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, 2004

                        Commission file number 333-100047

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

           Delaware                                            22-2949593
-------------------------------                            --------------------

(State or other jurisdiction of                              (IRS Employer
 incorporation or organization)                            Identification No.)

5430 LBJ Freeway, Suite 1700, Dallas, Texas                    75240-2697
  (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, 2004
(the last business day of the Registrant's most recently-completed second fiscal
quarter).

As of February 28,  2005,  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" or "the Company") 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). KII conducts Kronos' European value-added titanium dioxide pigments
("TiO2") operations.

     At December  31,  2004,  (i) Valhi,  Inc.  (NYSE:  VHI) and a  wholly-owned
subsidiary  of Valhi  held  approximately  57% of  Kronos'  common  stock and NL
Industries, Inc. (NYSE: NL) held an additional 37% of Kronos' common stock, (ii)
Valhi and such  wholly-owned  subsidiary  of Valhi held 83% of NL's  outstanding
common  stock  and  (iii)  Contran   Corporation  and  its   subsidiaries   held
approximately  91% 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,  or is held by Mr. Simmons or persons or other entities related
to Mr. Simmons.  Consequently, Mr. Simmons may be deemed to control each of such
companies.

     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    The ultimate ability to utilize income tax attributes, the benefit of which
     has been recognized under the "more-likely-than-not" recognition criteria,
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 inorganic  chemical  products used
for imparting  whiteness,  brightness and opacity to a diverse range of customer
applications and end-use markets, including coatings,  plastics, paper and other
industrial  and  consumer  "quality-of-life"  products.  TiO2  is  considered  a
"quality-of-life"  product  with demand  affected by gross  domestic  product in
various  regions of the world.  TiO2,  the largest  commercially  used whitening
pigment  by  volume,  derives  its  value  from  its  whitening  properties  and
opacifying ability (commonly referred to as hiding power). As a result of TiO2's
high  refractive  index rating,  it can provide more hiding power than any other
commercially  produced white pigment. In addition,  TiO2 demonstrates  excellent
resistance  to  chemical  attack,  good  thermal  stability  and  resistance  to
ultraviolet  degradation.  TiO2 is supplied to  customers  in either a powder or
slurry form.

     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, experience greater demand.  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.  Both the  chloride and sulfate  production  processes  (discussed
below)  produce  rutile  TiO2.  Chloride  process  rutile is  preferred  for the
majority of customer applications. From a technical standpoint, chloride process
rutile has a bluer  undertone and higher  durability than sulfate process rutile
TiO2.  Although many end-use  applications can use either form of TiO2, chloride
process rutile TiO2 is the preferred form for use in coatings and plastics,  the
two largest end-use  markets.  Anatase TiO2,  which is produced only through the
sulfate  production  process,  represents  a much smaller  percentage  of annual
global TiO2  production  and is preferred for use in selected  paper,  ceramics,
rubber tires, man-made fibers, food and cosmetics.

     The Company  believes  that there are no  effective  substitutes  for TiO2.
Extenders, such as kaolin clays, calcium carbonate and polymeric opacifiers, are
used in a number of end-used  markets as white pigments,  however the opacity in
these products is not able to duplicate the performance characteristics of TiO2,
and the Company believes these products are unlikely to replace TiO2.

     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  and its  distributors  and agents  sell and provide  technical
services for its products to over 4,000 customers in over 100 countries with the
majority  of sales in  Europe.  TiO2 is  distributed  by rail,  truck  and ocean
carrier in either dry or slurry form.  Kronos,  the Company and its predecessors
have  produced and marketed  TiO2 in North America and Europe for over 80 years,
and Kronos is the only leading  TiO2  producer  committed to producing  TiO2 and
related  products  as its  sole  business.  The  Company  believes  that  it has
developed  considerable  expertise  and  efficiency  in the  manufacture,  sale,
shipment and service of its products.

     Sales of TiO2  represented  about 90% of the Company's total sales in 2004.
Sales of other products,  complementary to the Company's TiO2 business, comprise
the following:

o    The Company  operates an ilmenite mine in Norway pursuant to a governmental
     concession with an unlimited term. Ilmenite is a raw material used directly
     as a feedstock by some  sulfate-process  TiO2 plants,  including all of the
     Company's European  sulfate-process plants. The mine has estimated reserves
     that  are  expected  to  last  at  least  20  years.   Ilmenite   sales  to
     third-parties  represented  approximately 6% of the Company's  consolidated
     net sales in 2004.

o    The  Company  manufactures  and  sells  iron-based  chemicals,   which  are
     by-products  and  processed  by-products  of the  TiO2  pigment  production
     process.  These  co-product  chemicals  are marketed  through the Company's
     Ecochem  division,  and are used  primarily as treatment  and  conditioning
     agents for industrial  effluents and municipal wastewater as well as in the
     manufacture of ore pigments,  cement and  agricultural  products.  Sales of
     iron-based chemical products were about 5% of sales in 2004.

o    The Company  manufactures  and sells  certain  titanium  chemical  products
     (titanium oxychloride and titanyl sulfate),  which are side-stream products
     from the  production  of TiO2.  Titanium  oxychloride  is used in specialty
     applications  in the  formulation  of pearlescent  pigments,  production of
     electroceramic  capacitors  for cell phones and other  electronic  devices.
     Titanyl sulfate products are used primarily in pearlescent pigments.  Sales
     of these products were about 1% of sales in 2004.

     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. The chloride process  typically has lower  manufacturing
costs than the sulfate  process due to higher yield and production of less waste
and lower energy  requirements and labor costs.  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 can produce 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.

     The Company  produced a Company record 328,000 metric tons of TiO2 in 2004,
compared  to 320,000  metric tons  produced  in 2003 and 293,000  metric tons in
2002. The Company's  average  production  capacity  utilization rate in 2004 was
near capacity,  up from 98% in 2003. The production  rates in 2003 and 2004 were
higher than 2002 due in part to debottlenecking  activities,  with only moderate
capital  expenditures.  The  Company  believes  its  current  annual  attainable
production  capacity for 2005 is  approximately  334,000 metric tons,  with some
slight  additional   capacity  available  in  2006  through  Kronos'  continuing
debottlenecking efforts.

     The primary raw materials used in the TiO2 chloride  production process are
titanium-containing   feedstock,  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 2004, of which the vast majority was slag.

     Through Kronos (US), Inc. ("KUS"), a wholly-owned subsidiary of Kronos, the
Company  purchased  chloride process grade slag in 2004 from a subsidiary of Rio
Tinto plc UK - Richards  Bay Iron and  Titanium  Limited  South  Africa  under a
long-term supply contract that expires at the end of 2007. 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 2007.
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  sulfate-process  pigment
plants in 2004.  The  Company  produced  approximately  856,000  metric  tons of
ilmenite  in  2004  of  which  approximately   311,000  metric  tons  were  used
internally, with the remainder sold to third parties.

     The number of sources of, and  availability  of,  certain raw  materials is
specific to the particular  geographic region in which a facility is located. As
noted above,  through KUS the Company  purchases  titanium-bearing  ore from two
different  suppliers  in  different  countries  under  multiple-year  contracts.
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 consolidated  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 2004
the  Company had an  estimated  8% share of  worldwide  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 Kronos  Canada  Inc.,  a  wholly-owned
subsidiary of Kronos),  principal  competitors are E.I. du Pont de Nemours & Co.
("DuPont");  Millennium Chemicals,  Inc.; Huntsman  International  Holdings LLC;
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 4%, and an estimated  aggregate 70% share of worldwide  TiO2
production volume.

     Worldwide capacity additions in the TiO2 market resulting from construction
of greenfield plants require  significant  capital  expenditures and substantial
lead  time  (typically  three to five  years in the  Company's  experience).  No
greenfield  plants are currently under  construction in North America or Europe.
The Company does expect that industry  capacity will increase as the Company and
its competitors continue to debottleneck their existing facilities.  In addition
to the potential capacity additions through debottlenecking, certain competitors
have recently either idled or shut down  facilities.  In the past year,  certain
competitors  have  announced  the  idling  or  shut  down  of  an  aggregate  of
approximately  135,000 metric tons of sulfate production capacity by early 2005.
Based on the  factors  described  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  during the next
three to five years. However, 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 performances could be unfavorably affected.

     Research  and  development.  The  Company's  expenditures  for research and
development and certain technical support programs were approximately $6 million
in 2002,  $7 million in 2003 and $8 million in 2004.  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.

     The Company continually seeks to improve the quality of its grades, and has
been  successful at developing new grades for existing and new  applications  to
meet the needs of customers and increase product life cycle.  Over the last five
years,  ten new grades have been added for plastics,  coatings,  fiber and paper
laminate applications.

     Patents and trademarks.  Patents held for products and production processes
are  believed  to be  important  to the  Company  and  its  continuing  business
activities.  The Company 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  existing
patents  generally  have a term of 20 years  from the date of  filing,  and have
remaining  terms ranging from one to 19 years.  The Company seeks to protect its
intellectual property rights, including its patent rights, and from time to time
the  Company  is engaged  in  disputes  relating  to the  protection  and use of
intellectual property relating to its products.

     The  Company's  major  trademarks,   including  Kronos,  are  protected  by
registration  in the United States and elsewhere  with respect to those products
it  manufactures  and sells.  The Company also relies on unpatented  proprietary
know-how and  continuing  technological  innovation  and other trade  secrets to
develop  and  maintain  its  competitive  position.  The  Company's  proprietary
chloride  production  process is an important part of the Company's  technology,
and the  Company's  business  could be  harmed  if the  Company  should  fail to
maintain confidentiality of its trade secrets used in this technology.

     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
$396 million at December 31, 2004. 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 $666 million of
the  Company's  2004   consolidated   sales  were  to  European   customers  and
approximately  $142  million  were to  customers  in areas  other  than  Europe,
including  approximately  $42 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 21% of net sales in 2004.
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,  2004,  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's union employees are covered by master collective
bargaining  agreements in the chemicals industry that are renewed annually.  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 Company's  policy 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.

     While the laws  regulating  operations of  industrial  facilities in Europe
vary from country to country,  a common regulatory  framework 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.

     At its sulfate  plant  facilities  in Germany,  the Company  recycles  weak
sulfuric  acid  either  through  contracts  with third  parties or using its own
facilities.  At the Company's  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  sulfate-process
effluents at its German sulfate  plant.  Either party may terminate the contract
after giving four years advance  notice with regard to the Company's  Nordenham,
Germany plant.

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

     From time to time, the Company's facilities may be subject to environmental
regulatory  enforcement  under  various  non-U.S.  statutes.  Resolution of such
matters   typically   involves  the   establishment   of  compliance   programs.
Occasionally,  resolution  may result in the payment of  penalties,  but to date
such penalties have not involved amounts having a material adverse effect on the
Company's consolidated  financial position,  results of operations or liquidity.
The Company  believes that all of its plants are in substantial  compliance with
applicable environmental laws.

     The Company's  capital  expenditures  related to its ongoing  environmental
protection and improvement  programs in 2004 were approximately $5 million,  and
are currently expected to be approximately $4 million in 2005.

     Website and other  available  information.  The Company does not maintain a
website on the  Internet.  However,  Kronos  maintains a website on the Internet
with the address of  www.kronostio2.com.  Copies of this  Annual  Report on Form
10-K for the year ended December 31, 2004 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 Kronos' 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

     During  2004,  the Company  operated  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  with an unlimited term.
TiO2 is produced using the chloride  process at the Leverkusen and  Langerbrugge
facilities  and  is  manufactured   using  the  sulfate  process  in  Nordenham,
Leverkusen  and  Fredrikstad.  The  Company's  co-products  are  produced at its
Norwegian and Belgian  facilities and its titanium chemicals are produced at its
Belgian facility.

