
                                                                       -------         -------         -------
                                                                                    (In thousands)

<S>                                                                      <C>             <C>           <C>
Pretax income                                                         $ 86,552        $ 25,736       $  64,871
                                                                      ========        ========       =========

Expected tax expense                                                  $ 21,638        $  6,434       $  16,218
Trade income tax                                                        12,825           2,561          11,365
German tax refund                                                            -               -        (123,033)
Organschaft adjustment                                                       -               -         (94,079)
Change in valuation allowance:
  Increase (decrease) in certain deductible
   temporary differences that the Company
   believes do not meet the "more-likely-
   than-not" recognition criteria                                       (1,808)              -               -
   Recognition of certain deductible tax
    attributes which previously did not meet
    the "more-likely-than-not" recognition
    criteria                                                           (11,535)              -               -
No corporation tax provision due to partnership structure              (21,638)         (6,434)        (16,218)
Other, net                                                               1,263             745              77
                                                                      --------        --------       ---------

    Income tax expense (benefit)                                      $    745        $  3,306       $(205,670)
                                                                      ========        ========       =========

Provision for income taxes:
  Current income tax expense (benefit)                                 $ 7,018        $    431        (165,900)
  Deferred income tax expense (benefit)                                 (6,273)          2,875         (39,770)
                                                                      --------        --------       ---------

                                                                      $    745        $  3,306       $(205,670)
                                                                      ========        ========       =========

Comprehensive provision (benefit) for income
 taxes allocable to:
  Pretax income                                                       $    745        $  3,306       $(205,670)
  Other comprehensive loss - pension
   liabilities                                                            (627)           (732)         (5,331)
                                                                      --------        --------       ---------

                                                                      $    118        $  2,574       $(211,001)
                                                                      ========        ========       =========
</TABLE>



     The components of the net deferred tax liability are summarized below.
<TABLE>
<CAPTION>

                                                                                         December 31,
                                                                  -------------------------------------------------------
                                                                            2002                           2003
                                                                  -------------------------     -------------------------
                                                                   Assets       Liabilities      Assets       Liabilities
                                                                  --------     -------------    --------     -------------
Tax effect of temporary differences
 relating to:
<S>                                                                <C>           <C>            <C>           <C>
  Inventories                                                      $     -       $   (765)      $     -       $  (1,407)
  Property and equipment                                               680        (22,829)       38,400               -
  Accrued (prepaid) pension cost                                         -         (6,189)        6,690         (22,716)
  Other taxable differences                                              -         (1,840)            -          (2,880)
Tax loss and tax credit carryforwards                               10,184              -           338               -
                                                                   -------       --------       -------       ---------

  Gross deferred tax assets (liabilities)                           10,864        (31,623)       45,428         (27,003)

Reclassification, principally netting by tax jurisdiction          (10,864)        10,864       (25,596)         25,596
                                                                   -------       --------       -------       ---------

  Net total deferred tax liabilities                                     -        (20,759)       19,832          (1,407)
  Net current deferred tax liabilities                                   -           (765)            -          (1,407)
                                                                   -------       --------       -------       ---------

  Net noncurrent deferred tax liabilities                          $     -       $(19,994)      $19,832       $       -
                                                                   =======       ========       =======       =========

</TABLE>

     Changes in the  Company's  deferred  income  tax  valuation  allowance  are
summarized below.
<TABLE>
<CAPTION>

                                                                                                    Year ended
                                                                                                 December 31, 2001
                                                                                                -------------------

<S>                                                                                                <C>
Balance at beginning of year                                                                       $14,018
Increase (decrease) in certain deductible tax attributes which the Company believes do not
    meet the "more-likely-than-not" recognition criteria                                            (1,808)
Recognition of certain deductible tax attributes which  previously did not meet the
    "more-likely-than-not"  recognition criteria                                                   (11,535)
Foreign currency translation                                                                          (675)
                                                                                                  --------

Balance at end of year                                                                            $      -
                                                                                                  ========
</TABLE>

     Certain of the Company's tax returns are being  examined and the German tax
authorities may propose tax deficiencies, including penalties and interest.

     No assurance  can be given that the Company's tax matters will be favorably
resolved  due  to  the  inherent   uncertainties   involved  in  court  and  tax
proceedings.  The Company  believes that it has provided  adequate  accruals for
additional taxes and related  interest expense which may ultimately  result from
all such  examinations  and  believes  that  the  ultimate  disposition  of such
examinations  should  not  have a  material  adverse  effect  on  the  Company's
consolidated financial position, results of operations or liquidity.

     During 2001,  2002 and 2003, the Company's legal form was as a partnership.
As a partnership,  the Company is not subject to corporation  tax,  although the
Company is subject to trade income tax. Effective December 31, 2003, the Company
was  converted  to a limited  liability  company and will also be subject to the
German corporation tax in years following 2003. As a result of the conversion of
the Company from a partnership,  the Company  recognized net deferred income tax
assets  of  approximately  $52  million  related  to  the  expected  future  tax
consequences  of  temporary  differences  between the  corporate  income tax and
financial reporting carrying amounts of its assets and liabilities.

     During  2001,  the Company  recognized  a $11.5  million  trade  income tax
benefit attributable to a decrease in the valuation allowance due to a change in
estimate of the  Company's  ability to utilize  certain  German trade income tax
attributes that did not previously meet the  "more-likely-than-not"  recognition
criteria.

     In the first  quarter  of 2003,  the  Company  was  notified  by the German
Federal  Fiscal Court (the  "Court")  that the Court had ruled in the  Company's
favor  concerning a claim for refund suit in which the Company sought refunds of
prior taxes paid during the periods 1990 through 1997.  The Company was required
to file amended tax returns with the German tax  authorities in order to receive
its refunds for such years,  and all of such  amended  returns were filed during
2003.  Such amended returns  reflected an aggregate  refund of taxes and related
interest to the Company of (euro)103.2 million ($123.0 million).  The German tax
authorities  have  reviewed and accepted the amended  return with respect to the
1990 tax year, and in February 2004 the Company received  interest of (euro)16.8
million  ($19.2  million).  The Company  believes it will receive the refunds of
taxes and related  interest for the remaining years during 2004. The Company has
recognized the aggregate  (euro)103.2  million ($123.0  million) benefit of such
refunds in its 2003 results of  operations,  comprised of (euro)63.1  million of
tax and (euro)40.1  million of interest.  KII will be required to pay additional
income taxes to the German tax  authorities in connection  with the 1990 to 1997
amended returns.  As a result of the court ruling that allowed  Organschaft (tax
consolidation)  tax treatment,  certain  intercompany  tax balances  between the
Company and KII were adjusted to reflect the corrected  intercompany tax balance
and such  adjustment  resulted in the Company  recognizing a (euro)36.2  million
($43.1 million) non-cash income tax benefit in 2003.

     Pursuant  to  the  Company's  conversion  to a  limited  liability  company
effective  December 31, 2003, the Company will be included in KII's  Organschaft
effective January 1, 2004.

Note 11 - Leverkusen fire and insurance claim:

     A fire on March 20,  2001  damaged a section of the  Company's  Leverkusen,
Germany 35,000 metric ton sulfate-process TiO2 plant ("Sulfate Plant") and, as a
result,  production of TiO2 at the Leverkusen  facility was halted. The fire did
not enter the Company's adjacent 125,000 metric ton chloride-process  TiO2 plant
("Chloride  Plant"),  but did damage  certain  support  equipment  necessary  to
operate that plant. The damage to the support equipment  resulted in a temporary
shutdown of the Chloride Plant.

     On  April  8,  2001,   repairs  to  the  damaged  support   equipment  were
substantially  completed and full production  resumed at the Chloride Plant. The
Sulfate Plant became  approximately 50% operational in September 2001 and became
fully operational in late October 2001. The damages to property and the business
interruption losses caused by the fire were covered by insurance as noted below,
but the effect on the financial  results of the Company on a  quarter-to-quarter
basis was impacted by the timing and amount of insurance recoveries.

     The Company  reached an agreement and settled its insurance claim involving
the  Leverkusen  fire for $56.4 million during the fourth quarter of 2001 ($46.9
million  received as of December  31,  2001,  with the  remaining  $9.5  million
received  in  January  2002),   of  which  $27.3  million  related  to  business
interruption  and $29.1 million related to property  damage,  clean-up costs and
other extra  expenses.  The Company  recognized a $17.5 million  pre-tax gain in
2001 related to the property  damage  recovery after  deducting $11.6 million of
clean-up  costs and other extra  expenses  incurred  and the  carrying  value of
assets  destroyed in the fire. The gain was excluded from the  determination  of
operating income. The $27.3 million of business interruption proceeds recognized
in 2001 were allocated between other income, excluding corporate, which reflects
recovery of lost margin  ($7.2  million)  and as a reduction of cost of sales to
offset unallocated period costs ($20.1 million).

Note 12 - Related party transactions:

     The  Company  may  be  deemed  to  be  controlled  by  Harold  C.  Simmons.
Corporations  that may be  deemed to be  controlled  by or  affiliated  with Mr.
Simmons sometimes engage in (a) intercorporate  transactions such as guarantees,
management  and  expense  sharing  arrangements,  shared fee  arrangements,  tax
sharing agreements,  joint ventures,  partnerships,  loans, options, advances of
funds on open  account,  and sales,  leases and  exchanges of assets,  including
securities  issued  by  both  related  and  unrelated  parties  and  (b)  common
investment and acquisition strategies,  business combinations,  reorganizations,
recapitalizations,  securities  repurchases,  and purchases and sales (and other
acquisitions  and  dispositions)  of  subsidiaries,  divisions or other business
units,  which  transactions have involved both related and unrelated parties and
have included  transactions  which  resulted in the  acquisition  by one related
party of a publicly  held minority  equity  interest in another  related  party.
While no  transactions  of the type described above are planned or proposed with
respect to the Company  other than as set forth in these  financial  statements,
the Company from time to time considers, reviews and evaluates such transactions
and  understands  that Contran,  Valhi,  NL,  Kronos,  KII and related  entities
consider,  review and evaluate, such transactions.  Depending upon the business,
tax  and  other  objectives  then  relevant,  and  restrictions  under  the  KII
indenture,  the Credit  Facility and other  agreements,  it is possible that the
Company might be a party to one or more such transactions in the future.

     The Company is a party to a cost sharing  agreement  with  Kronos,  KII and
KEU,  whereby  Kronos,  KII  and  KEU  provide  certain  management,  financial,
insurance  and  administrative  services  to the  Company  on a fee  basis.  The
Company's expense was  approximately  $3.6 million in 2001, $5.7 million in 2002
and $7.1 million in 2003.

     The Company  charges  affiliates  for  certain  management,  financial  and
administrative  services costs, which totaled  approximately $5.3 million,  $3.4
million and $4.3 million in 2001, 2002 and 2003, respectively.  These charges to
affiliates  were  reflected  primarily  as a reduction  of selling,  general and
administrative expense.