     The  Company  owns all of its  principal  production  facilities  described
above, except for the land under the Leverkusen and Fredrikstad facilities.  The
Norwegian  plant is located on public  land and is leased  until  2013,  with an
option to extend the lease for an additional 50 years.  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
ownership and use of the Leverkusen facility.

     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  environmental,  contractual,  product
liability  and other claims and disputes  incidental  to its  business.  Certain
information  called for by this Item is included in Note 12 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  or  make  other  restricted  payments  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,
2004, $49 million was available for dividends or other restricted  payments,  as
defined.

     In  2004,  the  Company  paid $60  million  in  dividends  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>
                                                                    Years ended December 31,
                                                  ------------------------------------------------------------
                                                    2000        2001         2002         2003         2004
                                                    ----        ----         ----         ----         ----
                                                                          (In millions)


 STATEMENTS OF OPERATIONS DATA:
<S>                                              <C>          <C>          <C>          <C>          <C>
    Net sales                                    $ 620.5      $ 554.6      $ 579.7      $ 715.9      $ 808.0
    Net income                                      80.1        113.7         52.3         81.8        326.0

 BALANCE SHEET DATA (at year end):
    Total assets                                   530.1        532.5        611.3        750.5        985.2
    Long-term debt including current maturities    196.1        482.9        325.9        356.7        533.2
    Redeemable preferred stock and profit
      participation certificates                   504.9        617.4           -           -            -
    Stockholder's equity (deficit)                (427.7)      (777.5)        76.8        111.6        206.5

 TiO2 OPERATING STATISTICS:
    Sales volume*                                  294          265          297          310          336
    Production volume*                             297          269          293          320          328
    Production rate as a percentage of capacity   Full           87%          93%         Full         Full

</TABLE>
__________________________________

* Metric tons in thousands

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 2002,  2003 and 2004,  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 15% to 24%.

o    The Company  provides  reserves for estimated  obsolescence or unmarketable
     inventories  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.

     Under  applicable  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 2004, no such impairment indicators, as defined, were present.

o    The Company  maintains  various defined benefit pension plans.  The amounts
     recognized as defined benefit pension expenses, and the reported amounts 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 expenses 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. For example,  during 2004 the Company concluded that the
     more-likely-than-not  recognition criteria had been met with respect to the
     income  tax  benefit   associated   with  its  German  net  operating  loss
     carryforwards. The Company has substantial net operating loss carryforwards
     in Germany (the  equivalent of $671 million for German  corporate  purposes
     and $232 million for German trade tax purposes at December 31, 2004). Prior
     to the complete utilization of such carryforwards,  it is possible that the
     Company might conclude in the future that the benefit of such carryforwards
     would no longer  meet the  more-likely-than-not  recognition  criteria,  at
     which  point  the  Company  would be  required  to  recognize  a  valuation
     allowance  against  the  then-remaining  tax  benefit  associated  with the
     carryforwards.

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).

     Income  from  operations  are  impacted  by  certain  of these  significant
judgments and estimates,  such as allowance for doubtful accounts,  reserves for
obsolete or  unmarketable  inventories,  impairment of equity method  investees,
goodwill and other  long-lived  assets,  defined  benefit pension plans and loss
accruals.  In addition,  other income  (expense) is impacted by the  significant
judgments and estimates for deferred income tax asset  valuation  allowances and
loss accruals.

Executive summary

     The Company  reported net income of $326.0  million in 2004.  Net income in
2004 includes a second quarter income tax benefit related to the reversal of the
Company's  deferred  income tax asset  valuation  allowance in Germany of $277.3
million.  Net income in 2003  includes  an income tax  benefit  relating  to the
refund of prior year German  income taxes of $24.6  million.  Net income in 2002
includes  (i) an income tax  benefit  related to the  reduction  in the  Belgian
corporate  income  tax rate of $2.3  million  and (ii)  income  of $1.8  million
related  to  KII's  foreign   currency   transaction  gain  resulting  from  the
extinguishment of certain intercompany indebtedness. Each of these items is more
fully  discussed  below  and/or  in  the  notes  to the  Consolidated  Financial
Statements.

     The Company currently expects income from operations will be higher in 2005
compared to 2004,  but this  increase  will not offset the decline in income tax
benefits in 2005 as compared to 2004.

     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.

     Selling prices (in billing  currencies)  for TiO2, the Company's  principal
product,  were  generally:  decreasing  during the first  quarter of 2002,  flat
during the second quarter of 2002, increasing during the second half of 2002 and
the first quarter of 2003,  flat during the second  quarter of 2003,  decreasing
during the second half of 2003 and the first half of 2004 and increasing  during
the second half of 2004.

Results of operations

<TABLE>

                                                    Years ended December 31,                     % Change
                                            ----------------------------------------       ---------------------
                                              2002          2003            2004           2002-03       2003-04
                                              ----          ----            ----           -------       -------
                                           (In millions, except selling price data)
<S>                                         <C>           <C>             <C>                <C>           <C>
 Net sales                                  $ 579.7       $ 715.9         $ 808.0            +23%          +13%
 Cost of sales                                454.2         516.9           609.6            +14%          +18%
                                            -------       -------         -------

 Gross margin                                 125.5         199.0           198.4            +59%           **

 Selling, general and administrative
     expense                                  (72.0)        (87.0)         (104.1)           +21%          +20%
 Currency transaction gains (losses), net      12.4          (3.7)           (2.2)
 Royalty income                                 5.8           6.1             6.0
 Other operating income (expense), net          (.2)           -              (.5)
                                            -------       -------         -------

 Income from operations                     $ 71.5        $ 114.4         $  97.6            +60%          -15%
                                            ======        =======         =======

 TiO2 operating statistics:

 Percent change in average selling
     prices:
        Using actual foreign currency
           exchange rates                                                                 +20%             + 4%
        Impact of changes in foreign
           currency exchange rates                                                        -20%             - 7%
                                                                                          ----             ----

        In billing currencies                                                              **%             - 3%
                                                                                          ====             ====
 Sales volumes*                             297           310               336              + 4%          + 8%
 Production volumes*                        293           320               328              + 9%          + 3%
 Production rate as
     percent of capacity                    93%           Full              Full
</TABLE>

____________________________

* Thousands of metric tons
** less that 1%

     Year ended December 31, 2004 compared to year ended December 31, 2003

     The Company's  sales  increased  $92.1 million (13%) in 2004 as compared to
2003 as higher sales volumes and the favorable effect of fluctuations in foreign
currency  exchange rates,  which increased sales by approximately $56 million as
further  discussed  below,  more than  offset the impact of lower  average  TiO2
selling  prices.  Excluding the effect of  fluctuations in the value of the U.S.
dollar relative to other  currencies,  the Company's average TiO2 selling prices
in billing currencies were 3% lower in 2004 as compared to 2003. When translated
from billing currencies into U.S. dollars using actual foreign currency exchange
rates  prevailing  during the  respective  periods,  the Company's  average TiO2
selling  prices in 2004  increased  4% as compared  to 2003.  See " - Effects of
foreign  currency  exchange  rates"  below  for a  discussion  of the  impact of
relative changes in currency exchange rates on the Company's operations.

     The Company's TiO2 sales volumes in 2004 increased 8% compared to 2003, due
to higher sales volumes in Europe and export markets.  By volume,  approximately
77% of the  Company's  2004 TiO2 sales were  attributable  to markets in Europe,
with 14% attributable to export markets and the balance to North America. Demand
for TiO2 has remained  strong  throughout  2004, and while the Company  believes
that the strong  demand is largely  attributable  to the  end-use  demand of its
customers,  it is possible that some portion of the strong demand  resulted from
customers increasing their inventory levels of TiO2 in advance of implementation
of announced or anticipated  price  increases.  The Company's  operating  income
comparisons  were also favorably  impacted by higher  production  levels,  which
increased  3%. The  Company's  operating  rates were near full  capacity in both
periods,  and the Company's  sales and production  volumes in 2004 were both new
records  for the  Company,  setting  new volume  records for the Company for the
third consecutive year.

     The Company's cost of sales  increased $92.7 million (18%) in 2004 compared
to 2003 due to higher raw material and maintenance costs as well as higher sales
volumes and related  effects of  translating  foreign  currencies  into the U.S.
dollar.  The Company's  cost of sales,  as a percentage of net sales,  increased
from 72% in 2003 to 75% in 2004 due  primarily  to the effects of lower  average
selling prices and higher costs.

     The Company's gross margins  decreased $.6 million (less than 1%) from 2003
to 2004 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
were relatively  consistent from 2003 to 2004, increasing marginally from 12% to
13%, and  increasing  proportionately  with the increased  sales and  production
volume.

     The Company's income from operations  decreased $16.8 million (15%) in 2004
as compared to 2003,  as the effect of lower  average  TiO2  selling  prices and
higher raw material and maintenance  costs more than offset the impact of higher
sales and production volumes.  See also " - Effects of foreign currency exchange
rates"  below for a  discussion  of the impact of  relative  changes in currency
exchange rates on the Company's operations.

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

     The Company's 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.  See " - Effects  of  foreign
currency  exchange  rates"  below for a  discussion  of the  impact of  relative
changes in currency exchange rates on the Company's operations.

     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
operating income  comparisons were also favorably  impacted by higher production
levels,  which increased 9%. Operating rates were near full capacity during most
of 2003, setting a new Company production record.

     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.

     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.

     The Company's income from operations  increased $42.9 million (60%) in 2003
compared to 2002 due primarily to higher  average TiO2 selling prices and higher
TiO2 sales and  production  volumes.  See also " - Effects  of foreign  currency
exchange  rates"  below for a  discussion  of the impact of relative  changes in
currency exchange rates on Kronos' operations.

     Effects of foreign currency exchange rates

     The Company's  sales are denominated in various  currencies,  including the
the euro and other major European  currencies.  The disclosure of the percentage
change in the Company's average TiO2 selling prices 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 GAAP ("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% and 4%
increases in the  Company's  average TiO2 selling  prices  during 2003 and 2004,
respectively,  as compared to the  respective  prior year using  actual  foreign
currency  exchange  rates  prevailing  during the  respective  periods (the GAAP
measure),  and the minimal  percentage  change and 3% decrease in the  Company's
average TiO2 selling prices in billing  currencies (the non-GAAP measure) during
such periods is due to the effect of changes in foreign currency exchange rates.
The above table 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  prices 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  operations  and assets  located  outside the United  States
(primarily  in  Germany,  Belgium  and  Norway).  A  significant  amount  of the
Company's  sales  generated from its  operations  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 are
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  foreign 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 by a net $56  million  in 2004 as  compared  to 2003,  and
increased  sales by a net $89 million in 2003 as 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 2004 and 2003 compared to the same periods of
the  respective  prior  years.  Overall,  currency  exchange  rate  fluctuations
resulted in a net $9 million increase in the Company's  operating income in 2004
as compared to 2003,  and resulted in a net increase in the Company's  operating
income in 2003 of approximately $5 million as compared to 2002.

     Outlook

     Reflecting  the impact of partial  implementation  of prior price  increase
announcements,  the Company's average TiO2 selling prices in billing  currencies
in the fourth  quarter of 2004 were 2% higher than the third quarter of 2004. In
2005,  the  Company  expects  income from  operations  will be higher than 2004,
primarily due to higher expected selling prices in 2005. The anticipated  higher
selling prices in 2005 reflects the expected  continued  implementation of price
increase announcements, including the Company's latest price increases announced
in March  2005.  The  extent to which any of such  price  increases  which  have
previously  been  announced,  and any additional  price  increases  which may be
announced  subsequently  in 2005,  will be realized  will depend on, among other
things, economic factors.