     The Company is also party to master global insurance coverage policies with
NL with regard to property,  business interruption,  excess liability, and other
coverages. Tall Pines, Valmont Insurance Company and EWI RE, Inc. provide for or
broker certain  insurance  policies for Contran and certain of its  subsidiaries
and  affiliates,  including  NL  and  the  Company.  Valmont  is a  wholly-owned
subsidiary of Valhi, and EWI is a wholly-owned subsidiary of NL. Consistent with
insurance industry  practices,  Tall Pines,  Valmont and EWI receive commissions
from the  insurance  and  reinsurance  underwriters  for the policies  that they
provide or broker. In the Company's  opinion,  the amounts that the Company paid
for these insurance  policies and the allocation  among NL and its affiliates of
relative  insurance premiums are reasonable and similar to those they could have
obtained  through  unrelated  insurance  companies  and/or  brokers.  The  costs
associated with these policies  aggregated  $6.0 million,  $5.6 million and $4.1
million in 2001, 2002 and 2003, respectively.

     Contran and  certain of its  subsidiaries  and  affiliates,  including  the
Company, purchase certain of their insurance policies as a group, with the costs
of  the  jointly-owned   policies  being  apportioned  among  the  participating
companies.  With  respect to  certain  of such  policies,  it is  possible  that
unusually  large losses  incurred by one or more insureds  during a given policy
period could leave the other  participating  companies without adequate coverage
under that policy for the balance of the policy period. As a result, Contran and
certain of its subsidiaries and its affiliates,  including NL, have entered into
a loss  sharing  agreement  under  which any  uninsured  loss is shared by those
entities  who have  submitted  claims  under the  relevant  policy.  The Company
believes  the  benefits in the form of reduced  premiums  and  broader  coverage
associated  with  the  group  coverage  for  such  policies  justifies  the risk
associated with the potential for uninsured loss.

     The Company purchases from and sells to its affiliates a significant amount
of  TiO2.  Intercompany  sales  to  (purchases  from)  affiliates  of  TiO2  are
summarized in the following table.
<TABLE>
<CAPTION>

                                                                                 Years ended December 31,
                                                                          --------------------------------------
                                                                           2001             2002            2003
                                                                          ------           ------          ------
                                                                                      (In thousands)

Sales to:
<S>                 <C>                                                   <C>              <C>             <C>
  Kronos (US), Inc. ("KUS")                                               $ 19,821         $ 24,511        $ 37,550
  Societe Industrielle du Titane, S.A. ("SIT")                              26,202           23,681          32,969
  KEU                                                                       22,345           19,141          22,417
  Kronos Limited ("KUK")                                                    14,887           16,864          22,151
  Kronos Canada, Inc. ("KC")                                                 4,638            4,494           5,026
  Other affiliates                                                           9,274           10,564          29,200
                                                                          --------         --------        --------

                                                                          $ 97,167         $ 99,255        $149,313
                                                                          ========         ========        ========

Purchases from:
  KEU                                                                     $ 34,346         $ 26,868        $ 33,061
  TAS                                                                        8,497            3,209           5,722
  KC                                                                            85             -               -
                                                                          --------         --------        --------

                                                                          $ 42,928         $ 30,077        $ 38,783
                                                                          ========         ========        ========
</TABLE>

     KUS purchases the rutile and slag  feedstock  used as a raw material in the
Company's  chloride process TiO2 facility.  The Company purchases such feedstock
from KUS for use in its  facility  for an amount equal to the amount paid by KUS
to the  third-party  supplier plus a 2.5%  administrative  fee.  Such  feedstock
purchases were $59.5 million in 2001, $64.3 million in 2002 and $56.2 million in
2003.

     The Company sells water treatment  chemicals  (derived from  co-products of
the TiO2 production  processes) to KII. Such water treatment chemical sales were
$7.1 million in 2001, $8.4 million in 2002 and $12.8 million in 2003.

     The Company was party to a long-term  ilmenite supply contract with TIA, an
affiliate,  that  provided  for the  Company's  sulfate  feedstock  requirements
through December 31, 2001. Subsequent to December 31, 2001, the Company purchase
ilmenite from TIA on a year-to-year  basis.  Such feedstock  purchases were $7.3
million in 2001, $13.4 million in 2002 and $15.5 million in 2003.

     At  January  1,  2001,  the  Company  was party to an  accounts  receivable
factoring  agreement with KII pursuant to which the Company  factored its export
accounts  receivable  without  recourse  to KII for a fee of  0.85%.  KII,  upon
non-recourse  transfer  from the  Company,  assumed all risk  pertaining  to the
factored  receivables,  including,  but not limited to, exchange  control risks,
risks  pertaining  to the  bankruptcy  of a customer  and risks  related to late
payments.

     Effective June 2002, this factoring  agreement was terminated,  and certain
European  affiliates of the Company  commenced  factoring  their export accounts
receivables  to the Company on similar  terms.  Export  receivables  sold to KII
during 2001 and 2002 aggregated $151 million and $59 million,  respectively, and
export receivables  purchased by the Company during 2002 and 2003 aggregated $60
million and $108 million, respectively.

     Net  amounts   currently   receivable  from  (payable  to)  affiliates  are
summarized in the following table.
<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                   --------------------------
                                                                                    2002                2003
                                                                                   ------              ------
                                                                                         (In thousands)

Receivable from:
<S>                                                                                  <C>              <C>
  KUK                                                                                $     91         $    886
  TAS                                                                                   5,932           15,533
  SIT                                                                                     987                -
  KEU                                                                                   8,934           32,342
  Kronos B.V.                                                                           1,546                -
  KII                                                                                       -           31,974
  Other affiliates                                                                      1,333            1,431
                                                                                     --------         --------

                                                                                     $ 18,823         $ 82,166
                                                                                     ========         ========

Payable to:
  KII                                                                                $ 27,914            $   -
  KUS                                                                                  13,857            5,856
  TIA                                                                                   2,311            6,631
  Kronos B.V.                                                                               -            8,609
  SIT                                                                                    -                 589
                                                                                     --------         --------

                                                                                     $ 44,082         $ 21,685
                                                                                     ========         ========
</TABLE>

     Such amounts  receivable from affiliates were generally  related to product
sales (including water treatment  chemical sales to KII) and services  rendered.
Amounts  payable to  affiliates,  net were  related  primarily  to raw  material
purchases, accounts receivable factoring and services received.

     The noncurrent  euro-denominated  note payable to KII was established prior
to 2001 during a recapitalization  of the Company.  The note payable ((euro)71.8
million,  or $74.8  million and $89.7  million,  at December  31, 2002 and 2003,
respectively)  bore interest  through 2002 at EURIBOR plus 1% (4.30% at December
31, 2002) and is due in 2008.

     Interest expense to affiliates  related to the note payable to KII was $7.2
million in 2001,  $3.7  million in 2002 and nil in 2003.  Interest  income  from
affiliates  related to a note  receivable from KEU, repaid in June 2002, was $.5
million in 2001 and $.6 million in 2002.  Included in other affiliate income and
other affiliate expense was other affiliate interest  income/expense,  factoring
fees and service fees.

Note 13 - NL common stock options held by employees of the Company:

     At December  31,  2003,  employees  of the Company held options to purchase
approximately  18,000 shares of NL common stock,  of which 8,000 were granted in
2000 and are  exercisable  at various dates through 2010 at an exercise price of
$5.63 per share,  and 10,000 were granted in 2001 and are exercisable at various
dates through 2011 at an exercise price of $11.49 per share.

     The  pro  forma  information  required  by  SFAS  No.  123 is  based  on an
estimation  of the fair value of options  issued  subsequent to January 1, 1995.
See Note 2. The fair value of options  granted  during  2001 (none were  granted
during  2002 or 2003) was $7.52 per  share.  The fair  value of  employee  stock
options was calculated using the Black-Scholes stock option valuation model with
the  following  weighted  average  assumptions  for grants in 2001:  stock price
volatility of 46%;  risk-free rate of return of 5%;  dividend yield of 4.0%; and
an  expected  term of 9  years.  For  purposes  of pro  forma  disclosures,  the
estimated  fair value of the options is  amortized  to expense over the options'
vesting period.

Note 14 - Commitments and contingencies:

     Leases.  The  Company  leases,   pursuant  to  operating  leases,   various
manufacturing and office space and transportation  equipment. Most of the leases
contain  purchase  and/or  various term renewal  options at fair market and fair
rental  values,  respectively.  In most cases  management  expects  that, in the
normal course of business, leases will be renewed or replaced by other leases.

     The Company leases the land under its Leverkusen TiO2  production  facility
pursuant  to  a  lease  expiring  in  2050.  The   Leverkusen   facility,   with
approximately  two-thirds of the Company's current TiO2 production capacity,  is
located  within  the  lessor's  extensive  manufacturing  complex.  Rent for the
Leverkusen facility is periodically established by agreement with the lessor for
periods of at least two years at a time. Under a separate  supplies and services
agreement  expiring  2011,  the lessor  provides some raw  materials,  including
chlorine and certain amounts of sulfuric acid, auxiliary and operating materials
and  utilities  services  necessary to operate the  Leverkusen  facility  with a
minimum  annual  cost of  approximately  $10.9  million.  Both the lease and the
supplies and services  agreements  restrict  the  Company's  ability to transfer
ownership or use of the Leverkusen facility.

     Net rent  expense  aggregated  $4  million  in each of 2001 and 2002 and $5
million in 2003.  At December 31, 2003,  minimum  rental  commitments  under the
terms of noncancellable operating leases were as follows:
<TABLE>
<CAPTION>

                                                                                        Amount
                                                                                 ---------------------
                                                                                    (in thousands)

Years ending December 31,
<S> <C>                                                                                <C>
    2004                                                                               $ 2,023
    2005                                                                                 1,517
    2006                                                                                 1,046
    2007                                                                                   968
    2008                                                                                   923
    2009 and thereafter                                                                 19,824
                                                                                       -------

                                                                                       $26,301
                                                                                       =======
</TABLE>

     Capital  expenditures.  At December 31, 2003 the estimated cost to
complete capital projects in process approximated $3.7 million.

     Purchase  commitments.  KUS has long-term supply contracts that provide for
certain affiliates'  chloride feedstock  requirements  through 2007. The Company
purchases  chloride  feedstock  underlying these long-term supply contracts from
KUS.  The  agreements  require KUS to purchase  certain  minimum  quantities  of
feedstock  with  average   minimum  annual  purchase   commitments   aggregating
approximately $165 million.

     Environmental,  product  liability and  litigation  matters.  The Company's
operations are governed by various  environmental laws and regulations.  Certain
of the  Company's  businesses  are  and  have  been  engaged  in  the  handling,
manufacture  or use of substances or compounds  that may be considered  toxic or
hazardous  within the meaning of  applicable  environmental  laws. As with other
companies engaged in similar businesses, certain past and current operations and
products of the  Company  have the  potential  to cause  environmental  or other
damage.  The Company has implemented and continues to implement various policies
and programs in an effort to minimize these risks.  The policy of the Company is
to maintain compliance with applicable environmental laws and regulations at all
of its facilities and to strive to improve its environmental performance.  It is
possible   that  future   developments,   such  as  stricter   requirements   of
environmental laws and enforcement policies  thereunder,  could adversely affect
the  Company's  production,  handling,  use,  storage,  transportation,  sale or
disposal of such  substances  as well as the  Company's  consolidated  financial
position, results of operations or liquidity.

     The Company's production facilities operate in an environmental  regulatory
framework  in  which  governmental   authorities  typically  are  granted  broad
discretionary powers that allow them to issue operating permits required for the
plants to operate.  The Company  believes  all of its plants are in  substantial
compliance  with  applicable  environmental  laws.  Neither  the Company nor its
subsidiary  have been  notified of any  environmental  claims by any  applicable
federal or local environmental authority.

     Germany  is a member of the  European  Union  (the  "EU") and  follows  its
initiatives.  The Company  believes  that it has all required  permits and is in
substantial  compliance with applicable EU requirements,  including EU Directive
92/112/EEC  regarding  establishment  of  procedures  for reduction and eventual
elimination of pollution caused by waste from the TiO2 industry.

     The Company has a contract  with a third party to treat spent acid from its
sulfate-process  plants. With regard to the Company's Nordenham,  Germany plant,
either party may terminate the contract after giving four years advance  notice.
Under certain circumstances, the Company may terminate the contract after giving
six months notice, with respect to treatment of by-products from the Leverkusen,
Germany  plant.  The  estimated  minimum  annual  cost  under the  agreement  is
approximately (euro)13 million ($15 million).

     The Company is also involved in various other  environmental,  contractual,
product liability and other claims and disputes incidental to its business.

     The Company currently  believes the disposition of all claims and disputes,
individually or in the aggregate,  should not have a material  adverse effect on
the  Company's  consolidated  financial  condition,  results  of  operations  or
liquidity.

     Concentrations  of credit risk.  Sales of TiO2 accounted for  approximately
98% of net sales during each of 2001,  2002 and 2003. The remaining sales result
from the manufacture and sale of iron-based water treatment  chemicals  (derived
from  co-products of the TiO2 production  processes).  TiO2 is generally sold to
the paint,  plastics and paper, as well as fibers,  rubber,  ceramics,  inks and
cosmetics  markets.  Such  markets are  generally  considered  "quality-of-life"
markets whose demand for TiO2 is influenced by the relative economic  well-being
of the various geographic  regions.  TiO2 is sold to over 1,000 customers,  with
the top ten external customers approximating 18% of net sales in 2001 and 20% of
net  sales in each of 2002 and 2003.  Approximately  75% of the  Company's  TiO2
sales by volume  were to Europe  in each of 2001 and 2002  decreasing  to 68% in
2003.  Approximately  6% in 2001,  8% in 2002 and 12% in 2003 of sales by volume
were to North America.

Note 15 - Financial instruments:

     Summarized below is the estimated fair value and related net carrying value
of the Company's financial instruments.
<TABLE>
<CAPTION>

                                                                           December 31,
                                                   -----------------------------------------------------------
                                                              2002                              2003
                                                   -----------------------          --------------------------
                                                    Carrying          Fair           Carrying            Fair
                                                     amount           value           amount            value
                                                   ---------      ---------         ---------         --------
                                                                           (In millions)

<S>                                                <C>             <C>                   <C>              <C>
Cash and cash equivalents                          $ 7.8           $ 7.8                 $30.9            $30.9

Note payable to KII                                 74.8            74.8                  89.7             89.7
</TABLE>

     The Company  periodically uses currency forward contracts to manage foreign
exchange rate risk associated  with  anticipated  transactions  denominated in a
currency other than the euro.  The Company has not entered into these  contracts
for trading or speculative  purposes in the past, nor does the Company currently
anticipate  entering into such contracts for trading or speculative  purposes in
the future.  To manage such exchange rate risk, at December 31, 2003 the Company
held a contract maturing on January 2, 2004 to exchange an aggregate of (euro)40
million for an equivalent  amount of U.S. dollars at an exchange rate of $1.2496
U.S.  dollars per euro. At December 31, 2003, the actual exchange rate was equal
to the  contract  rate.  The  contract  was  closed  on  January  2,  2004 at an
immaterial loss.

     The Company periodically uses interest rate swaps, currency swaps and other
types of  contracts  to manage  interest  rate and  foreign  exchange  risk with
respect to  financial  assets or  liabilities.  The Company has not entered into
these  contracts for trading or  speculative  purposes in the past,  nor does it
currently  anticipate doing so in the future. The Company was not a party to any
such contracts during 2001, 2002 and 2003.

     Other than as described  above, the Company was not a party to any material
derivative financial  instruments during 2001, 2002 or 2003. There was no impact
on the Company's financial statements from adopting SFAS No. 133.

Note 16 - Quarterly financial data (unaudited):
<TABLE>
<CAPTION>

                                                                         Quarters ended
                                                --------------------------------------------------------------
                                                March 31          June 30           Sept. 30           Dec. 31
                                                --------         --------           --------           --------
                                                                         (In thousands)
Year ended December 31, 2002:
<S>                                            <C>               <C>               <C>               <C>
    Net sales                                  $ 96,699          $ 96,083          $101,362          $  90,217
    Cost of sales                                81,778            84,133            81,000             76,395
    Income from operations                        7,005             4,817            12,049              2,862
    Income before income taxes                    5,995             4,516            12,434              2,791
    Net income                                    7,192             2,577            10,039              2,622

Year ended December 31, 2003:
    Net sales                                  $120,327          $124,550          $120,461           $121,999
    Cost of sales                                94,557            98,905            91,944             93,781
    Income from operations                       15,271            13,807            18,162             14,076
    Income before income taxes                   15,872            14,319            19,117             15,563
    Net income                                   13,590            11,890            15,715            229,346
</TABLE>



<PAGE>






                       KRONOS DENMARK APS AND SUBSIDIARIES

                   Index of Consolidated Financial Statements
                   ------------------------------------------


Financial Statements                                                    Pages
--------------------                                                    -----


Report of Independent Auditors                                          FB-2


Consolidated Balance Sheets - December 31, 2002 and 2003                FB-3


Consolidated Statements of Income - Years ended
  December 31, 2001, 2002 and 2003                                      FB-5


Consolidated Statements of Comprehensive Income - Years ended
  December 31, 2001, 2002 and 2003                                      FB-6


Consolidated Statements of Stockholder's Equity - Years ended
  December 31, 2001, 2002 and 2003                                      FB-7


Consolidated Statements of Cash Flows - Years ended
  December 31, 2001, 2002 and 2003                                      FB-8


Notes to Consolidated Financial Statements                              FB-10











                         REPORT OF INDEPENDENT AUDITORS



To the Board of Directors and Stockholder of Kronos Denmark ApS:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements of income,  comprehensive income,  stockholder's equity
and cash flows present fairly, in all material respects,  the financial position
of Kronos  Denmark ApS and  Subsidiaries  at December 31, 2002 and 2003, and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2003 in  conformity  with  accounting  principles
generally accepted in the United States of America.  These financial  statements
are the  responsibility of the Company's  management;  our  responsibility is to
express  an  opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.





PricewaterhouseCoopers LLP
Dallas, Texas

March 5, 2004




                       KRONOS DENMARK APS AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2002 and 2003

                        (In thousands, except share data)
<TABLE>
<CAPTION>

         ASSETS                                                                2002            2003
                                                                              -----           -----

Current assets:
<S>                                                                         <C>             <C>
    Cash and cash equivalents                                               $  2,913        $  4,681
    Restricted cash                                                            1,226           1,313
    Accounts and notes receivable                                             14,075          15,605
    Receivable from affiliates                                                 2,327           1,987
    Refundable income taxes                                                    1,310             587
    Inventories                                                               56,232          66,156
    Prepaid expenses                                                             916             834
    Deferred income taxes                                                         16              26
                                                                            --------        --------

        Total current assets                                                  79,015          91,189
                                                                            --------        --------


Other assets:
    Prepaid pension cost                                                      17,572            -
    Other                                                                      3,362           7,387
                                                                            --------        --------

        Total other assets                                                    20,934           7,387
                                                                            --------        --------


Property and equipment:
    Land                                                                      14,385          17,568
    Buildings                                                                 32,151          37,025
    Machinery and equipment                                                  145,354         168,549
    Mining properties                                                         65,296          63,700
    Construction in progress                                                     595             237
                                                                            --------        --------

                                                                             257,781         287,079
    Less accumulated depreciation and amortization                           153,376         171,338
                                                                            --------        --------

        Net property and equipment                                           104,405         115,741
                                                                            --------        --------

                                                                            $204,354        $214,317
                                                                            ========        ========
</TABLE>


See accompanying notes to consolidated financial statements.


                       KRONOS DENMARK APS AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2002 and 2003

                        (In thousands, except share data)
<TABLE>
<CAPTION>


         LIABILITIES AND STOCKHOLDER'S EQUITY                                      2002               2003

Current liabilities:
<S>                                                                            <C>                <C>
    Current maturities of long-term debt                                       $   1,298          $     288
    Accounts payable and accrued liabilities                                      31,500             31,536
    Payable to affiliates                                                         25,393             39,661
    Income taxes                                                                   4,842              5,411
    Deferred income taxes                                                          1,498              2,030
                                                                               ---------          ---------

        Total current liabilities                                                 64,531             78,926
                                                                               ---------          ---------

Noncurrent liabilities:
    Long-term debt                                                                27,666                315
    Deferred income taxes                                                         29,694             23,320
    Accrued pension costs                                                           -                 1,191
    Other                                                                            884              1,555
                                                                               ---------          ---------

        Total noncurrent liabilities                                              58,244             26,381
                                                                               ---------          ---------

Stockholder's equity:
    Common stock - 100 Danish kroner par value;
     10,000 shares authorized; 10,000 shares issued                                  136                136
Additional paid-in capital                                                       216,996            216,996
Accumulated deficit                                                             (120,351)           (93,459)
Accumulated other comprehensive loss:
Currency translation adjustment                                                  (15,202)            (4,204)
Minimum pension liability                                                           -               (10,459)
                                                                               ---------          ---------

Total stockholder's equity                                                        81,579            109,010
                                                                               ---------          ---------

                                                                               $ 204,354          $ 214,317
                                                                               =========          =========
</TABLE>

Commitments and contingencies (Notes 7, 11 and 14)





                       KRONOS DENMARK APS AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                     2001             2002             2003
                                                                    -----            -----            ------

<S>                                                               <C>             <C>              <C>
Net sales                                                         $ 233,932       $ 243,412        $ 292,611
Cost of sales                                                       185,299         206,690          234,881
                                                                  ---------       ---------        ---------

    Gross margin                                                     48,633          36,722           57,730

Selling, general and administrative expense                          15,617          17,406           19,596
Other operating income (expense):
  Currency transaction gains (losses), net                             (191)            399              355
  Disposition of property and equipment                                  12            (239)              37
  Other, net                                                            420             176              350
                                                                  ---------       ---------        ---------

    Income from operations                                           33,257          19,652           38,876

Other income (expense):
  Trade interest income                                                 249             231              163
  Interest and other expense to affiliates                           (3,250)         (2,938)          (2,608)
  Interest and other income from affiliates                             813             325              198
  Interest expense                                                   (2,256)         (2,548)          (2,309)
                                                                  ---------       ---------        ---------

    Income before income taxes                                       28,813          14,722           34,320

Provision for income taxes                                           10,374           3,378            7,428
                                                                  ---------       ---------        ---------

   Net income                                                     $  18,439       $  11,344        $  26,892
                                                                  =========       =========        =========
</TABLE>






                       KRONOS DENMARK APS AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 2001, 2003 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>

                                                             2001                2002                2003
                                                            -----               -----               -----