     The Company's  efforts to  debottleneck  its production  facilities to meet
long-term demand continue to prove successful. The Company's production capacity
has   increased   by   approximately   30%  over  the  past  ten  years  due  to
debottlenecking  programs,  with only moderate capital  investment.  The Company
believes its annual  attainable  production  capacity for 2005 is  approximately
334,000  metric tons,  with some slight  additional  capacity  available in 2006
through the Company's continued debottlenecking efforts.

     The Company  expects its TiO2  production  volumes in 2005 will be slightly
higher than its 2004 volumes, with sales volumes comparable to or slightly lower
in 2005 as compared to 2004. The Company's  average TiO2 selling  prices,  which
started to increase  during the second half of 2004, are expected to continue to
increase during 2005, and consequently the Company currently expects its average
TiO2 selling prices, in billing  currencies,  will be higher in 2005 as compared
to 2004. Overall, the Company expects its income from operations in 2005 will be
higher than 2004, due primarily to higher expected selling prices. The Company's
expectations  as to the future  prospects of KII and the TiO2 industry are based
upon a number of  factors  beyond the  Company's  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 KII'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>
                                                   Years ended December 31,                     Change
                                           -------------------------------------     -------------------------
                                              2002          2003           2004         2002-03       2003-04
                                              ----          ----           ----         -------       -------
                                                                       (In millions)
<S>                                         <C>          <C>             <C>            <C>           <C>
 Currency transaction gains                 $  2.7       $   -           $   -          $ (2.7)       $   -
 Interest income from affiliates              22.8           -              2.8          (22.8)          2.8
 Trade interest income                         1.6           .7             1.1            (.9)           .4
 Interest expense to affiliates              (18.7)         (.1)             -            18.6            .1
 Interest expense                            (16.7)       (32.5)          (36.7)         (15.8)         (4.2)
                                            ------       ------          ------         ------        ------

                                            $ (8.3)      $(31.9)         $(32.8)        $(23.6)       $  (.9)
                                            ======       ======          ======         ======        ======
</TABLE>

     Interest income  fluctuates in part based upon the amount of funds invested
and yields thereon.  Aggregate  interest  income  increased $3.2 million in 2004
compared to 2003 due primarily to interest on KII's notes receivable from Kronos
entered  into  during the  fourth  quarter of 2004.  Aggregate  interest  income
declined  $23.7 million in 2003 compared to 2002  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 higher in 2005 than 2004
due to the  Company's  notes  receivable  from Kronos  which are  expected to be
outstanding during the full year.

     The Company has a significant  amount of  indebtedness  denominated  in the
euro,   including  the  Company's   euro-denominated   Senior   Secured   Notes.
Accordingly,  the reported  amount of interest  expense  will vary  depending on
relative  changes in foreign currency  exchange rates.  Interest expense in 2004
was higher  than 2003 due  primarily  to  relative  changes in foreign  currency
exchange rates,  which increased the U.S. dollar  equivalent of interest expense
on the euro 285 million principal amount of KII Senior Secured Notes outstanding
during both years by  approximately  $3 million as  compared  to the  respective
prior year.  In addition,  KII issued an  additional  euro 90 million  principal
amount of KII Senior Secured Notes in November  2004,  and the interest  expense
associated with these additional Senior Secured Notes was $1 million in 2004.

     Interest  expense  decreased  $2.8  million in 2003 as compared to 2002 due
primarily to the net effects of lower average levels of indebtedness, associated
currency effects and lower average interest rates on the Company's indebtedness.

     Assuming interest rates and foreign currency exchange rates do not increase
significantly  from current levels,  interest  expense in 2005 is expected to be
higher than 2004 due  primarily to the effect of the  issuance of an  additional
euro 90 million principal amount of KII Senior Secured Notes in November 2004.

     At  December  31,  2004,   approximately  $519.2  million  of  consolidated
indebtedness,  principally  KII's Senior Secured Notes,  bears interest at fixed
interest  rates  averaging  8.4% (2003 - $356  million  with a weighted  average
interest  rate of  8.9%;  2002 - $297  million  with a  weighted  average  fixed
interest  rate of 8.9%).  The weighted  average  interest rate on $14 million of
outstanding  variable rate borrowings at December 31, 2004 was 3.9% (2003 - none
outstanding;  2002  - $27  million  outstanding  at  6.5%).  See  Note  6 to the
Consolidated Financial Statements.

     The Company had certain loans to affiliates  that were  outstanding  during
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.

     As noted above,  KII has a certain  amount of  indebtedness  denominated in
currencies  other  than  the  U.S.  dollar.  See  Item  7A,   "Quantitative  and
Qualitative Disclosures About Market Risk."

     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.

     At December 31, 2004,  the Company had the  equivalent  of $671 million and
$232 million of income tax loss carryforwards for German corporate and trade tax
purposes,  respectively,  all of which have no  expiration  date.  As more fully
described in Note 9 to the Consolidated  Financial  Statements,  the Company had
previously  provided a deferred  income tax asset  valuation  allowance  against
substantially all of these tax loss carryforwards and other deductible temporary
differences  in  Germany  because  the  Company  did not  believe  they  met the
"more-likely-than-not"  recognition  criteria.  During  the first six  months of
2004, the Company reduced its deferred  income tax asset valuation  allowance by
approximately $8.7 million, primarily as a result of utilization of these German
net operating loss  carryforwards,  the benefit of which had not previously been
recognized.  At June 30, 2004,  after  considering all available  evidence,  the
Company concluded that these German tax loss  carryforwards and other deductible
temporary differences now met the  "more-likely-than-not"  recognition criteria.
Under applicable GAAP related to accounting for income taxes at interim periods,
a change in  estimate  at an  interim  period  resulting  in a  decrease  in the
valuation  allowance is segregated into two  components,  the portion related to
the remaining interim periods of the current year and the portion related to all
future years.  The portion of the valuation  allowance  reversal  related to the
former is recognized over the remaining interim periods of the current year, and
the portion of the  valuation  allowance  related to the latter is recognized at
the time the change in estimate is made.  Accordingly,  as of June 30, 2004, the
Company reversed $268.6 million of the valuation  allowance (the portion related
to future  years),  and KII reversed the remaining  $3.4 million during the last
six months of 2004. Because the benefit of such net operating loss carryforwards
and other deductible  temporary  differences in Germany has now been recognized,
the  Company's  effective  income tax rate in 2005 is expected to be higher than
what it would have otherwise been, although its future cash income tax rate will
not be  affected  by the  reversal  of the  valuation  allowance.  Prior  to the
complete  utilization  of such  carryforwards,  it is possible  that the Company
might  conclude in the future that the  benefit of such  carryforwards  would no
longer meet the "more-likely-than-not"  recognition criteria, at which point the
Company  would be  required  to  recognize  a  valuation  allowance  against the
then-remaining tax benefit associated with the carryforwards.

     In  January  2004,  the  German  federal  government  enacted  new  tax law
amendments  that limit the annual  utilization of income tax loss  carryforwards
effective  January  1, 2004 to 60% of  taxable  income  after  the first  euro 1
million of taxable  income.  The new law will have a  significant  effect on the
Company's cash tax payments in Germany going  forward,  the extent of which will
be dependent upon the level of taxable income earned in Germany.

     During 2003, the Company  reduced its deferred  income tax asset  valuation
allowance by an aggregate of 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 an aggregate of 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.

     In October  2004,  the American  Jobs Creation Act of 2004 was enacted into
law.  The new law  contains  several  provisions  that could impact the Company.
These provisions  provide for, among other things, a special deduction from U.S.
taxable  income  equal to a  stipulated  percentage  of  qualified  income  from
domestic production activities (as defined) beginning in 2005, and a special 85%
dividends  received  deduction for certain  dividends  received from  controlled
foreign  corporations.  Both of these  provisions  are  complex  and  subject to
numerous limitations. See Note 9 to the Consolidated Financial Statements.

     Related party transactions.  The Company is a party to certain transactions
with related parties. See Note 11 to the Consolidated Financial Statements.

     Accounting  principles newly adopted in 2002, 2003 and 2004. See Note 14 to
the Consolidated Financial Statements.

     Accounting  principles  not  yet  adopted:  See  Note  15  to  Consolidated
Financial Statements.

     Defined  benefit  pension  plans.  The Company  maintains  various  defined
benefit  pension  plans in  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 $5.7  million in 2002,  $5.8 million in 2003 and $10.4
million in 2004. 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  $7.8  million in 2002,  $10.2  million in 2003 and
$11.7 million in 2004.

     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, 2004,  approximately  76% 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>

                                                       Discount rates used for:
                ----------------------------------------------------------------------------------------------------
                ----------------------------------------------------------------------------------------------------
                          Obligations at                     Obligations at                   Obligations at
                         December 31, 2002                  December 31, 2003                December 31, 2004
                        and expense in 2003                and expense in 2004              and expense in 2005
                -----------------------------------  --------------------------------  -----------------------------

<S>                            <C>                                 <C>                               <C>
Germany                        5.5%                                5.3%                              5.0%
Norway                         6.0%                                5.5%                              5.0%
</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, 2004,  approximately 70% and 26% of the plan assets related
to 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, 2004 was 23% to equity managers,  48%
     to fixed income managers and 29% to real estate.

o    In Norway,  the Company currently has a plan asset target allocation of 14%
     to  equity  managers,  62% to  fixed  income  managers  and  the  remainder
     primarily to cash and liquid  investments.  The expected  long-term rate of
     return for such  investments  is  approximately  8%, 4.5% to 6.5% and 2.5%,
     respectively.  The plan asset  allocation  at December  31, 2004 was 16% to
     equity managers,  64% to fixed income managers and the remainder  primarily
     to cash and liquid investments.

     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 2002,
2003 and 2004 were as follows:
<TABLE>

                        2002                  2003                   2004
                       ------                ------                 ------

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

     The Company  currently expects to utilize the same long-term rate of return
on plan asset assumptions in 2005 as it used in 2004 for purposes of determining
the 2005 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 2005, the Company  expects its defined  benefit  pension  expense will
approximate  $11  million in 2005.  In  comparison,  the  Company  expects to be
required to make  approximately $4 million of contributions to such plans during
2005.

     As noted above,  defined benefit pension expense and the amounts 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, 2004,  the  Company's
aggregate  projected  benefit  obligations would have increased by approximately
$11.1 million at that date, and the Company's  defined  benefit  pension expense
would be expected  to  increase  by  approximately  $1.4  million  during  2005.
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
2005.

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.  At
December 31, 2004,  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>

                                                   Years ended December 31,
                                             ----------------------------------
                                               2002         2003         2004
                                               ----         ----         ----
                                                         (In millions)

<S>                                          <C>          <C>          <C>
Operating activities                         $  68.2      $ 104.8      $ 142.2
Investing activities                           (29.7)       (31.7)       (34.2)
Financing activities                           (57.5)       (54.9)      (129.9)
                                             -------      -------      -------

Net cash provided (used) by operating,
  investing and financing activities         $ (19.0)     $  18.2      $ (21.9)
                                             =======      =======      =======
</TABLE>



     Operating  activities.  Trends  in cash  flows  from  operating  activities
(excluding the impact of significant asset  dispositions and relative changes in
assets  and  liabilities)  are  generally  similar  to trends  in the  Company's
earnings. However, certain items included in the determination of net income are
non-cash,  and therefore  such items have no impact on cash flows from operating
activities.  Non-cash items included in the  determination of net income include
depreciation  and  amortization  expense,  non-cash  interest  expense and asset
impairment  charges.  Non-cash  interest  expense  relates  to  amortization  of
original issue discount or premium on certain  indebtedness  and amortization of
deferred financing costs.