<S>                                                        <C>                 <C>                 <C>
Net income                                                 $18,439             $11,344             $26,892
                                                           -------             -------             -------

Other comprehensive income (loss), net of tax:
    Currency translation adjustment                         (3,402)             17,081              10,998
    Minimum pension liability                                 -                   -                (10,459)
                                                           -------             -------             -------
Total other comprehensive income (loss)                     (3,402)             17,081                 539
                                                           -------             -------             -------

Comprehensive income                                       $15,037             $28,425             $27,431
                                                           =======             =======             =======
</TABLE>








                       KRONOS DENMARK APS AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                         Accumulated other
                                                                                    comprehensive income (loss)
                                                                                   ----------------------------
                                                    Additional                       Currency         Minimum
                                        Common        paid-in      Accumulated     translation        pension
                                        stock         capital        deficit        adjustment       liability          Total
                                      --------    -----------     -----------     ------------      ----------        ---------

<S>                 <C> <C>            <C>         <C>            <C>              <C>             <C>              <C>
Balance at December 31, 2000           $  136      $ 206,425      $(103,367)       $ (28,881)               -       $   74,313

Net income                                  -              -         18,439                -                -           18,439
Other comprehensive loss,
net of tax                                  -              -              -           (3,402)               -           (3,402)
Capital contribution                        -         10,571              -                -                -           10,571
Common dividends declared                   -             -         (33,407)               -                -          (33,407)
                                      -------      ---------      ---------        ---------       ----------       ----------
Balance at December 31, 2001              136        216,996       (118,335)         (32,283)               -           66,514

Net income                                  -              -         11,344                -                -           11,344
Other comprehensive income,
net of tax                                  -              -              -           17,081                -           17,081
Common dividends declared                   -              -        (13,360)               -                -          (13,360)
                                      -------      ---------      ---------        ---------       ----------       ----------
Balance at December 31, 2002              136        216,996       (120,351)         (15,202)               -           81,579

Net income                                  -              -         26,892                -                -           26,892
Other comprehensive income (loss)
  net of tax,                               -              -              -           10,998          (10,459)             539
                                      -------      ---------      ---------        ---------       ----------       ----------
Balance at December 31, 2003           $  136      $ 216,996      $ (93,459)       $  (4,204)      $  (10,459)      $  109,010
                                      =======      =========      =========        =========       ==========       ==========
</TABLE>



                       KRONOS DENMARK APS AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>

                                                               2001              2002              2003
                                                              -----             -----             ------


Cash flows from operating activities:
<S>                                                         <C>               <C>               <C>
  Net income                                                $ 18,439          $ 11,344          $  26,892
  Depreciation and amortization                                8,774             9,408             11,446
  Noncash interest expense                                      -                  150                332
  Deferred income taxes                                         (125)           (2,011)            (5,405)
  Net loss (gain) from disposition of property and equipment     (12)              239                (37)
  Pension, net                                                 1,073             1,132              2,278
  Change in assets and liabilities:
    Accounts and notes receivable                             (2,280)           (1,307)               437
    Inventories                                               (1,619)            1,377             (2,250)
    Prepaid expenses                                            (156)              909                143
    Accounts payable and accrued liabilities                  (4,321)            5,098              4,107
    Income taxes                                              (1,817)           (1,542)            (2,902)
    Accounts with affiliates                                   2,903            19,152             10,403
    Other noncurrent assets                                      153               263             (4,181)
    Other noncurrent liabilities                                 (65)              (73)               547
                                                            --------          --------          ---------

      Net cash provided by operating activities               20,947            44,139             41,810
                                                            --------          --------          ---------

Cash flows from investing activities:
  Capital expenditures                                       (11,799)          (10,329)          (10,274)
  Change in restricted cash equivalents and restricted                                              (554)
       marketable debt securities, net                          (577)           (2,891)
  Proceeds from disposition of property and equipment             59               823                350
                                                            --------          --------          ---------

Net cash used by investing activities                        (12,317)          (12,397)           (10,478)
                                                            ========          ========          =========
</TABLE>

   See accompanying notes to consolidated financial statements.






                       KRONOS DENMARK APS AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2001, 2002 and 2003

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                 2001              2002              2003
                                                                -----             -----             ------


Cash flows from financing activities:
  Indebtedness:
<S>                                                          <C>               <C>               <C>
    Borrowings                                               $   1,437         $  55,727         $  16,106
    Principal payments                                          (1,031)          (58,117)          (46,006)
    Deferred financing fees                                          -              (953)                -
  Loans from affiliates:
    Loans                                                       16,677                 -                 -
    Repayments                                                       -           (18,097)                -
  Capital contribution                                          10,571                 -                 -
  Dividends paid                                               (33,407)          (13,360)                -
                                                             ---------         ---------         ---------

Net cash used by financing activities                           (5,753)          (34,800)          (29,900)
                                                             ---------         ---------         ---------

Cash and cash equivalents:
  Net change during the year from:
    Operating, investing and financing                                                               1,432
     activities                                                  2,877            (3,058)
    Currency translation                                           (75)              541               336
  Balance at beginning of  period                                2,628             5,430             2,913
                                                             ---------         ---------         ---------

  Balance at end of period                                   $   5,430         $   2,913         $   4,681
                                                             =========         =========         =========

Supplemental disclosures:
  Cash paid for:
    Interest                                                 $   5,459         $   5,461         $   4,638
    Income taxes                                                12,316             6,931            11,525
</TABLE>

See accompanying notes to consolidated financial statements.






                       KRONOS DENMARK APS AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Organization and basis of presentation:

     Kronos Denmark ApS ("KDK") was  incorporated in Denmark in October 1999 and
is a wholly-owned  subsidiary of Kronos  International,  Inc. ("KII").  KII is a
wholly-owned subsidiary of Kronos Worldwide,  Inc., a majority-owned  subsidiary
of NL Industries,  Inc.. NL is primarily a holding  company and Kronos  conducts
its titanium dioxide pigments ("TiO2") operations.  At December 31, 2003, Valhi,
Inc. and a  wholly-owned  subsidiary of Valhi,  held  approximately  84% of NL's
outstanding   common  stock,  and  Contran   Corporation   ("Contran")  and  its
subsidiaries  held  approximately  90%  of  Valhi's  outstanding  common  stock.
Substantially  all of  Contran's  outstanding  voting  stock  is held by  trusts
established for the benefit of certain  children and  grandchildren of Harold C.
Simmons, of which Mr. Simmons is the sole trustee.  Mr. Simmons, the Chairman of
the Board of each of Contran, Valhi, NL and the Company may be deemed to control
each of such companies and KDK.

     The accompanying  consolidated  financial  statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America  ("GAAP") with the U.S.  dollar as the reporting  currency.  KDK and its
subsidiaries  also prepare  financial  statements on other bases, as required in
countries in which such entities are resident.

     KDK's current  operations are conducted  primarily  through its Belgian and
Norwegian  subsidiaries  with a TiO2  plant  in  Belgium  and a TiO2  plant  and
ilmenite  ore mining  operation  in  Norway.  KDK also  operates  TiO2 sales and
distribution facilities in Denmark and the Netherlands.

     KDK is not a registrant  with the U.S.  Securities and Exchange  Commission
("SEC") and is not subject to the SEC's periodic reporting requirements,  except
as may be required by Rule 3-16 of Regulation S-X.

Note 2 - Summary of significant accounting policies:

     Management's   estimates.   The  preparation  of  financial  statements  in
conformity with accounting principles generally accepted in the United States of
America  ("GAAP")  requires  management to make estimates and  assumptions  that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the reported amount of revenues and expenses during the reporting period. Actual
results may differ from previously-estimated amounts under different assumptions
or conditions.

     Principles of consolidation.  The consolidated financial statements include
the  accounts  of KDK  and  its  wholly-owned  subsidiaries  (collectively,  the
"Company").   All  material   intercompany   accounts  and  balances  have  been
eliminated.  Certain prior-year amounts have been reclassified to conform to the
current  year  presentation.  The Company has no  involvement  with any variable
interest  entity  covered by the scope of FASB  Interpretation  ("FIN") No. 46R,
"Consolidation of Variable Interest Entities."

     Translation of foreign currencies. The functional currencies of the Company
include  the  Danish  kroner,  the euro and the  Norwegian  kroner.  Assets  and
liabilities of  subsidiaries  whose  functional  currency is other than the U.S.
dollar are  translated  at year-end  rates of exchange and revenues and expenses
are translated at average exchange rates prevailing  during the year.  Resulting
translation  adjustments  are  accumulated  in  stockholder's  equity as part of
accumulated other  comprehensive  income (loss),  net of related deferred income
taxes. Currency transaction gains and losses are recognized in income currently.

     Net sales. Sales are recorded when products are shipped and title and other
risks and rewards of ownership have passed to the customer, or when services are
performed.  Shipping terms of products shipped are generally FOB shipping point;
although in some instances  shipping terms are FOB destination  point (for which
sales are not recognized until the product is received by the customer). Amounts
charged to customers for shipping and handling are included in net sales.  Sales
are stated net of price,  early  payment and  distributor  discounts  and volume
rebates.

     Inventories and cost of sales.  Inventories are stated at the lower of cost
(principally  average  cost)  or  market,  net  of  allowance  for  obsolete  or
slow-moving  inventories.  Amounts are removed from inventories at average cost.
Cost of sales includes costs for materials, packaging and finishing,  utilities,
salary and benefits, maintenance and depreciation.

     Cash and cash  equivalents.  Cash  equivalents  include bank  deposits with
original maturities of three months or less.

     Restricted   marketable  debt   securities.   Restricted   marketable  debt
securities  are  primarily  invested in corporate  debt  securities  and include
amounts restricted in accordance with applicable Norwegian law regarding certain
requirements  of the Company's  Norwegian  defined  benefit  pension plans ($2.5
million and $2.6  million at  December  31,  2002 and 2003,  respectively).  The
restricted  marketable  debt  securities  are  generally  classified as either a
current or noncurrent  asset  depending upon the maturity date of each such debt
security and are carried at market, which approximates cost.

     Accounts  receivable.  The  Company  provides  an  allowance  for  doubtful
accounts  for  known  and  estimated  potential  losses  arising  from  sales to
customers based on a periodic review of these accounts.

     Property and equipment and depreciation.  Property and equipment are stated
at cost.  The Company has a  governmental  concession  with an unlimited term to
operate an ilmenite mine in Norway.  Mining properties  consist of buildings and
equipment  used in the  Company's  Norwegian  ilmenite  mining  operations.  The
Company  does  not  own  the  ilmenite   reserves   associated  with  the  mine.
Depreciation  of  property  and  equipment  for  financial   reporting  purposes
(including  mining  properties)  is computed  principally  by the  straight-line
method over the  estimated  useful  lives of ten to 40 years for  buildings  and
three to 20 years for equipment.  Accelerated  depreciation methods are used for
income tax  purposes,  as permitted.  Upon sale or  retirement of an asset,  the
related cost and accumulated  depreciation are removed from the accounts and any
gain or loss is recognized in income currently.

     The Company performs planned major maintenance  activities during the year.
Repair and maintenance costs estimated to be incurred in connection with planned
major maintenance  activities are accrued in advance and are included in cost of
sales.  Accrued  repair  and  maintenance  costs,   included  in  other  current
liabilities (see Note 6), was $100,000 and $1.1 million at December 31, 2002 and
2003, respectively.

     Interest costs related to major long-term capital projects and renewals are
capitalized as a component of  construction  costs.  Interest costs  capitalized
were not significant in 2001, 2002 or 2003.

     When  events or  changes  in  circumstances  indicate  that  assets  may be
impaired,  an evaluation is performed to determine if an impairment exists. Such
events or changes in circumstances  include, among other things, (i) significant
current  and prior  periods or current  and  projected  periods  with  operating
losses,  (ii) a significant  decrease in the market value of an asset or (iii) a
significant  change  in the  extent  or  manner  in which an asset is used.  All
relevant  factors  are  considered.  The test for  impairment  is  performed  by
comparing the estimated  future  undiscounted  cash flows (exclusive of interest
expense)  associated  with  the  asset  to the  asset's  net  carrying  value to
determine  if a  write-down  to market  value or  discounted  cash flow value is
required.  Effective January 1, 2002, the Company commenced assessing impairment
of  other  long-lived   assets  (such  as  property  and  equipment  and  mining
properties) in accordance  with SFAS No. 144,  "Accounting for the Impairment or
Disposal of Long-Lived Assets."

     Long-term  debt.  Amortization  of deferred  financing  costs,  included in
interest  expense,  is  computed  by the  interest  method  over the term of the
applicable issue.

     Derivatives and hedging activities.  Derivative  instruments are recognized
as either assets or  liabilities  and measured at fair value in accordance  with
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended.  The  accounting  for changes in fair value of derivatives is dependent
upon the intended use of the derivative,  and such changes are recognized either
in net income or other  comprehensive  income.  As permitted  by the  transition
requirements of SFAS No. 133, as amended, the Company exempted from the scope of
SFAS No.  133 all host  contracts  containing  embedded  derivatives  which were
issued or acquired prior to January 1, 1999.

     Income taxes. Deferred income tax assets and liabilities are recognized for
the expected future tax consequences of temporary differences between the income
tax  and  financial  reporting  carrying  amounts  of  assets  and  liabilities,
including  investments in the Company's  subsidiaries and affiliates who are not
members  of  the  Contran  Tax  Group  and  undistributed  earnings  of  foreign
subsidiaries  which are not deemed to be  permanently  reinvested.  The  Company
periodically   evaluates   its  deferred  tax  assets  in  the  various   taxing
jurisdictions in which it operates and adjusts any related  valuation  allowance
based on the estimate of the amount of such deferred tax assets that the Company
believes does not meet the "more-likely-than-not" recognition criteria. Earnings
of foreign  subsidiaries deemed to be permanently  reinvested  aggregated $251.8
million at December 31, 2002 and $278.6 million at December 31, 2003.

     Employee  benefit  plans.  Accounting  and funding  policies for retirement
plans are described in Note 8.

     The Company has not issued any stock options. However, certain employees of
the Company have been  granted  options by NL to purchase NL common  stock.  The
Company has  elected  the  disclosure  alternative  prescribed  by SFAS No. 123,
"Accounting for Stock-Based  Compensation,"  as amended,  and to account for its
stock-based  employee  compensation  related to stock options in accordance with
Accounting  Principles  Board  Opinion  ("APBO") No. 25,  "Accounting  for Stock
Issued to  Employees,"  and its various  interpretations.  Under APBO No. 25, no
compensation  cost is generally  recognized for fixed stock options in which the
exercise  price is not less than the market price on the grant date.  During the
fourth  quarter  of 2002,  and  following  NL's cash  settlement  of  options to
purchase  NL common  stock  held by  certain  individuals,  NL and the  Company,
commenced  accounting for its stock options using the variable accounting method
because NL could not overcome the  presumption  that it would not similarly cash
settle its remaining stock options.  Under the variable  accounting  method, the
intrinsic  value of all  unexercised  stock  options  (including  those  with an
exercise  price at least  equal to the  market  price on the date of grant)  are
accrued as an expense  over their  vesting  period,  with  subsequent  increases
(decreases) in NL's market price  resulting in additional  compensation  expense
(income).  Upon  exercise of such  options to  purchase NL common  stock held by
employees of the Company,  the Company pays NL an amount equal to the difference
between the market  price of NL's common  stock on the date of exercise  and the
exercise price of such stock option. Compensation cost recognized by the Company
in accordance  with APBO No. 25 and the amount  charged to the Company by NL for
stock option exercises was nil in 2001, $126,000 in 2002 and $117,000 in 2003.

     The following  table  illustrates the effect on net income and earnings per
share if the Company had applied the fair value  recognition  provisions of SFAS
No. 123 to stock-based employee compensation.

<TABLE>
<CAPTION>

                                                                            Years ended December 31,
                                                                     ----------------------------------------
                                                                     2001               2002             2003
                                                                     ----               ----             ----
                                                                     (In thousands except per share amounts)

<S>                                                              <C>                 <C>            <C>
Net income - as reported                                         $18,439             $11,344        $26,892

Adjustments, net of applicable income tax
 effects:
  Stock-based employee compensation   expense determined
     under APBO No. 25                                              -                     75             77
  Stock-based employee compensation
   expense determined under SFAS No. 123                             (60)                (79)           (38)
                                                                 -------             -------        -------

Pro forma net income                                             $18,379             $11,340        $26,931
                                                                 =======             =======        =======
</TABLE>

     Selling, general and administrative expenses;  shipping and handling costs.
Selling, general and administrative expenses include costs related to marketing,
sales, distribution,  shipping and handling, research and development, legal and
administrative functions, such as accounting, treasury and finance, and includes
costs for salaries and benefits, travel and entertainment, promotional materials
and  professional  fees.  Shipping and  handling  costs are included in selling,
general and  administrative  expense and were $8.5 million in 2001, $9.2 million
in 2002 and $11.2 million in 2003.

Note 3 - Accounts and notes receivable:
<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                    ------------------------
                                                                                    2002                2003
                                                                                    ----                ----
                                                                                         (In thousands)

<S>                                                                               <C>                 <C>
Trade receivables                                                                 $11,598             $13,117
Recoverable VAT and other receivables                                               2,721               2,510
Allowance for doubtful accounts                                                      (244)                (22)
                                                                                  -------             -------

                                                                                  $14,075             $15,605
                                                                                  =======             =======
</TABLE>

Note 4 - Inventories:
<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                    ------------------------
                                                                                    2002                2003
                                                                                    ----                ----
                                                                                         (In thousands)

<S>                                                                               <C>                 <C>
Raw materials                                                                     $16,527             $16,793
Work in process                                                                     2,520               1,454
Finished products                                                                  24,115              32,943
Supplies                                                                           13,070              14,966
                                                                                  -------             -------

                                                                                  $56,232             $66,156
                                                                                  =======             =======
</TABLE>











Note 5 - Other noncurrent assets:
<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                    ------------------------
                                                                                    2002                2003
                                                                                    ----                ----
                                                                                         (In thousands)

<S>                                                                              <C>                 <C>
Unrecognized net pension obligations                                              $  -                $ 4,176
Restricted marketable debt securities                                               2,492               2,586
Deferred financing costs, net                                                         795                 542
Other                                                                                  75                  83
                                                                                  -------             -------

                                                                                  $ 3,362             $ 7,387
                                                                                  =======             =======
</TABLE>

Note 6 - Accounts payable and accrued liabilities:
<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                    ------------------------
                                                                                    2002                2003
                                                                                    ----                ----
                                                                                         (In thousands)
<S>                                                                               <C>                 <C>
Accounts payable                                                                  $17,547             $16,609
                                                                                  -------             -------
Accrued liabilities:
  Employee benefits                                                                 8,174               8,786
  Other                                                                             5,779               6,141
                                                                                  -------             -------

                                                                                   13,953              14,927
                                                                                  -------             -------

                                                                                  $31,500             $31,536
                                                                                  =======             =======
</TABLE>

Note 7 - Notes payable and long-term debt:
<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                    ------------------------
                                                                                    2002                2003
                                                                                    ----                ----
                                                                                         (In thousands)

Long-term debt:
<S>                                                                               <C>                 <C>
  Revolving credit facility                                                       $27,077             $     -
  Other                                                                             1,887                 603
                                                                                  -------             -------

                                                                                   28,964                 603
Less current maturities                                                             1,298                 288
                                                                                  -------             -------

                                                                                  $27,666             $   315
                                                                                  =======             =======
</TABLE>

     In June 2002 the Company's operating subsidiaries in Belgium ("KEU") Norway
("TAS" and "TIA") and KII's operating subsidiary in Germany ("TG"),  referred to
as the "Borrowers"  entered into a three-year (euro)80 million secured revolving
credit  facility  ("Credit  Facility").  The Credit  Facility  is  available  in
multiple  currencies,  including  U.S.  dollars,  euros  and  Norwegian  kroner.
Borrowings bear interest at the applicable interbank market rate plus 1.75%. All
amounts  outstanding  under the Credit Facility at December 31, 2002 were repaid
in 2003 and as of December  31,  2003,  no amounts  were  outstanding  under the
Credit Facility.  At December 31, 2003,  (euro)77.5  million ($97.5 million) was
available for borrowing by the Borrowers.

     The Credit Facility is collateralized by accounts  receivable and inventory
of the Borrowers,  plus a limited pledge of certain other assets of the Company.
The Credit  Facility  contains,  among others,  various  restrictive  covenants,
including  restrictions on incurring liens,  asset sales,  additional  financial
indebtedness,   mergers,   investments  and   acquisitions,   transactions  with
affiliates and dividends.  KEU and TG are unconditionally  jointly and severally
liable for any and all outstanding  borrowings  under the Credit  Facility.  The
parent company of TAS and TIA, Kronos Norge A/S, is jointly and severally liable
for any and all outstanding  borrowings  under the Credit Facility to the extent
permitted by  Norwegian  law. The Company has a (euro)5  million  sub-limit  for
issuing  letters of credit with  (euro)2.0  million  ($2.5  million)  letters of
credit issued at December 31, 2003.  The Borrowers  were in compliance  with all
the covenants as of December 31, 2003.

     Deferred  financing  costs of $1.4  million for the Credit  Facility  ($1.0
million paid by the Company,  with the  remaining $.4 million paid by the German
operating  subsidiary)  are being amortized over the life of the Credit Facility
and are included in other noncurrent assets as of December 31, 2003.

     Unused lines of credit available for borrowing under the Company's non-U.S.
credit  facilities  approximated  $99.0 million at December 31, 2003,  including
$97.5 million under the Credit Facility.

     In February  2004,  KEU and TAS utilized  funds  borrowed  under the Credit
Facility,  (euro)26  million  ($32 million  when  borrowed)  borrowed by KEU and
(euro)14  million  ($18  million  when  borrowed)  borrowed  by TAS,  to  settle
outstanding intercompany balances with TG. See Note 12. The interest rate at the
time of borrowing was 3.825%.