     Certain other items included in the determination of net income may have an
impact on cash flows from operating activities,  but the impact of such items on
cash  flows from  operating  activities  will  differ  from their  impact on net
income. For example, the amount of periodic defined benefit pension plan expense
depends upon a number of factors,  including certain actuarial assumptions,  and
changes in such  actuarial  assumptions  will result in a change in the reported
expense. In addition, the amount of such periodic expense generally differs from
the outflows of cash required to be currently paid for such benefits.

     Certain  other items  included in the  determination  of net income have no
impact on cash flows from  operating  activities,  but such items do impact cash
flows  from  investing  activities  (although  their  impact on such cash  flows
differs from their impact on net income). For example, realized gains and losses
from the disposal  long-lived  assets are included in the  determination  of net
income,  although the proceeds  from any such disposal are shown as part of cash
flows from investing activities.

     Changes in product pricing,  production volumes and customer demand,  among
other things,  can 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.  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,  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
volumes and sales volumes.

     Cash flows provided from operating activities increased from $104.8 million
in 2003 to $142.2 million in 2004. This $37.4 million increase was due primarily
to the net  effect of (i) higher  net  income of $244.2  million,  (ii) a larger
deferred income tax benefit of $312.7  million,  (iii) higher  depreciation  and
amortization expense of $4.1 million,  (iv) a higher amount of net cash provided
from changes in the Company's inventories,  receivables,  payables, accruals and
accounts  with  affiliates  of $34.5  million and (v) higher cash  received  for
income taxes of $12.3 million.

     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.

     Investing  cash  flows.  The  Company's  capital  expenditures  were  $27.6
million,  $31.5 million and $33.7 million in 2002, 2003 and 2004,  respectively.
Capital  expenditures  in 2002  included an  aggregate  of $3.1  million for the
rebuilding of the Company's Leverkusen, Germany sulfate plant.

     The Company's capital  expenditures  during the past three years include an
aggregate of approximately  $14 million ($5.1 million in 2004) for the Company's
ongoing  environmental   protection  and  compliance  programs.   The  Company's
estimated 2005 capital expenditures are $37 million and include approximately $4
million in the area of environmental protection and compliance.

     Financing  cash flows.  During 2004,  (i) KII issued an additional  euro 90
million  principal  amount of it Senior Secured Notes at 107% of par (equivalent
to $130 million when issued) and (ii) KII's  operating  subsidiaries in Germany,
Belgium and Norway  borrowed an aggregate of euro 90 million  ($112 million when
borrowed) of borrowings  under its three-year euro 80 million secured  revolving
credit facility  ("European  Credit  Facility"),  of which euro 80 million ($100
million) were  subsequently  repaid.  See Note 6 to the  Consolidated  Financial
Statements.

     In the fourth  quarter of 2004,  KII  transferred  an aggregate  euro 163.1
million ($209.5 million) to Kronos in return for two promissory notes.  Interest
on both notes is payable to KII on a quarterly basis at an annual rate of 9.25%.
Due to the  long-term  investment  nature  of  these  notes,  settlement  of the
intercompany notes receivable is not contemplated  within the foreseeable future
and as such  have  been  presented  as a  separate  component  of the  Company's
stockholder's equity.

     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 the European
Credit Facility.

     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 paid of $10.0 million in 2002 and $2.0 million in
2004 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, 2004.

     Cash  dividends  paid during 2003 and 2004 totaled  $25.0 million and $60.0
million,  respectively.  (No dividends were paid in 2002).  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 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).  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.

     Provisions  contained in certain of our credit  agreements  could result in
the  acceleration of the applicable  indebtedness  prior to its stated maturity.
For  example,  certain  credit  agreements  allow the lender to  accelerate  the
maturity  of the  indebtedness  upon a change of  control  (as  defined)  of the
borrower.   In  addition,   certain  credit   agreements  could  result  in  the
acceleration of all or a portion of the indebtedness  following a sale of assets
outside the ordinary course of business.  Other than operating lease commitments
disclosed in Note 12 to the Consolidated  Financial  Statements,  the Company is
not party to any material off-balance sheet financing arrangements.

     Cash,  cash  equivalents,  restricted  cash and restricted  marketable debt
securities  and borrowing  availability.  At December 31, 2004,  the Company had
current  cash  and cash  equivalents  aggregating  $17.5  million,  had  current
restricted cash equivalents of $1.5 million and noncurrent restricted marketable
debt securities of $2.9 million.  At December 31, 2004, certain of the Company's
subsidiaries  had  approximately  $93 million  available for borrowing under the
European Credit Facility (based on borrowing availability).  The European Credit
Facility  matures in June 2005,  and the Company  expects to seek renewal of the
facility  in the first half of 2005.  At  December  31,  2004,  the  Company had
approximately   $49  million  available  for  payment  of  dividends  and  other
restricted payments as defined in the Notes indenture.

     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  obligations  including  operations,
capital  expenditures,  debt service and current dividend policy.  To the extent
that actual developments differ from the Company's  expectations,  the Company's
liquidity could be adversely affected.

     Legal   proceedings  and  environmental   matters.   See  Note  12  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. At
December 31, 2004,  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 such  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 12 to  the  Consolidated  Financial
Statements.  The following table summarizes such contractual  commitments of the
Company and its  consolidated  subsidiaries  as of December 31, 2004 by the type
and date of payment.
<TABLE>

                                                             Payment due date
                                   ------------------------------------------------------------------
                                                                                2010 and
   Contractual commitment           2005       2006/2007       2008/2009         after         Total
   ----------------------           ----       ---------       ---------        --------       -----
                                                                 (In millions)

<S>                               <C>             <C>             <C>             <C>           <C>
Third-party indebtedness          $  13.8       $    .2         $ 519.2         $    -        $ 533.2

Interest payments on
 third-party indebtedness            45.0          89.4            44.7              -          179.1

Operating leases                      3.4           4.0             3.0            20.9          31.3

Fixed asset acquisitions              5.5            -               -               -            5.5

Estimated tax obligations            17.1            -               -               -           17.1
                                  -------       -------         -------         -------       -------

                                  $  84.8       $  93.6         $ 566.9         $  20.9       $ 766.2
                                  =======       =======         =======         =======       =======
</TABLE>

     The  timing  and  amount  shown for the  Company's  commitments  related to
indebtedness   (principal  and   interest),   operating   leases,   fixed  asset
acquisitions,  long-term supply contracts are based upon the contractual payment
amount and the contractual  payment date for such  commitments.  With respect to
revolving credit facilities, the amount shown for indebtedness is based upon the
actual  amount  outstanding  at  December  31,  2004,  and the amount  shown for
interest  for any  outstanding  variable-rate  indebtedness  is  based  upon the
December 31, 2004 interest rate and assumes that such variable-rate indebtedness
remains  outstanding  until the maturity of the  facility.  The amount shown for
income taxes is the consolidated  amount of income taxes payable at December 31,
2004,  which is assumed to be paid during  2005.  A  significant  portion of the
amount shown for  indebtedness  relates to KII's Senior  Secured  Notes  ($519.2
million at December 31, 2004).  Such  indebtedness  is  denominated in euro. See
Item 7A - "Quantative and Qualitative  Disclosures About Market Risk" and Note 6
to the Consolidated Financial Statements.

     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.  The above  table also does not reflect any
amounts that the Company might pay related to its asset retirement  obligations,
as the terms and amounts of such future  fundings are unknown.  See Notes 10 and
14 to the Consolidated Financial Statements.

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 currency forward contracts,  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, 2003
and 2004. See Notes 1 and 13 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 and
2004, substantially all of the Company's aggregate indebtedness was comprised of
fixed-rate  instruments.  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, 2004.
At December  31, 2003 and 2004,  all  outstanding  fixed-rate  indebtedness  was
denominated  in  euros,  and  the  outstanding  variable  rate  borrowings  were
denominated  in  euros.  Information  shown  below  for  such  foreign  currency
denominated  indebtedness is presented in its U.S. dollar equivalent at December
31, 2004 using exchange rates of 1.36 U.S. dollars per euro.  Certain  Norwegian
kroner  denominated  capital leases totaling $300,000 in 2004 have been excluded
from the table below.
<TABLE>
                                              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               $ 519.2       $ 549.1       8.9%          2009
                                      =======       =======


Variable rate indebtedness -
  European Credit Facility            $  13.6       $  13.6       3.9%          2005
                                      =======       =======
</TABLE>

     At December 31, 2003,  euro-denominated fixed rate indebtedness  aggregated
$356.1 million (fair value - $356.1  million) with a  weighted-average  interest
rate of 8.9%.

     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, 2004, the Company had the equivalent of
$532.8  million  of  outstanding  euro-denominated   indebtedness  (2003  -  the
equivalent of $356.1 million of  euro-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  $52.4  million  at  December  31,  2004  (2003 - $35.6
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

     Evaluation of Disclosure  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,  or persons
performing  similar  functions,  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,
Finance and Chief  Financial  Officer,  have evaluated the Company's  disclosure
controls and  procedures as of December 31, 2004.  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.

     Internal  Control Over  Financial  Reporting.  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 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  internal  control over financial
reporting  during  the  quarter  ended  December  31,  2004 that has  materially
affected,  or is reasonably likely to materially  affect, the Company's internal
control over financial reporting.

     The Company currently expects that Section 404 of the Sarbanes-Oxley Act of
2002 will  require  the  Company  to  annually  include a  management  report on
internal  control over financial  reporting  starting with the Company's  Annual
Report  on Form  10-K  for the year  ended  December  31,  2006.  The  Company's
independent  registered public accounting firm will also be required to annually
audit the  Company's  internal  control over  financial  reporting.  In order to
achieve  compliance with Section 404, the Company has been documenting,  testing
and evaluating its internal control over financial reporting since 2004, using a
combination  of internal and  external  resources.  The process of  documenting,
testing and evaluating the Company's  internal control over financial  reporting
under the  applicable  guidelines is complex and time  consuming,  and available
internal  and  external  resources  necessary  to  assist  the  Company  in  the
documentation and testing required to comply with Section 404 are limited. While
the Company currently believes it has dedicated the appropriate resources,  that
it will be able to fully  comply with  Section 404 in its Annual  Report on Form
10-K for the year ended  December 31, 2006 and be in a position to conclude that
the  Company's  internal  control  over  financial  reporting is effective as of
December  31, 2006,  because the  applicable  requirements  are complex and time
consuming,  and because currently  unforeseen events or circumstances beyond the
Company's  control could arise,  there can be no assurance that the Company will
ultimately be able to fully comply with Section 404 in its Annual Report on Form
10-K for the year ended December 31, 2006 or whether it will be able to conclude
that the Company's internal control over financial  reporting is effective as of
December 31, 2006.

                                    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  PricewaterhouseCoopers  LLP,
the Company's independent  registered public accounting firm ("PwC"), has billed
or is expected to bill to the Company and its subsidiaries for services rendered
for 2003 and 2004.  No fees were  billed or  expected to be billed by PwC to the
Company  for  services  performed  in 2003 and 2004  for  financial  information
systems design and implementation.

<TABLE>
                                           December 31,
                                          --------------
                                      2003               2004
                                      ----               ----
                                          (In thousands)

<S>           <C>                    <C>                <C>
         Audit(1)                    $ 668              $1,149
         Audit related(2)               26                   8
         Tax(3)                         32                  12
                                     -----              ------

         Total                       $ 726              $1,169
                                     =====              ======
</TABLE>


1)   Fees for the following services:

     a)   audits of the Company's  consolidated  year-end financials  statements
          for each year and audits of internal controls over financial reporting
          in 2004;

     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.

     See  Appendix B to Kronos'  proxy  statement  dated  April 16, 2004 for the
Kronos audit committee's policies and procedures.

                                    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,
               2004.