     In June  2002,  KII issued  (euro)285  million  principal  amount of 8.875%
Senior  Secured Notes (the "Notes") due 2009.  The Notes are  collateralized  by
first  priority  liens on 65% of the common stock or other  equity  interests of
certain of KII's first-tier  subsidiaries,  including the Company. The Notes are
issued  pursuant  to an  indenture  which  contains  a number of  covenants  and
restrictions  which,  among other  things,  restricts the ability of KII and its
subsidiaries,  including  the  Company,  to incur debt,  incur liens or merge or
consolidate  with, or sell or transfer all or substantially  all of their assets
to, another entity.

     The aggregate  maturities of long-term  debt at December 31, 2003 are shown
in the table below.
<TABLE>
<CAPTION>

                                                 Amount
                                             (In thousands)
Years ending December 31,
--------------------------

<S> <C>                                         <C>
    2004                                        $   288
    2005                                            153
    2006                                            144
    2007                                             18
    2008                                              -
                                                -------

                                                $   603
                                                =======
</TABLE>

Note 8 - Employee benefit plans:

     The Company maintains various defined benefit pension plans.  Personnel are
covered  by plans in their  respective  countries.  Variances  from  actuarially
assumed  rates will result in  increases or  decreases  in  accumulated  pension
obligations, pension expense and funding requirements in future periods. In 2002
the Company  amended its defined  benefit  pension plans for KEU, TAS and TIA to
exclude the  admission  of new  employees to the plans.  New  employees at these
locations are eligible to participate in Company-sponsored  defined contribution
plans.  The  Company's   expense  related  to  the   Company-sponsored   defined
contribution  plans was not material in 2002 or 2003. At December 31, 2003,  the
Company  currently  expects to contribute the equivalent of  approximately  $1.3
million to its defined benefit pension plans during 2004.

     Certain actuarial assumptions used in measuring the defined benefit pension
assets,  liabilities  and  expenses  are  presented  below.  The Company  uses a
September 30th measurement date for their defined benefit pension plans.

     The  weighted-average  rate  assumptions  used in determining the actuarial
present  value of  benefit  obligations  as of  December  31,  2002 and 2003 are
presented in the table below. Such weighted-average  rates were determined using
the projected benefit obligations at each date.
<TABLE>
<CAPTION>

                                                                                               December 31,
                                                                                         ---------------------
                                                                                         2002             2003
                                                                                         ----             ----

<S>                                                                                      <C>              <C>
Discount rate                                                                            5.9%             5.5%
Increase in future compensation levels                                                   3.0%             3.0%
</TABLE>

     The weighted-average  rate assumptions used in determining the net periodic
pension  cost for 2001,  2002 and 2003 are  presented  in the table  below.  The
weighted-average  discount  rate and the  weighted-average  increase  in  future
compensation  levels were determined using the projected benefit  obligations as
of the beginning of each year, and the weighted-average long-term return on plan
assets was determined using the fair value of plan assets as of the beginning of
each year.
<TABLE>
<CAPTION>

                                                                                      Years ended December 31,
                                                                                 -------------------------------
                                                                                 2001         2002          2003
                                                                                 ----         ----          ----


<S>                                                                              <C>           <C>          <C>
Discount rate                                                                    6.0%          6.0%         5.9%
Increase in future compensation levels                                           3.0%          3.0%         3.0%
Long-term return on plan assets                                                  7.0%          6.9%         7.0%
</TABLE>

     Plan assets are comprised  primarily of investments in corporate equity and
debt  securities,   short-term  investments,  mutual  funds  and  group  annuity
contracts.

     The  components of the net periodic  defined  benefit  pension cost are set
forth below.
<TABLE>
<CAPTION>

                                                                               Years ended December 31,
                                                                       --------------------------------------
                                                                        2001            2002            2003
                                                                       -----           -----           -----
                                                                                   (In thousands)

Net periodic pension cost:
<S>                                                                   <C>             <C>             <C>
  Service cost benefits                                               $ 1,154         $ 1,264         $  1,430
  Interest cost on projected benefit
   obligation ("PBO")                                                   2,293           2,508            2,907
  Expected return on plan assets                                       (2,613)         (2,660)          (3,335)
  Amortization of prior service cost                                      201             223              255
  Amortization of net transition obligation                               137             140              296
  Recognized actuarial losses                                             400             668              732
                                                                      -------         -------         --------

                                                                      $ 1,572         $ 2,143         $  2,285
                                                                      =======         =======         ========
</TABLE>




     The funded status of the  Company's  defined  benefit  pension plans is set
forth below.
<TABLE>
<CAPTION>

                                                                                       December 31,
                                                                                 ------------------------
                                                                                 2002                2003
                                                                                -----               -----
                                                                                      (In thousands)

Change in PBO:
<S>                                                                           <C>                 <C>
  Beginning of year                                                           $ 39,317            $ 50,061
  Service cost                                                                   1,264               1,430
  Interest                                                                       2,508               2,907
  Participant contributions                                                        112                 135
  Actuarial gains (losses)                                                      (1,371)             10,745
  Benefits paid                                                                 (2,495)             (4,736)
  Change in currency exchange rates                                             10,726               3,619
                                                                              --------            --------

      End of year                                                             $ 50,061            $ 64,161
                                                                              --------            --------

Change in fair value of plan assets:
  Beginning of year                                                           $ 37,819            $ 47,324
  Actual return on plan assets                                                     759               2,943
  Employer contributions                                                         1,011               1,223
  Participant contributions                                                        112                 135
  Benefits paid                                                                 (2,495)             (4,736)
  Change in currency exchange rates                                             10,118               2,651
                                                                              --------            --------

      End of year                                                             $ 47,324            $ 49,540
                                                                              --------            --------

Funded status at year end:
  Plan assets less than PBO                                                   $ (2,737)           $(14,621)
  Unrecognized actuarial loss                                                   15,663              27,815
  Unrecognized prior service cost                                                3,221               3,112
  Unrecognized net transition obligation                                         1,425               1,223
                                                                              --------            --------

                                                                              $ 17,572            $ 17,529
                                                                              --------            --------

Amounts recognized in the balance sheet:

  Prepaid pension cost                                                        $ 17,572            $      -
  Accrued pension cost, noncurrent                                                   -              (1,174)
  Unrecognized net pension obligations                                               -               4,176
  Accumulated other comprehensive loss                                               -              14,527
                                                                              --------            --------

                                                                              $ 17,572            $ 17,529
                                                                              ========            ========
</TABLE>

     SFAS No. 87,  "Employers'  Accounting for Pension  Costs"  requires that an
additional pension liability be recognized when the unfunded accumulated pension
benefit  obligation  exceeds the unfunded accrued pension  liability.  Variances
from  actuarially  assumed rates will change the actuarial  valuation of accrued
pension liabilities, pension expense and funding requirements in future periods.
The  accumulated  benefit  obligation of the Company's  defined  benefit pension
plans was $51.1 million at December 31, 2003 (2002 - $43.7 million).

Note 9 - Other items:

     Advertising costs are expensed as incurred and were approximately  $100,000
in each of 2001, 2002 and 2003.

     Research,  development  and  certain  sales  technical  support  costs  are
expensed as incurred and approximated $300,000 in each of 2001, 2002 and 2003.

     Interest  capitalized in connection with long-term capital projects was nil
in each of 2001, 2002 and 2003.

Note 10 - Income taxes:

     The components of (i) income from continuing operations before income taxes
("pretax  income"),  (ii) the difference  between the provision for income taxes
attributable  to pretax income and the amounts that would be expected  using the
Danish  statutory  income  tax rate of 30% in 2001,  2002 and  2003,  (iii)  the
provision  for  income  taxes  and  (iv) the  comprehensive  tax  provision  are
presented below.
<TABLE>
<CAPTION>

                                                                            Years ended December 31,
                                                                  ------------------------------------------
                                                                     2001             2002            2003
                                                                   ------            ------          ------
                                                                                 (In thousands)
Pretax income (loss):
<S>                                                                <C>              <C>             <C>
  Denmark                                                          $   (71)         $   207         $   170
  Non-Denmark                                                       28,884           14,515          34,150
                                                                   -------          -------         -------

                                                                   $28,813          $14,722         $34,320
                                                                   =======          =======         =======

Expected tax expense                                               $ 8,644          $ 4,417         $10,296
Non-Denmark tax rates                                                1,170              650             428
Valuation allowance                                                      -              658               -
Tax contingency reserve adjustment                                     540                -          (5,100)
Tax on partnership income                                                -                -           1,245
Rate change adjustment of deferred taxes                                 -           (2,332)              -
Other, net                                                              20              (15)            559
                                                                   -------          -------         -------

        Income tax expense                                         $10,374          $ 3,378         $ 7,428
                                                                   =======          =======         =======


Provision for income taxes:
  Current income tax expense:
    Denmark                                                        $  -             $    48         $    63
    Non-Denmark                                                     10,499            5,341          12,770
                                                                   -------          -------         -------

                                                                    10,499            5,389          12,833
                                                                   -------          -------         -------

  Deferred income tax expense (benefit):
    Denmark                                                            540               (1)         (5,104)
    Non-Denmark                                                       (665)          (2,010)           (301)
                                                                   -------          -------         -------

                                                                      (125)          (2,011)         (5,405)
                                                                   -------          -------         -------

                                                                   $10,374          $ 3,378         $ 7,428

Comprehensive provision for income taxes
 allocable to:
  Pretax income                                                    $10,374          $ 3,378         $ 7,428
  Other comprehensive loss - pension  liabilities                        -                -          (4,068)
                                                                   -------          -------         -------
                                                                   $10,374          $ 3,378         $ 3,360
                                                                   =======          =======         =======
</TABLE>



The components of the net deferred tax liability are summarized below.

<TABLE>
<CAPTION>

                                                                               December 31,
                                                          ------------------------------------------------------
                                                                  2002                          2003
                                                          -----------------------       ------------------------
                                                          Assets       Liabilities      Assets       Liabilities
                                                          ------       -----------      ------       -----------
                                                                               (In thousands)

Tax effect of temporary differences relating to:
<S>                                                     <C>           <C>               <C>         <C>
  Inventories                                           $    16       $  (1,581)        $   26      $ (2,035)
  Property and equipment                                    105         (17,146)           143       (18,856)
  Accrued (prepaid) pension cost                              -          (5,040)         4,068        (4,970)
  Accrued liabilities and other deductible differences      771               -            834             -
  Other taxable differences                                   -          (7,643)           -          (3,851)
Valuation allowance                                        (658)              -           (683)            -
                                                        -------       ---------         ------      --------

    Gross deferred tax assets (liabilities)                 234         (31,410)         4,388       (29,712)

Reclassification, principally netting by tax                                218
   jurisdiction                                            (218)                        (4,362)        4,362
                                                        -------       ---------         ------      --------

    Net total deferred tax assets (liabilities)              16         (31,192)            26       (25,350)
    Net current deferred tax assets (liabilities)            16          (1,498)            26        (2,030)
                                                        -------       ---------         ------      --------

    Net noncurrent deferred tax liabilities             $     -       $ (29,694)        $    -      $(23,320)
                                                        =======       =========         ======      ========
</TABLE>


     Changes in the  Company's  deferred  income  tax  valuation  allowance  are
summarized below:
<TABLE>
<CAPTION>

                                                                                       December 31,
                                                                                 -----------------------
                                                                                 2002               2003
                                                                                      (In thousands)


<S>                                                                            <C>                <C>
  Balance at beginning of year                                                 $     -            $   658
  Increase in certain deductible temporary differences which the Company
      believes do not meet the "more-likely-than-not" recognition criteria         658                  -
  Foreign currency translation                                                       -                 25
                                                                               -------            -------

  Balance at end of year                                                       $   658            $   683
                                                                               =======            =======
</TABLE>


     A reduction  in the Belgian  income tax rate from 40% to 34% was enacted in
December  2002 and became  effective  in January  2003.  This  reduction  in the
Belgian  income tax rate  resulted in a $2.3 million  decrease in the  Company's
income tax expense in 2002 because the Company had  previously  recognized a net
deferred income tax liability with respect to Belgian temporary differences.

     Certain of the Company's  U.S. and non-U.S.  tax returns are being examined
and tax authorities have or may propose tax  deficiencies,  including  penalties
and interest. For example:

o    The Company has received a preliminary tax assessment  related to 1993 from
     the Belgian tax authorities proposing tax deficiencies, including interest,
     of  approximately  (euro)6  million ($8 million at December 31, 2003).  The
     Company  has  filed  a  protest  to this  assessment  and  believes  that a
     significant  portion of the  assessment is without  merit.  The Belgian tax
     authorities have filed a lien on the fixed assets of the Company's  Belgian
     TiO2  operations in connection  with this  assessment.  In April 2003,  the
     Company  received a notification  from the Belgian tax authorities of their
     intent to assess a tax deficiency related to 1999 that, including interest,
     is expected to be approximately (euro)13 million ($16 million). The Company
     believes the proposed  assessment is  substantially  without merit, and the
     Company has filed a written  response.  In December  2003,  the Belgian tax
     authorities agreed to a settlement of certain tax assessments separate from
     the assessments  noted  previously,  for the years 1991 to 1997.  Including
     interest,  the proposed (euro)10.1 million tax deficiency ($12.6 million at
     December 31, 2003) was settled for (euro)5.0 million ($6.3 million).

o    The Norwegian tax authorities  have notified the Company of their intent to
     assess tax deficiencies of  approximately  kroner 12 million ($2 million at
     December  31,  2003)  relating  to the years 1998 to 2000.  The Company has
     filed a written protest to this proposed assessment.

     No  assurance  can be given that these tax matters  will be resolved in the
Company's  favor in view of the inherent  uncertainties  involved in  settlement
initiatives,  court  and  tax  proceedings.  The  Company  believes  that it has
provided  adequate  accruals for additional  taxes and related  interest expense
which may  ultimately  result from all such  examinations  and believes that the
ultimate  disposition of such  examinations  should not have a material  adverse
effect  on  its  consolidated  financial  position,  results  of  operations  or
liquidity.

Note 11 - Related party transactions:

     The  Company  may  be  deemed  to  be  controlled  by  Harold  C.  Simmons.
Corporations  that may be  deemed to be  controlled  by or  affiliated  with Mr.
Simmons sometimes engage in (a) intercorporate  transactions such as guarantees,
management  and  expense  sharing  arrangements,  shared fee  arrangements,  tax
sharing agreements,  joint ventures,  partnerships,  loans, options, advances of
funds on open  account,  and sales,  leases and  exchanges of assets,  including
securities  issued  by  both  related  and  unrelated  parties  and  (b)  common
investment and acquisition strategies,  business combinations,  reorganizations,
recapitalizations,  securities  repurchases,  and purchases and sales (and other
acquisitions  and  dispositions)  of  subsidiaries,  divisions or other business
units,  which  transactions have involved both related and unrelated parties and
have included  transactions  which  resulted in the  acquisition  by one related
party of a publicly  held minority  equity  interest in another  related  party.
While no  transactions  of the type described above are planned or proposed with
respect to the Company  other than as set forth in these  financial  statements,
the Company from time to time considers, reviews and evaluates such transactions
and  understands  that Contran,  Valhi,  NL,  Kronos,  KII and related  entities
consider,  review and evaluate such  transactions.  Depending upon the business,
tax and other objectives then relevant, it is possible that the Company might be
a party to one or more such transactions in the future.

     The  Company is a party to a cost  sharing  agreement  with  Kronos and KII
whereby  Kronos and KII provide  certain  management,  financial,  insurance and
administrative services to the Company on a fee basis. The Company's expense was
approximately $1.4 million in 2001, and $1.9 million in each of 2002 and 2003.

     The Company is also party to master global insurance coverage policies with
Kronos with regard to property,  business  interruption,  excess liability,  and
other coverages.  Tall Pines, Valmont Insurance Company and EWI RE, Inc. provide
for or  broker  certain  insurance  policies  for  Contran  and  certain  of its
subsidiaries  and  affiliates,  including  Kronos and the  Company.  Valmont and
Tremont  are  wholly-owned  subsidiaries  of  Valhi,  and EWI is a  wholly-owned
subsidiary of NL.  Consistent  with insurance  industry  practices,  Tall Pines,
Valmont  and  EWI  receive   commissions  from  the  insurance  and  reinsurance
underwriters  for the  policies  that they provide or broker.  In the  Company's
opinion,  the amounts that the Company paid for these insurance policies and the
allocation  among Kronos and its affiliates of relative  insurance  premiums are
reasonable  and  similar to those they could  have  obtained  through  unrelated
insurance  companies  and/or brokers.  The costs  associated with these policies
aggregated  $1.1  million,  $1.3 million and $900,000 in each of 2001,  2002 and
2003, respectively.

     Contran and  certain of its  subsidiaries  and  affiliates,  including  the
Company, purchase certain of their insurance policies as a group, with the costs
of  the  jointly-owned   policies  being  apportioned  among  the  participating
companies.  With  respect to  certain  of such  policies,  it is  possible  that
unusually  large losses  incurred by one or more insureds  during a given policy
period could leave the other  participating  companies without adequate coverage
under that policy for the balance of the policy period. As a result, Contran and
certain of its subsidiaries and its affiliates,  including NL, have entered into
a loss  sharing  agreement  under  which any  uninsured  loss is shared by those
entities  who have  submitted  claims  under the  relevant  policy.  The Company
believes  the  benefits in the form of reduced  premiums  and  broader  coverage
associated  with  the  group  coverage  for  such  policies  justifies  the risk
associated with the potential for uninsured loss.

     Intercompany sales to (purchases from) affiliates of TiO2 are summarized in
the following table.
<TABLE>
<CAPTION>

                                                                              Years ended December 31,
                                                                     -----------------------------------------
                                                                       2001             2002            2003
                                                                      ------           ------          ------
                                                                                   (In thousands)

Sales to:
<S>                                                                 <C>              <C>             <C>
  TG                                                                $ 42,843         $ 30,077        $ 38,783
  Kronos Limited ("KUK")                                              14,962           17,148          18,856
  Kronos (US), Inc. ("KUS")                                           10,883           13,189          18,792
  Societe Industrielle du Titane, S.A. ("SIT")                         7,158            8,924           8,138
  Kronos Canada, Inc. ("KC")                                           2,587            3,231           5,881
                                                                    --------         --------        --------

                                                                    $ 78,433         $ 72,569        $ 90,450
                                                                    ========         ========        ========

Purchases from:
  TG                                                                $ 31,619         $ 29,706        $ 38,785
  KUS                                                                  1,177            2,553             101
  KC                                                                    -                 170             223
                                                                    --------         --------        --------

                                                                    $ 32,796         $ 32,429        $ 39,109
                                                                    ========         ========        ========
</TABLE>

     Sales of ilmenite to TG were $7.3  million in 2001,  $13.4  million in 2002
and $15.5 million in 2003.

     KUS purchases the rutile and slag  feedstock  used as a raw material in all
of the Company's  chloride process TiO2 facilities.  The Company  purchases such
feedstock  from KUS for use in its  facilities for an amount equal to the amount
paid by KUS to the  third-party  supplier plus a 2.5%  administrative  fee. Such
feedstock  purchases were $31.6 million in 2001, $32.9 million in 2002 and $39.5
million in 2003.

     Interest expense to affiliates related to a note payable to TG was $500,000
in 2001,  $300,000 in 2002 and nil in 2003. Such note was repaid in full in 2002
and the underlying  agreement was cancelled.  Included in other affiliate income
and  other  affiliate  expense  was  other  affiliate  interest  income/expense,
factoring fees and service fees.

     Royalties  paid to KII for use of  certain of KII's  intellectual  property
totaled  $8.2 million in 2001,  $8.6 million in 2002 and $10.4  million in 2003,
and was included as a component of cost of sales.

     During 2001, 2002 and 2003, the Company was party to an accounts receivable
factoring  agreement  (the  "Factoring  Agreement")  with  one  or  more  of its
affiliates  whereby the Company factored its export accounts  receivable without
recourse  for a fee of 0.85% for the  Company's  export  receivables  related to
Kronos Europe S.A./N.V.  ("KEU") and 1.2% for export receivables  related to its
Norwegian  operating  subsidiaries,  Kronos  Titan A/S  ("TAS")  and Titania A/S
("TIA").  Upon non-recourse transfer from the Company, the affiliate assumed all
risk  pertaining  to the factored  receivables,  including,  but not limited to,
exchange  control  risks,  risks  pertaining to the bankruptcy of a customer and
risks related to late payments.  Export receivables sold by the Company pursuant
to the Factoring  Agreement during 2001, 2002 and 2003 aggregated $82.9 million,
$92.0 million and $101.4 million, respectively.

     Net  amounts   currently   receivable  from  (payable  to)  affiliates  are
summarized in the following table.
<TABLE>
<CAPTION>

                                                                                         December 31,
                                                                                  ------------------------
                                                                                   2002               2003
                                                                                  ------             ------
                                                                                        (In thousands)

Receivable from:
<S>                                                                                 <C>                 <C>
  SIT                                                                               684                 501
  KUK                                                                             1,348               1,085
  KC                                                                                295                 401
                                                                               --------            --------

                                                                               $  2,327            $  1,987
                                                                               ========            ========

Payable to:
  KII                                                                          $  3,450            $  4,203
  KUS                                                                             7,437               2,770
  TG                                                                             14,489              32,635
  Other affiliates                                                                   17                  53
                                                                               --------            --------

                                                                               $ 25,393            $ 39,661
                                                                               ========            ========
</TABLE>


     Net amounts  between the Company,  KUS, TG, SIT, KUK and KC were  generally
related to  product  purchases  and  sales.  Net  amounts  with TG also  include
accounts receivable factoring fees.

Note 12 - NL common stock options held by employees of the Company:

     At December  31,  2003,  employees  of the Company held options to purchase
approximately  39,000 shares of NL common stock, of which 16,000 are exercisable
at various dates  through 2010 at an exercise  price ranging from $2.66 to $5.63
per share and  23,000  are  exercisable  at  various  dates  through  2011 at an
exercise price ranging from $9.34 to $11.49 per share.

     The  pro  forma  information  required  by  SFAS  No.  123 is  based  on an
estimation  of the fair value of options  issued  subsequent to January 1, 1995.
See Note 2. The fair value of options  granted  during  2001 (none were  granted
during  2002 or 2003) was $7.52 per  share.  The fair  value of  employee  stock
options was calculated using the Black-Scholes stock option valuation model with
the  following  weighted  average  assumptions  for grants in 2001:  stock price
volatility of 46%;  risk-free rate of return of 5%;  dividend yield of 4.0%; and
an  expected  term of 9  years.  For  purposes  of pro  forma  disclosures,  the
estimated  fair value of the options is  amortized  to expense over the options'
vesting period.