                    November 24, 2004 - Reported  Item 1.01,  Item 2.03 and Item
               9.01.


 (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, 2004 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       Purchase   Agreement   dated   November   18,  2004   between   Kronos
          International,  Inc. and  Deutsche  Bank AG London -  incorporated  by
          reference  to  Exhibit  4.4 to the  Current  Report on Form 8-K of the
          Registrant dated November 24, 2004.

4.6       Form of Registration  Rights Agreement as of November 26, 2004 between
          Kronos International,  Inc. and Deutsche Bank AG London - incorporated
          by reference  to Exhibit 4.5 to the Current  Report on Form 8-K of the
          Registrant dated November 24, 2004.

4.7       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.

4.8       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.

4.9       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.

4.10      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.

4.11      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.

4.12      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).

4.13      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).

4.14      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      First  Amendment  Agreement,  dated  September 3, 2004,  Relating to a
          Facility Agreement dated June 25, 2002 among Kronos Titan GmbH, Kronos
          Europe  S.A./N.V.,  Kronos  Titan AS and Titania  A/S,  as  borrowers,
          Kronos Titan GmbH,  Kronos  Europe  S.A./N.V.  and Kronos Norge AS, as
          guarantors,  Kronos Denmark ApS, as security  provider,  with Deutsche
          Bank Luxembourg  S.A.,  acting as agent - incorporated by reference to
          Exhibit  10.8 to the  Registration  Statement  on Form  S-1 of  Kronos
          Worldwide, Inc. (File No. 333-119639).

10.3      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.

10.4      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.

10.5      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  of  the  Registration
          statement on Form 10 of the Registrant (File No. 001-31763).

10.6      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.

10.7      Intercorporate Services Agreement,  dated as of January 1, 2005, among
          Kronos Worldwide, Inc., Kronos (US), Inc., Kronos International,  Inc.
          and Kronos Canada, Inc.

10.8      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).

10.9      Services  Agreement,  dated  as  of  January  1,  2004,  among  Kronos
          International,  Inc.,  Kronos  Europe  S.A./N.V.,  Kronos (US),  Inc.,
          Kronos Titan GmbH,  Kronos Denmark ApS,  Kronos Canada,  Inc.,  Kronos
          Limited,  Societe  Industrielle Du Titane,  S.A.,  Kronos B.V., Kronos
          Titan AS and Titania AS.

10.10     Form of Assignment  and Assumption  Agreement,  dated as of January 1,
          1999, between Kronos,  Inc. (formerly known as Kronos (USA), 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).

10.11     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).

10.12**   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.

10.13**   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).

10.14**   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).

10.15*    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.

10.16*    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.

10.17*    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.

10.18*    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.

10.19*    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.

10.20     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.

10.21     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.

10.22     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.

10.23**   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, 2004.

10.24     Agency   Agreement,   dated  as  of  January  1,  2004,  among  Kronos
          International,  Inc.,  Kronos  Titan GmbH,  Kronos  Europe  S.A./N.V.,
          Kronos  Canada,  Inc.,  Kronos  Titan AS and  Societe  Indutrielle  Du
          Titane, S.A.

10.25     Titanium   Dioxide  Products  and  Titanium   Chemicals   Distribution
          Agreement,  dated as of January  1, 2005,  among  Kronos  Titan  GmbH,
          Kronos Europe S.A./N.V.,  Kronos Canada, Inc., Kronos Titan AS, Kronos
          (US),  Inc.,  Kronos Denmark ApS,  Kronos Titan GmbH,  Kronos Limited,
          Societe Industrielle Du Titane, S.A. and Kronos B.V.

10.26     Raw  Material  Purchase  and Sale  Agreement,  dated as of  January 1,
          2004,  among  Kronos (US),  Inc.,  Kronos  Titan GmbH,  Kronos  Europe
          S.A./N.V. and Kronos Canada, Inc.

10.27     Promissory note in the amount of euro 65,000,000,  dated as of October
          12, 2004 between the Registrant and Kronos Worldwide, Inc.

10.28     Promissory  note  in  the  amount  of  euro  98,094,875,  dated  as of
          November 26, 2004 between the Registrant and Kronos Worldwide, Inc.


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 30, 2005
                                                    (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 30, 2005           Gregory M. Swalwell, March 30, 2005
(Director)                                  (Vice President, Finance;
                                             Principal Financial Officer)

/s/ Andrew Kasprowiak                       /s/ Volker Roth
--------------------------------            ----------------------------------
Andrew Kasprowiak, March 30, 2005           Volker Roth, March 30, 2005
(Director)                                  (Director)

/s/ Dr. Ulfert Fiand                        /s/ James W. Brown
--------------------------------            ----------------------------------
Dr. Ulfert Fiand, March 30, 2005            James W. Brown, March 30, 2005
(Director)                                   (Vice President, Controller;
                                              Principal Accounting Officer)



                           KRONOS INTERNATIONAL, INC.

                           Annual Report on Form 10-K

                            Items 8, 15(a) and 15(d)

                   Index of Financial Statements and Schedules


Financial Statements                                                   Page

  Report of Independent Registered Public Accounting Firm               F-2

  Consolidated Balance Sheets - December 31, 2003 and 2004              F-3

  Consolidated Statements of Income -
   Years ended December 31, 2002, 2003 and 2004                         F-5

  Consolidated Statements of Comprehensive Income -
   Years ended December 31, 2002, 2003 and 2004                         F-6

  Consolidated Statements of Stockholder's Equity -
   Years ended December 31, 2002, 2003 and 2004                         F-7

  Consolidated Statements of Cash Flows -
   Years ended December 31, 2002, 2003 and 2004                         F-8

  Notes to Consolidated Financial Statements                            F-10


Financial Statement Schedules


  Report of Independent Registered Public Accounting Firm               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 REGISTERED PUBLIC ACCOUNTING FIRM



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, 2003
and 2004,  and the results of their  operations and their cash flows for each of
the three years in the period  ended  December  31,  2004,  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 the
standards of the Public  Company  Accounting  Oversight  Board (United  States).
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  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 30, 2005






                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2003 and 2004

                        (In thousands, except share data)

<TABLE>

               ASSETS
                                                              2003                 2004
                                                              ----                 ----

 Current assets:
<S>                                                        <C>                  <C>
   Cash and cash equivalents                               $ 37,121             $ 17,505
   Restricted cash                                            1,313                1,529
   Accounts and other receivables                           112,797              130,729
   Receivables from affiliates                                1,884                2,517
   Refundable income taxes                                   35,150                2,586
   Inventories                                              168,131              170,261
   Prepaid expenses                                           3,349                3,141
   Deferred income taxes                                        943                 -
                                                           --------             --------

       Total current assets                                 360,688              328,268
                                                           --------             --------

 Other assets:
    Deferred financing costs, net                             9,761               10,404
    Restricted marketable debt securities                     2,586                2,877
    Unrecognized net pension obligation                       7,812                7,524
    Deferred income taxes                                         -              238,284
    Other                                                     1,266                1,591
                                                           --------             --------

       Total other assets                                    21,425              260,680
                                                           --------             --------

 Property and equipment:
   Land                                                      31,106               34,164
   Buildings                                                139,665              153,442
   Equipment                                                644,733              724,904
   Mining properties                                         63,701               71,980
   Construction in progress                                   7,565               13,560
                                                           --------             --------
                                                            886,770              998,050
   Less accumulated depreciation and
    amortization                                            518,383              601,815
                                                           --------             --------

       Net property and equipment                           368,387              396,235
                                                           --------             --------

                                                           $750,500             $985,183
                                                           ========             ========
</TABLE>






                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2003 and 2004

                        (In thousands, except share data)


<TABLE>

    LIABILITIES AND STOCKHOLDER'S EQUITY
                                                              2003                 2004
                                                              ----                 ----

 Current liabilities:
<S>                                                        <C>                <C>
   Current maturities of long-term debt                    $      288         $   13,792
   Accounts payable and accrued liabilities                   103,804            126,949
   Payable to affiliates                                        8,697             11,042
   Income taxes                                                12,007             17,080
   Deferred income taxes                                        3,436              2,722
                                                           ----------         ----------

       Total current liabilities                              128,232            171,585
                                                           ----------         ----------

 Noncurrent liabilities:
   Long-term debt                                             356,451            519,403
   Deferred income taxes                                       86,622             22,358
   Accrued pension cost                                        53,010             48,441
   Other                                                       14,098             16,840
                                                           ----------         ----------

       Total noncurrent liabilities                           510,181            607,042
                                                           ----------         ----------

 Minority interest                                                525                 76
                                                           ----------         ----------

 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                                        (1,665,098)        (1,399,118)
   Notes receivable from affiliate                                  -           (209,526)
   Accumulated other comprehensive loss:
     Currency translation                                    (133,425)           (99,764)
     Pension liabilities                                      (34,397)           (29,594)
                                                           ----------         ----------
       Total stockholder's equity                             111,562            206,480
                                                           ----------         ----------

                                                           $  750,500         $  985,183
                                                           ==========         ==========
</TABLE>



Commitments and contingencies (Notes 9 and 12)

          See accompanying notes to consolidated financial statements.




                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)
<TABLE>

                                                             2002           2003            2004
                                                             ----           ----            ----

<S>                                                        <C>            <C>             <C>
Net sales                                                  $579,665       $715,906        $807,970
Cost of sales                                               454,154        516,864         609,559
                                                           --------       --------        --------

    Gross margin                                            125,511        199,042         198,411

Selling, general and administrative expense                  72,008         86,965         104,110
Other operating income (expense):
  Currency transaction gains (losses), net                   12,439         (3,721)         (2,243)
  Disposition of property and equipment                        (534)          (394)           (895)
  Royalty income                                              5,779          6,122           6,034
  Other income                                                  458            489             426
  Other expense                                                (169)          (130)            (72)
                                                           --------       --------        --------

    Income from operations                                   71,476        114,443          97,551

Other income (expense):
  Currency transaction gain                                   2,718           -               -
  Interest income from affiliates                            22,754             30           2,767
  Trade interest income                                       1,597            700           1,147
  Interest expense to affiliates                            (18,698)           (81)             (4)
  Other interest expense                                    (16,696)       (32,529)        (36,688)
                                                           --------       --------        --------

    Income before income taxes and minority interest         63,151         82,563          64,773

Provision (benefit) for income taxes                         10,805            730        (261,260)

Minority interest                                                55             72              53
                                                           --------       --------        --------

    Net income                                               52,291         81,761         325,980

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

       Net income (loss) available to
         common stock                                      $(26,309)      $ 81,761        $325,980
                                                           ========       ========        ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)


<TABLE>

                                                             2002           2003           2004
                                                             ----           ----           ----

<S>                                                        <C>            <C>           <C>
Net income                                                 $ 52,291       $ 81,761      $ 325,980
                                                           --------       --------      ---------
Other comprehensive (loss) income, net of tax:

  Minimum pension liabilities adjustment                     (2,781)       (27,647)         4,803

  Currency translation adjustment                            30,733          5,600         33,661
                                                           --------       --------      ---------

      Total other comprehensive income (loss)                27,952        (22,047)        38,464
                                                           --------       --------      ---------

          Comprehensive income                             $ 80,243       $ 59,714      $ 364,444
                                                           ========       ========      =========
</TABLE>


          See accompanying notes to consolidated financial statements.