Note 13 - Commitments and contingencies:

     Leases.  The  Company  leases,   pursuant  to  operating  leases,   various
manufacturing and office space and transportation  equipment. Most of the leases
contain  purchase  and/or  various term renewal  options at fair market and fair
rental  values,  respectively.  In most cases  management  expects  that, in the
normal course of business, leases will be renewed or replaced by other leases.

     Net rent expense  aggregated  $1 million in 2001, $2 million in 2002 and $3
million in 2003.  At December 31, 2003,  minimum  rental  commitments  under the
terms of noncancellable operating leases were as follows:
<TABLE>
<CAPTION>

                                                                          Equipment
                                                                        -------------
                                                                        (in thousands)
Years ending December 31,
-------------------------
<S> <C>                                                                    <C>
    2004                                                                   $  500
    2005                                                                      316
    2006                                                                      234
    2007                                                                      218
    2008                                                                      212
    2009 and thereafter                                                        54
                                                                           ------

                                                                           $1,534
                                                                           ======
</TABLE>

     Purchase  commitments.  KUS has long-term supply contracts that provide for
certain affiliates'  chloride feedstock  requirements  through 2007. The Company
and certain of its  affiliates  purchase  chloride  feedstock  underlying  these
long-term  supply  contracts  from KUS. The  agreements  require KUS to purchase
certain  minimum  quantities of feedstock with average  minimum annual  purchase
commitments aggregating approximately $165 million.

     Environmental,  product  liability and  litigation  matters.  The Company's
operations are governed by various  environmental laws and regulations.  Certain
of the  Company's  businesses  are,  or  have  been  engaged  in  the  handling,
manufacture  or use of substances or compounds  that may be considered  toxic or
hazardous  within the meaning of  applicable  environmental  laws. As with other
companies engaged in similar businesses, certain past and current operations and
products of the  Company  have the  potential  to cause  environmental  or other
damage.  The Company has implemented and continues to implement various policies
and programs in an effort to minimize  these risks.  The Company's  policy is to
comply with  environmental  laws and  regulations  at all its  facilities and to
strive to improve its  environmental  performance in association with applicable
industry   initiatives.   The  Company  believes  that  its  operations  are  in
substantial compliance with applicable  requirements of environmental laws. From
time to time, the Company may be subject to environmental regulatory enforcement
under various statutes, resolution of which typically involves the establishment
of  compliance  programs.  It is  possible  that  future  developments,  such as
stricter requirements of environmental laws and enforcement policies thereunder,
could  adversely  affect  the  Company's  production,  handling,  use,  storage,
transportation, sale or disposal of such substances.

     The  Company's  production   facilities  operate  within  an  environmental
regulatory  framework in which  governmental  authorities  typically are granted
broad  discretionary  powers that allow them to issue  operating  permits  under
which the  plants  must  operate.  The  Company  believes  all its plants are in
substantial  compliance with applicable  environmental laws. With respect to the
Company's  plants,  neither the Company  nor any of its  subsidiaries  have been
notified of any environmental  claim by any applicable  foreign authority or any
provincial or local authority.

     While the laws  regulating  operations of  industrial  facilities in Europe
vary from country to country, a common regulatory denominator is provided by the
European  Union  (the  "EU").  Belgium  ia a member  of the EU and  follows  its
initiatives. Norway, although not a member, generally patterns its environmental
regulatory  actions after the EU. The Company  believes that it has obtained all
required   permits  and  is  in  substantial   compliance   with  applicable  EU
requirements,  including  EU Directive  92/112/EEC  regarding  establishment  of
procedures for reduction and eventual  elimination of pollution  caused by waste
from the TiO2 industry.

     The Company's  Belgian  subsidiary  and various  Belgian  employees are the
subject of civil and criminal  proceedings  related to an accident that resulted
in two  fatalities  in such facility in 2000. At a hearing held in January 2004,
the government  requested the court to impose fines on the Company's  subsidiary
and certain of its employees in an amount equal to  approximately  (euro)367,500
($460,000). The Company's subsidiary has undertaken the defense of and liability
for  any  fines  and  costs  incurred  by its  employees  arising  out of  these
proceedings. The court's decision is anticipated in April 2004.

     The Company is also involved in various other  environmental,  contractual,
product liability and other claims and disputes incidental to its business.

     The Company currently  believes the disposition of all claims and disputes,
individually or in the aggregate,  should not have a material  adverse effect on
its consolidated financial condition, results of operations or liquidity.

     Concentrations  of credit risk.  Sales of TiO2 accounted for  approximately
80%,  77% and 79% of net sales  during 2001,  2002 and 2003,  respectively.  The
remaining  sales result from the mining and sale of ilmenite ore (a raw material
used in the sulfate pigment production  process).  TiO2 is generally sold to the
paint,  plastics  and  paper,  as well as  fibers,  rubber,  ceramics,  inks and
cosmetics  markets.  Such  markets are  generally  considered  "quality-of-life"
markets whose demand for TiO2 is influenced by the relative economic  well-being
of the various geographic  regions.  TiO2 is sold to over 1,000 customers,  with
the top ten external  customers  approximating  30% of net sales in 2001, 28% of
net  sales  in 2002  and 26% of net  sales  in  2003.  Approximately  80% of the
Company's  TiO2 sales by volume  were to Europe in each of 2001,  2002 and 2003.
Approximately 10% of sales by volume were to North America in each of 2001, 2002
and 2003.

Note 14 - Financial instruments:

     Summarized below is the estimated fair value and related net carrying value
of the Company's financial instruments.
<TABLE>
<CAPTION>

                                                                               December 31,
                                                      ---------------------------------------------------------
                                                                  2002                           2003
                                                      --------------------------       ------------------------
                                                       Carrying           Fair          Carrying          Fair
                                                        Amount           Value           Amount          Value
                                                      ---------         -------        ---------        -------
                                                                             (In millions)

Cash, cash equivalents, restricted cash
    equivalents and noncurrent restricted
<S>                                                  <C>              <C>           <C>             <C>
    marketable debt securities                       $  5.4           $  5.4        $   8.6         $   8.6

Notes payable and long-term debt -
 variable rate debt                                  $ 29.0           $ 29.0        $    .6         $    .6
</TABLE>

     The Company held no derivative  financial  instruments during 2001, 2002 or
2003.

Note 15 - Accounting principles newly adopted in 2003:

     The  Company  adopted  SFAS  No.  143,  "Accounting  for  Asset  Retirement
Obligations," effective January 1, 2003. Under SFAS No. 143, the fair value of a
liability for an asset retirement obligation covered under the scope of SFAS No.
143 would be recognized  in the period in which the liability is incurred,  with
an offsetting  increase in the carrying amount of the related  long-lived asset.
Over time,  the  liability  would be  accreted  to its  present  value,  and the
capitalized cost would be depreciated over the useful life of the related asset.
Upon  settlement of the liability,  an entity would either settle the obligation
for its recorded amount or incur a gain or loss upon settlement.

     Under the transition provisions of SFAS No. 143, at the date of adoption on
January 1,  2003,  the  Company  will  recognize  (i) an asset  retirement  cost
capitalized  as an increase to the  carrying  value of its  property,  plant and
equipment,  (ii)  accumulated  depreciation on such capitalized cost and (iii) a
liability  for the  asset  retirement  obligation.  Amounts  resulting  from the
initial application of SFAS No. 143 are measured using information,  assumptions
and interest rates all as of January 1, 2003. The amount recognized as the asset
retirement cost is measured as of the date the asset  retirement  obligation was
incurred.   Cumulative  accretion  on  the  asset  retirement  obligation,   and
accumulated  depreciation  on the asset  retirement  cost, is recognized for the
time period from the date the asset  retirement  cost and  liability  would have
been  recognized  had the  provisions of SFAS No. 143 been in effect at the date
the liability was incurred,  through  January 1, 2003. The  difference,  if any,
between the  amounts to be  recognized  as  described  above and any  associated
amounts  recognized in the Company's balance sheet as of December 31, 2003 would
be recognized as a cumulative  effect of a change in accounting  principle as of
the date of adoption.  The effect of adopting SFAS No. 143 as of January 1, 2003
as  summarized  in the table below is not expected to have a material  effect on
the  Company's  consolidated  financial  position,   results  of  operations  or
liquidity:
<TABLE>
<CAPTION>

                                                                                                    Amount
                                                                                                -------------
                                                                                                (in millions)

Increase in carrying value of net property, plant and equipment:
<S>                                                                                                 <C>
    Cost                                                                                            $ .4
    Accumulated depreciation                                                                         (.1)
Decrease in liabilities previously accrued for closure and post
  closure activities                                                                                  .3
Asset retirement obligation recognized                                                               (.6)
                                                                                                    ----

        Net impact                                                                                  $  -
                                                                                                    ====
</TABLE>

     The  increase  in the asset  retirement  obligations  from  January 1, 2003
($600,000) to December 31, 2003  ($800,000) is due to accretion  expense and the
effects of  currency  translation.  Accretion  expense,  which is  reported as a
component of cost of goods sold in the  accompanying  statement  of  operations,
approximated  $100,000 for the year ended  December 31, 2003. If the Company had
adopted  SFAS No. 143 as of January 1, 2001,  the asset  retirement  obligations
would have been approximately $500,000 at December 31, 2001.

     Estimates of the ultimate cost to be incurred to settle the Company's asset
retirement obligations require a number of assumptions, are inherently difficult
to develop  and the  ultimate  outcome  may differ from  current  estimates.  As
additional  information  becomes  available,  cost estimates will be adjusted as
necessary.  It  is  possible  that  technological,   regulatory  or  enforcement
developments,  the results of studies or other  factors  could  necessitate  the
recording of additional liabilities.

     Costs associated with exit or disposal activities. The Company adopted SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal  Activities," on
January 1, 2003 for exit or disposal activities initiated on or after that date.
Under SFAS No. 146, costs associated with exit activities,  as defined, that are
covered by the scope of SFAS No. 146 will be recognized  and measured  initially
at fair value, generally in the period in which the liability is incurred. Costs
covered by the scope of SFAS No. 146 include  termination  benefits  provided to
employees,  costs to consolidate facilities or relocate employees,  and costs to
terminate contracts (other than a capital lease).  Under prior GAAP, a liability
for such an exit cost is recognized  at the date an exit plan is adopted,  which
may or may not be the date at which the liability has been incurred.  The effect
of adopting  SFAS No. 146 as of January 1, 2003 was not  material as the Company
was not involved in any exit or disposal  activities covered by the scope of the
new standard as of such date.

Note 16 - Accounting principles not yet adopted:

     The Company is required to comply with the  consolidation  requirements  of
FASB  Interpretation  ("FIN")  No.  46R,  "Consolidation  of  Variable  Interest
Entities,  an interpretation of ARB No. 51," as amended at March 31, 2004. While
the Company  currently does not believe it has any involvement with any variable
interest entity (as that term is defined in FIN No. 46R) covered by the scope of
FIN No. 46R, the  interpretation is complex and therefore the impact of adopting
the  consolidation  requirements  of FIN No.  46R has not yet been  definitively
determined.