                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

                  Years ended December 31, 2002, 2003 and 2004
                                 (In thousands)
<TABLE>

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

<S>                             <C>          <C>     <C>          <C>            <C>          <C>           <C>        <C>
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

Net income                           -          -          -          325,980         -            -            -        325,980
Other comprehensive income
  (loss), net of tax                 -          -          -             -            -          33,661        4,803      38,464
Change in notes receivable
  from affiliates                    -          -          -             -        (209,526)        -            -       (209,526)
Cash dividends                       -          -          -          (60,000)        -            -            -        (60,000)
                                ----------   -----   ----------    ----------    ---------    ---------     --------   ---------

Balance at December 31, 2004    $    -       $ 297   $1,944,185   $(1,399,118)   $(209,526)   $ (99,764)    $(29,594)  $ 206,480
                                ==========   =====   ==========    ===========   =========    =========     ========   =========
</TABLE>

          See accompanying notes to consolidated financial statements.



                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)

<TABLE>

                                                             2002           2003           2004
                                                             ----           ----           ----

Cash flows from operating activities:
<S>                                                        <C>            <C>           <C>
  Net income                                               $  52,291      $ 81,761      $ 325,980
  Depreciation and amortization                               27,144        33,634         37,726
  Noncash currency transaction gain                          (13,121)         -              -
  Noncash interest expense to affiliates                       5,521          -              -
  Noncash interest income from affiliates                    (21,849)         -              -
  Noncash interest expense                                       860         1,944          2,044
  Deferred income taxes                                        5,514        38,690       (273,985)
  Minority interest                                               55            72             53
  Net loss from disposition of property and equipment            534           394            895
  Pension cost, net                                           (2,118)       (3,805)          (800)
  Other, net                                                     351           250            987
  Change in assets and liabilities:
    Accounts and other receivables                            10,726         1,104         (6,227)
    Inventories                                               (1,907)          232         11,582
    Prepaid expenses                                             903         1,345           (233)
    Accounts payable and accrued liabilities                  (6,135)        5,495         27,922
    Income taxes                                              (2,114)      (37,231)        25,557
    Accounts with affiliates                                  12,189       (14,424)        (6,103)
    Other noncurrent assets                                      162        (3,779)         1,981
    Other noncurrent liabilities                                (788)         (894)        (5,124)
                                                           ---------      --------      ---------

      Net cash provided by operating activities               68,218       104,788        142,255
                                                           ---------      --------      ---------

 Cash flows from investing activities:
   Capital expenditures                                      (27,632)      (31,518)       (33,679)
   Purchase of interest in subsidiary                           -             -              (575)
   Change in restricted cash equivalents and restricted
      marketable debt securities, net                         (2,891)         (554)           (70)
     Proceeds from disposition of property and equipment         864           383             99
                                                           ---------      --------      ---------

         Net cash used by investing activities               (29,659)      (31,689)       (34,225)
                                                           ---------      --------      ---------
</TABLE>





                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)

<TABLE>

                                                             2002           2003            2004
                                                             ----           ----            ----

Cash flows from financing activities:
  Indebtedness:
<S>                                                        <C>           <C>             <C>
    Borrowings                                             $335,768      $  16,106       $ 241,648
    Principal payments                                      (84,814)       (46,006)       (100,073)
    Deferred financing fees                                  (9,963)          -             (1,989)
  Repayments on loans from affiliates                      (301,432)          -               -
  Loans to affiliates                                          -              -           (209,524)
  Other capital transactions with affiliates, net             2,925           -               -
  Dividends paid                                               -           (25,000)        (60,000)
  Distributions to minority interests                           (11)           (14)           -
                                                           --------      ---------       ---------

          Net cash used by financing activities             (57,527)       (54,914)       (129,938)
                                                           --------      ---------       ---------

Cash and cash equivalents - net change from:
  Operating, investing and financing activities             (18,968)        18,185         (21,908)
  Currency translation                                        3,648          3,913           2,292
                                                           --------      ---------       ---------

                                                            (15,320)        22,098         (19,616)

   Balance at beginning of year                              30,343         15,023          37,121
                                                           --------      ---------       ---------

   Balance at end of year                                  $ 15,023      $  37,121       $  17,505
                                                           ========      =========       =========

Supplemental disclosures - cash paid  (received) for:
   Interest                                                $ 34,061         28,147        $ 33,425
   Income taxes                                               6,748        (11,480)        (23,776)
</TABLE>



                   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 or the Company is a wholly-owned  subsidiary of Kronos
Worldwide,  Inc.  ("Kronos")  (NYSE:KRO).  At December 31, 2004, (i) Valhi, Inc.
(NYSE:VHI)  and a  wholly-owned  subsidiary of Valhi held  approximately  57% of
Kronos'  outstanding  common stock and NL  Industries,  Inc.  (NYSE:NL)  held an
additional  37% of  Kronos'  common  stock,  (ii)  Valhi  and such  wholly-owned
subsidiary of Valhi owned approximately 83% of NL's outstanding common stock and
(iii) Contran Corporation and its subsidiaries held approximately 91% 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, or is
held by Mr.  Simmons  or  persons  or other  entities  related  to Mr.  Simmons.
Consequently, Mr. Simmons 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.  All
material  intercompany  accounts and  balances  have been  eliminated.  Minority
interest  relates to the Company's  majority-owned  subsidiary in France,  which
conducts the Company's  marketing and sales  activities in that country.  During
2004, the Company increased its ownership interest by approximately 5% to 99% in
such  subsidiary  by acquiring  shares  previously  held by certain of its other
stockholders for an aggregate of $575,000.

     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.  In
2002, the Company recognized a $2.7 million currency transaction gain related to
the extinguishments of certain intercompany indebtedness.

     In 2002,  a $2.7  million  currency  transaction  gain is  classified  as a
component of other income (expense) in the accompanying  Consolidated  Statement
of Income.  Such gain  related  to the  extinguishment  of certain  intercompany
loans. Prior to June 28, 2002, KII had certain intercompany indebtedness payable
to Kronos, a portion of which was denominated in U.S. dollars,  and a portion of
which  was  denominated  in euro.  Through  June  19,  2002,  such  intercompany
indebtedness was deemed to be of a long-term nature for which settlement was not
planned or anticipated in the foreseeable  future,  and in accordance with GAAP,
the foreign currency  transaction  gains and losses related to such intercompany
indebtedness  were not  recognized  in net income,  but instead were reported as
part of  accumulated  other  comprehensive  income.  On June 19, 2002,  when the
purchase  agreement was entered into in  connection  with KII's 2002 issuance of
the KII Senior  Secured  Notes  discussed in Note 6, the  expectation  that such
intercompany indebtedness was of a long-term nature was no longer applicable, as
KII had stated  that it  intended  to use a portion of the net  proceeds of such
offering to repay such intercompany  indebtedness  owed to Kronos.  Accordingly,
from the time period of June 19, 2002 (the date the purchase  agreement  related
to KII Senior Secured Notes was executed)  until June 28, 2002 (the closing date
for the 2002 issuance of the KII Senior Secured Note offering, and the date such
intercompany  indebtedness was repaid),  the foreign currency  transaction gains
and losses related to such intercompany indebtedness during such time period was
recognized in net income in accordance with GAAP.

     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.

     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 ($2.6
million and $2.9  million at  December  31,  2003 and 2004,  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.

     Expenditures  for  maintenance,  repairs and minor  renewals are  expensed;
expenditures  for major  improvements  are  capitalized.  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  and
consisting  primarily  of  materials  and  supplies,  was $4.5  million and $3.9
million at December 31, 2003 and 2004, 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 2002, 2003 or 2004.

     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,"  which among other  things  provided  certain
implementation guidance in relation to prior GAAP. See Note 14.

     Long-term debt.  Long-term debt is stated net of any  unamortized  original
issue  premium or discount.  Amortization  of deferred  financing  costs and any
premium or discount  associated with the issuance of indebtedness,  all included
in interest  expense,  is computed by the  interest  method over the term of the
applicable issue.

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

     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"). The NL Tax Group, including
KII, is 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 Kronos Tax Sharing Agreement and
using the tax  elections  made by  Contran,  KII made  payments  to or  received
payments  from Kronos 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.

     Effective  December  2003,  following  NL's  distribution  of  48.8% of the
outstanding  shares of Kronos  common stock to NL  stockholders,  Kronos and its
qualifying  subsidiaries,  including  KII,  ceased  being  members of the NL Tax
Group,  but 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.  Kronos and its consolidating  subsidiaries,  including
KII,  are also  included in  Contran's  consolidated  unitary  state  income tax
returns in certain qualifying U.S.  jurisdictions.  The terms of the Contran Tax
Agreement also apply to state provisions in these jurisdictions.

     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.  Earnings of foreign  subsidiaries
deemed to be permanently  reinvested  aggregated  $496.8 million at December 31,
2003 and $526.5 million at December 31, 2004. 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.

     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.

     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 2002, $43 million in
2003 and $49 million in 2004.  Advertising  costs are  expensed as incurred  and
were $1  million  in each of 2002,  2003 and  2004.  Research,  development  and
certain sales technical  support costs are expensed as incurred and approximated
$6 million in 2002, $7 million in 2003 and $8 million in 2004.

     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 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 $400,000 in 2002, $300,000 in 2003 and $1.0 million
in 2004.

     The following  table presents what the Company's  consolidated  net income,
and related  per share  amounts,  would have been in 2002,  2003 and 2004 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>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                               (In millions)

<S>                                              <C>             <C>             <C>
Net income (loss) as reported                    $(26.3)         $  81.8         $ 326.0

Adjustments, net of applicable income
 tax effects and minority interest:
  Stock-based employee compensation expense
   determined under APBO No. 25                      .3               .1              .6
  Stock-based employee compensation expense
   determined under SFAS No. 123                    (.3)             (.1)             -
                                                 ------          -------         -------

Pro forma net income (loss)                      $(26.3)         $  81.8         $ 326.6
                                                 ======          =======         =======
</TABLE>


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>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In thousands)
       Geographic areas

Net sales - point of origin:
    <S>                                        <C>              <C>             <C>
    Germany                                    $ 404,299        $ 510,105       $ 576,138
    Belgium                                      123,760          150,728         186,445
    Norway                                       111,811          131,457         144,492
    Other                                         89,560          110,358         124,784
    Eliminations                                (149,765)        (186,742)       (223,889)
                                               ---------        ---------       ---------

                                               $ 579,665        $ 715,906       $ 807,970
                                               =========        =========       =========
</TABLE>

<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In thousands)
Net sales - point of destination:

<S>                                            <C>                <C>                 <C>
    Europe                                     $ 456,299        $ 567,630       $ 666,271
    United States                                 39,104           58,293          42,015
    Latin America                                 12,808           12,258          20,684
    Asia                                          39,832           42,974          43,842
    Other                                         31,622           34,751          35,158
                                               ---------        ---------       ---------

                                               $ 579,665        $ 715,906       $ 807,970
                                               =========        =========       =========
</TABLE>
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

Identifiable assets -
  net property and equipment:

<S>                                               <C>                 <C>
      Germany                                     $ 252,411           $ 269,922
      Belgium                                        64,895              68,314
      Norway                                         50,811              57,808
      Other                                             270                 191
                                                  ---------           ---------

                                                  $ 368,387           $ 396,235
                                                  =========           =========
</TABLE>

Note 3 - Accounts and other receivables:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                               <C>              <C>
Trade receivables                                 $ 106,246            $120,969
Insurance claims                                         58                  32
Recoverable VAT and other receivables                 8,715              11,388
Allowance for doubtful accounts                      (2,222)             (1,660)
                                                  ---------           ---------

                                                  $ 112,797           $ 130,729
                                                  =========           =========
</TABLE>

Note 4 - Inventories
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                               <C>              <C>
 Raw materials                                    $  30,261           $  34,303
 Work in process                                     15,623              13,044
 Finished products                                   92,009              90,083
 Supplies                                            30,238              32,831
                                                  ---------           ---------

                                                  $ 168,131           $ 170,261
                                                  =========           =========
</TABLE>

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

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                               <C>                 <C>
 Accounts payable                                 $  50,626           $  67,463
 Employee benefits                                   23,592              27,863
 Other                                               29,586              31,623
                                                  ---------           ---------

                                                  $ 103,804           $ 126,949
                                                  =========           =========
</TABLE>

Note 6 - Long-term debt:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

 Long-term debt:
<S>                                               <C>                 <C>
   8.875% Senior Secured Notes                    $ 356,136           $ 519,225
   Bank credit facility                                -                 13,622
   Other                                                603                 348
                                                  ---------           ---------

                                                    356,739             533,195
   Less current maturities                              288              13,792
                                                  ---------           ---------

                                                  $ 356,451           $ 519,403
                                                  =========           =========
</TABLE>

     In June 2002,  KII issued at par value euro 285  million  principal  amount
($280 million when issued) of its 8.875% Senior  Secured Notes due 2009,  and in
November 2004 KII issued at 107% of par an additional euro 90 million  principal
amount ($130 million when issued) of the KII Senior Secured Notes (collectively,
the  "Notes").  The Notes are  collateralized  by a pledge of 65% of the  common
stock or other  ownership  interests  of certain of KII's  first-tier  operating
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, 2004, KII was in compliance with all the
covenants, and the quoted market price of the Notes was approximately euro 1,075
per euro 1,000  principal  amount  (2003 - euro  1,000 per euro 1,000  principal
amount).  At December 31, 2004,  the carrying  amount of the Notes includes euro
6.2 million ($8.4 million) of unamortized  premium  associated with the November
2004 issuance.

     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 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, 2004, euro 10 million
($13.6  million)  was  outstanding  under the  European  Credit  Facility  at an
interest  rate of 3.85%,  and the  equivalent of $92.6 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). The
European Credit Facility contains provisions that allow the lender to accelerate
the maturity of the applicable  facility in the event of a change of control, as
defined, of the applicable borrower.  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.

     Aggregate  maturities  of long-term  debt at December 31, 2004 are shown in
the table below.

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

   2005                                           $ 13,792
   2006                                                159
   2007                                                 19
   2008                                               -
   2009                                            519,225
   2010 and thereafter                                -
                                                  --------

                                                  $533,195
                                                  ========


     Restrictions.  Certain of the credit facilities described above require the
respective   borrower  to  maintain  minimum  levels  of  equity,   require  the
maintenance  of  certain  financial  ratios,   limit  dividends  and  additional
indebtedness and contain other provisions and restrictive covenants customary in
lending  transactions  of this type. At December 31, 2004,  the  restricted  net
assets of consolidated subsidiaries approximated $158 million.

Note 7 - Other noncurrent liabilities:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                               <C>                 <C>
 Insurance claims and expenses                    $   1,222           $   1,505
 Employee benefits                                    4,849               5,107
 Asset retirement obligations                           766                 958
 Other                                                7,261               9,270
                                                  ---------           ---------

                                                  $  14,098           $  16,840
                                                  =========           =========
</TABLE>

     The asset retirement obligations are discussed in Note 14.

Note 8 - Common stock and notes receivable from affiliates:

     NL common stock  options held by employees of the Company.  At December 31,
2004,  employees of the Company held  options to purchase  approximately  85,000
shares  of NL  common  stock,  of  which  49,000  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. No options were granted in 2002,  2003 or 2004.  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 and $60.0 million during 2004.

     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 year ended 2002 the interest transferred to notes receivable
from affiliates totaled $12.6 million (nil for 2003 and 2004).

     In the fourth  quarter of 2004,  KII loaned an aggregate euro 163.1 million
($209.5 million) to Kronos in return for two promissory notes.  Interest on both
notes is payable to KII on a quarterly basis at an annual rate of 9.25%.  Due to
the long-term  investment nature of these notes,  settlement of the intercompany
notes receivable is not contemplated  within the foreseeable  future and as such
have been  presented  as a separate  component  of the  Company's  stockholder's
equity.

     Cash flows  related to principal  amounts on such loans made to  affiliates
included  in  contra  equity  are  reflected  in  financing  activities  in  the
accompanying Consolidated Statements of Cash Flows.




Note 9 - Income taxes:
<TABLE>

                                                         Years ended December 31,
                                                  -------------------------------------
                                                   2002            2003           2004
                                                   ----            ----           ----
                                                               (In millions)
 Pre-tax income (loss):
<S>                                               <C>            <C>           <C>
   Germany                                        $ 46.8         $ 45.8        $  30.2
   Non-U.S.                                         16.4           36.8           34.6
                                                  ------         ------        -------

                                                  $ 63.2         $ 82.6        $  64.8
                                                  ======         ======        =======

 Expected tax expense (benefit), at U.S.
  federal statutory income tax rate of 35%        $ 22.1         $ 28.9        $  22.7
 Non-U.S. tax rates                                 (5.2)           (.9)            .3
 Nondeductible expenses                              2.8            2.7            4.2
 Change in deferred income tax valuation
  allowance, net
                                                    (2.8)          (6.7)        (280.7)
 Currency transaction gains and losses
  for which no income taxes are provided            (4.6)            -              -
 Change in Belgian income tax law                   (2.3)            -              -
 NL tax contingency reserve adjustment, net           .1           13.4           (4.6)
 Refund of prior year income taxes                  -             (38.0)          (2.6)
 Other, net                                           .7            1.3            (.6)
                                                  ------         ------        -------

                                                  $ 10.8         $   .7        $(261.3)
                                                  ======         ======        =======
 Components of income tax expense (benefit):
   Currently payable (refundable):
     Germany                                      $ (1.2)        $(56.9)       $   (.2)
     Other non - U.S.                                6.5           18.9           12.9
                                                  ------         ------        -------
                                                     5.3          (38.0)          12.7
                                                  ------         ------        -------
   Deferred income taxes (benefit):
     Germany                                         7.9           44.4         (270.5)
     Other non - U.S.                               (2.4)          (5.7)          (3.5)
                                                  ------         ------        -------
                                                     5.5           38.7         (274.0)
                                                  ------         ------        -------

                                                  $ 10.8         $   .7        $(261.3)
                                                  ======         ======        =======
 Comprehensive provision for
  income taxes (benefit) allocable to:
   Net income                                     $ 10.8         $   .7        $(261.3)
   Other comprehensive income -
     pension liabilities                             (.7)          (9.5)          (8.1)
                                                  ------         ------        -------

                                                  $ 10.1         $ (8.8)       $(269.4)
                                                  ======         ======        =======
</TABLE>

     The  components  of the net deferred tax liability at December 31, 2003 and
2004, and changes in the deferred income tax valuation allowance during the past
three years, are summarized in the following tables.

<TABLE>

                                                                     December 31,
                                                  --------------------------------------------------
                                                            2003                      2004
                                                  ------------------------   -----------------------
                                                   Assets      Liabilities   Assets      Liabilities
                                                  -------     ------------   ------      -----------
                                                                      (In millions)
 Tax effect of temporary differences
  related to:
<S>                                               <C>          <C>            <C>         <C>
   Inventories                                    $   .9       $  (3.4)       $  1.5      $   (4.4)
   Property and equipment                           46.0         (21.6)         37.8         (22.9)
   Accrued (prepaid) pension cost                   11.3         (33.5)         19.4         (40.4)
   Other accrued liabilities and
     deductible differences                          3.8            -           46.1            -
   Other taxable differences                          -          (67.2)           -          (43.5)
     Investment in subsidiaries/
       affiliates not in tax group                    -             -            1.9            -
 Tax loss and tax credit carryforwards             137.3            -          217.8            -
 Valuation allowance                              (162.7)           -             -             -
                                                  ------       -------        ------      --------
   Adjusted gross deferred tax assets                                          324.5
     (liabilities)                                  36.6        (125.7)                     (111.2)
 Netting of items by tax jurisdiction              (35.7)         35.7         (86.2)         86.2
                                                  ------       -------        ------      --------
                                                      .9         (90.0)        238.3         (25.0)
 Less net current deferred tax
  asset (liability)                                   .9          (3.4)           -           (2.7)
                                                  ------       -------        ------      --------

     Net noncurrent deferred tax asset
      (liability)                                 $   -        $ (86.6)       $238.3      $ (22.3)
                                                  ======       =======        ======      =======
</TABLE>

<TABLE>

                                                         Years ended December 31,
                                                  -------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (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    $(2.8)         $ (6.7)        $ (280.7)
  Foreign currency translation                     21.6            28.2             (3.0)
  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                             13.2           (12.5)           121.0
                                                  -----          ------         --------

                                                  $32.0          $  9.0         $ (162.7)
                                                  =====          ======         ========
</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 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 KII and its  German
operating  subsidiary  of euro 26.9  million  ($32.1  million),  and the Company
recognized  the benefit for these net funds in its 2003  results of  operations.
For the year ended  December  31, 2004,  the Company  recognized a net refund of
euro 2.5 million ($3.1  million)  related to additional  net interest  which has
accrued on the  outstanding  refund amount.  Through  December 2004, KII and its
German operating subsidiary had received net refunds of euro 35.6 million ($44.7
million when  received).  All refunds  relating to the periods 1990 to 1997 were
received by December 31,  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.

     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,  2004).  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 9 million ($13 million).  The Company
     believes the proposed  assessment is  substantially  without merit, and the
     Company has filed a written response.

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,  2004)  relating  to the years 1998 to 2000.  The Company has
     objected 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, Kronos had a significant amount of net operating loss
carryforwards for German corporate and trade tax purposes,  all of which have no
expiration date. These net operating loss carryforwards were generated by KII, a
wholly-owned  subsidiary of Kronos,  principally during the 1990s when KII had a
significantly  higher  level  of  outstanding  indebtedness  than  is  currently
outstanding.  For financial reporting purposes, however, the benefit of such net
operating loss  carryforwards had not previously been recognized  because Kronos
did not believe they met the  "more-likely-than-not"  recognition criteria,  and
accordingly  Kronos  had  a  deferred  income  tax  asset  valuation   allowance
offsetting  the benefit of such net  operating  loss  carryforwards  and Kronos'
other tax attributes in Germany.  KII had generated  positive  taxable income in
Germany  for both  German  corporate  and trade tax  purposes  since  2000,  and
starting  with  the  quarter  ended  December  31,  2002  and for  each  quarter
thereafter,  KII had  cumulative  taxable  income in Germany for the most recent
twelve quarters.  However,  offsetting this positive  evidence was the fact that
prior to the end of 2003,  Kronos  believed  there was  significant  uncertainty
regarding its ability to utilize such net  operating  loss  carryforwards  under
German  tax law and,  principally  because  of the  uncertainty  caused  by this
negative  evidence,  Kronos had concluded the benefit of the net operating  loss
carryforwards did not meet the  "more-likely-than-not"  criteria.  By the end of
2003,  and primarily as a result of a favorable  German court ruling in 2003 and
the  procedures  Kronos had completed  during 2003 with respect to the filing of
certain  amended German tax returns (as discussed  below),  Kronos had concluded
that the  significant  uncertainty  regarding  its  ability to utilize  such net
operating loss carryforwards under German tax law had been eliminated.  However,
at the end of 2003,  Kronos  believed  at that  time  that it would  generate  a
taxable loss in Germany during 2004.  Such  expectation was based primarily upon
then-current   levels  of  prices  for  TiO2,  and  the  fact  that  Kronos  was
experiencing a downward trend in its TiO2 selling prices and Kronos did not have
any positive evidence to indicate that the downward trend would improve.  If the
price trend continued  downward  throughout all of 2004 (which was a possibility
given  Kronos'  prior  experience),  Kronos  would likely have a taxable loss in
Germany  for 2004.  If the  downward  trend in prices  had  abated,  ceased,  or
reversed at some point during 2004, then Kronos would likely have taxable income
in Germany during 2004. Accordingly,  Kronos continued to conclude at the end of
2003 that the benefit of the German net  operating  loss  carryforwards  did not
meet the "more-likely-than-not" criteria and that it would not be appropriate to
reverse the deferred income tax asset valuation allowance,  given the likelihood
that  Kronos  would  generate  a  taxable  loss  in  Germany  during  2004.  The
expectation for a taxable loss in Germany continued through the end of the first
quarter of 2004. By the end of the second quarter of 2004, however, Kronos' TiO2
selling prices had started to increase,  and Kronos  believed its selling prices
would  continue to increase  during the second half of 2004 after Kronos and its
major  competitors  announced an additional round of price  increases.  The fact
that Kronos'  selling  prices  started to increase  during the second quarter of
2004,  combined  with the fact that  Kronos and its  competitors  had  announced
additional price increases  (which based on past experience  indicated to Kronos
that some portion of the  additional  price  increases  would be realized in the
marketplace),  provided  additional  positive  evidence  that was not present at
December 31, 2003.  Consequently,  Kronos'  revised  projections  now  reflected
taxable  income for Germany in 2004 as well as 2005.  Accordingly,  based on all
available  evidence,  including  the fact  that (i) KII had  generated  positive
taxable  income in Germany  since 2000,  and  starting  with the  quarter  ended
December 31, 2002 and for each quarter  thereafter,  KII had cumulative  taxable
income in Germany  for the most  recent  twelve  quarters,  (ii)  Kronos was now
projecting  positive  taxable  income in Germany for 2004 and 2005 and (iii) the
German  net  operating  loss  carryforwards  have  no  expiration  date,  Kronos
concluded  that the benefit of the net operating  loss  carryforwards  and other
German tax attributes now met the  "more-likely-than-not"  recognition criteria,
and that reversal of the deferred income tax asset valuation  allowance  related
to Germany was appropriate. Given the magnitude of the German net operating loss
carryforwards  and the fact that  current  provisions  of  German  law limit the
annual  utilization of net operating loss carryforwards to 60% of taxable income
after the first euro 1 million of taxable  income,  Kronos believes it will take
several years to fully utilize the benefit of such loss carryforwards.  However,
given the number of years for which Kronos has now  generated  positive  taxable
income  in  Germany,  combined  with  the  fact  that  the  net  operating  loss
carryforwards  were generated during a time when KII had a significantly  higher
level of outstanding  indebtedness  than it currently has  outstanding,  and the
fact that the net operating loss  carryforwards  have no expiration date, Kronos
concluded  it was now  appropriate  to reverse  all of the  valuation  allowance
related to the net  operating  loss  carryforwards  because  the benefit of such
operating loss  carryforwards  now meet the  "more-likely-than-not"  recognition
criteria.  Under  applicable  GAAP  related to  accounting  for income  taxes at
interim  periods,  a change in  estimate  at an interim  period  resulting  in a
decrease in the  valuation  allowance is  segregated  into two  components,  the
portion  related to the  remaining  interim  periods of the current year and the
portion  related to all future  years.  The portion of the  valuation  allowance
reversal related to the former is recognized over the remaining  interim periods
of the current year, and the portion of the valuation  allowance  related to the
latter is  recognized  at the time the change in estimate is made.  Accordingly,
Kronos has recognized a $280.7 million income tax benefit in 2004 related to the
complete  reversal  of  such  deferred  income  tax  asset  valuation  allowance
attributable  to Kronos' income tax attributes in Germany  (principally  the net
operating loss carryforwards).  Of such $280.7 million, (i) $8.7 million relates
primarily to the  utilization  of the German net  operating  loss  carryforwards
during the first six months of 2004, the benefit of which had previously not met
the "more-likely-than-not"  recognition criteria, (ii) $268.6 million relates to
the valuation  allowance reversal  recognized as of June 30, 2004 and (iii) $3.4
million relates to the valuation  allowance reversal  recognized during the last
six months of 2004. At December 31, 2004, the net operating  loss  carryforwards
for German  corporate and trade tax purposes  aggregated  the equivalent of $671
million and $232 million, respectively, all of which have no expiration date.

     In October  2004,  the American  Jobs Creation Act of 2004 was enacted into
law.  The new law  contains  several  provisions  that could impact the Company.
These provisions  provide for, among other things, a special deduction from U.S.
taxable  income  equal to a  stipulated  percentage  of  qualified  income  from
domestic production activities (as defined) beginning in 2005, and a special 85%
dividends  received  deduction for certain  dividends  received from  controlled
foreign  corporations.  Both of these  provisions  are  complex  and  subject to
numerous  limitations.  The Company is still studying the new law, including the
technical  provisions  related to the two complex  provisions  noted above.  The
effect on the Company of the new law, if any,  has not yet been  determined,  in
part because the Company has not definitively  determined whether its operations
qualify for the special  deduction or whether it would  benefit from the special
dividends  received  deduction.  If the Company  determines it qualifies for the
special deduction, the tax benefit of such special deduction would be recognized
in the period earned.  With respect to the special dividends  received deduction
for certain dividends received from controlled foreign corporations, the Company
will likely not be able to complete its  evaluation  of whether it would benefit
from the special  dividends  received  deduction  until  sometime after the U.S.
government  has issued  clarifying  regulations  regarding this provision of the
Act, the timing for the issuance of which is not known.  The aggregate amount of
unremitted  earnings  that  is  potentially  subject  to the  special  dividends
received  deduction is  approximately  $527  million at December  31, 2004.  The
Company is unable to  reasonably  estimate a range of income tax effects if such
unremitted  earnings  would be repatriated  and become  eligible for the special
dividends received deduction, as the calculation would be extremely complex.

Note 10 - Employee benefit plans:

     Defined  benefit  plans.  The Company  maintains  various  defined  benefit
pension  plans.  Employees 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.  At  December  31,  2004,  the  Company  currently  expects  to
contribute  the  equivalent  of  approximately  $4 million to all of its defined
benefit pension plans during 2005.

     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>

                                                               Years ended December 31,
                                                              -------------------------
                                                              2003                 2004
                                                              ----                 ----
                                                                    (In thousands)
 Change in projected benefit obligations ("PBO"):
<S>                                                        <C>                  <C>
   Benefit obligations at beginning of the year            $ 213,183            $ 272,204
   Service cost                                                4,060                5,398
   Interest cost                                              12,378               14,132
   Participant contributions                                   1,295                1,362
   Plan amendments                                             3,200                 -
   Actuarial (gains) losses                                   17,337                3,134
   Change in foreign exchange rates                           36,547               26,588
   Benefits paid                                             (15,796)             (15,236)
                                                           ---------            ---------

       Benefit obligations at end of the year              $ 272,204            $ 307,582
                                                           =========            =========

 Change in plan assets:
   Fair value of plan assets at beginning of the year      $ 160,860            $ 167,302
   Actual return on plan assets                              (12,559)              14,175
   Employer contributions                                     10,240               11,726
   Participant contributions                                   1,295                1,362
   Change in foreign exchange rates                           23,262               17,244
   Benefits paid                                             (15,796)             (15,236)
                                                           ---------            ---------

       Fair value of plan assets at end of year            $ 167,302            $ 196,573
                                                           =========            =========

 Funded status at end of the year:
   Plan assets less than PBO                               $(104,902)           $(111,009)
   Unrecognized actuarial losses                              98,368              107,581
   Unrecognized prior service cost                             6,678                6,829
   Unrecognized net transition obligations                     1,228                  952
                                                           ---------            ---------

                                                           $   1,372            $   4,353
                                                           =========            =========

 Amounts recognized in the balance sheet:
   Unrecognized net pension obligations                    $   7,812            $   7,524
   Accrued pension costs:
     Current                                                  (7,877)              (8,587)
     Noncurrent                                              (53,010)             (48,441)
   Accumulated other comprehensive income                     54,447               53,857
                                                           ---------            ---------

                                                           $   1,372            $   4,353
                                                           =========            =========
</TABLE>


<TABLE>

                                                          Years ended December 31,
                                                  -------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In thousands
 Net periodic pension cost:
<S>                                            <C>              <C>             <C>
   Service cost benefits                       $  3,395         $  4,060        $  5,398
   Interest cost on PBO                          10,965           12,378          14,132
   Expected return on plan assets               (10,294)         (12,264)        (12,318)
   Amortization of prior service cost               223              255             463
   Amortization of net transition
    obligations                                     332              527             368
   Recognized actuarial losses                    1,029              827           2,335
                                               --------         --------        --------

                                               $  5,650         $  5,783        $ 10,378
                                               ========         ========        ========
</TABLE>

     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, 2004 was 23% to equity managers,  48%
     to fixed income managers and 29% to real estate.
o    In Norway,  the Company currently has a plan asset target allocation of 14%
     to  equity  managers,  62% to  fixed  income  managers  and  the  remainder
     primarily to liquid  investments  and cash. The expected  long-term rate of
     return for such  investments is approximately 8% and 4.5% to 6.5% and 2.5%,
     respectively.  The current plan asset  allocation  at December 31, 2004 was
     16% to equity  managers,  64% to fixed income  managers  and the  remainder
     primarily to cash and liquid investments.

     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  weighted-average  rate  assumptions  used in determining the actuarial
present  value of  benefit  obligations  as of  December  31,  2003 and 2004 are
presented in the table below. Such weighted-average  rates were determined using
the projected benefit obligations at each date.
<TABLE>

                                                            December 31,
                                                      ------------------------
                                                      2003                2004
                                                      ----                ----

<S>                                                   <C>                 <C>
Discount rate                                         5.4%                5.0%
Increase in future compensation levels                2.8%                2.8%
</TABLE>

     The weighted-average  rate assumptions used in determining the net periodic
pension  cost for 2002,  2003 and 2004 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>

                                                                     December 31,
                                                     ----------------------------------------
                                                     2002               2003             2004
                                                     ----               ----             ----

<S>                                                  <C>                <C>              <C>
Discount rate                                        6.0%               5.8%             5.3%
Increase in future compensation levels               2.8%               2.6%             2.8%
Long-term return on plan assets                      7.3%               6.9%             6.4%
</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>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                                <C>                 <C>
   Projected benefit obligation                    $272,204            $307,582
   Accumulated benefit obligation                   230,893             257,308
   Fair value of plan assets                        167,302             196,573
</TABLE>




     The Company  expects future  benefits paid from all defined benefit pension
plans to be as follows:
<TABLE>

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

<S>                                                <C>
   2005                                            $ 15,592
   2006                                              16,974
   2007                                              15,978
   2008                                              17,729
   2009                                              16,497
   2010 to 2014                                      89,950
</TABLE>

Note 11 - 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.

     Under the terms of  various  intercorporate  services  agreements  ("ISAs")
entered into between the Company and various related  parties,  employees of one
company  will  provide   certain   management,   tax  planning,   financial  and
administrative  services to the other  company on a fee basis.  Such charges are
based upon estimates of the time devoted by the employees of the provider of the
services to the affairs of the recipient,  and the  compensation  and associated
expenses of such  persons.  Because of the large number of companies  affiliated
with Contran,  Kronos and NL, the Company believes it benefits from cost savings
and economies of scale gained by not having  certain  management,  financial and
administrative   staffs  duplicated  at  each  entity,   thus  allowing  certain
individuals to provide services to multiple companies but only be compensated by
one entity.  These ISA  agreements  are reviewed and approved by the  applicable
independent  directors of the companies that are parties to the agreements.  The
net ISA fee  charged to the Company was $1.1  million in 2002,  $1.5  million in
2003 and $2.8 million in 2004.

     Sales of TiO2 to Kronos  (US),  Inc.  ("KUS"),  an  affiliate,  were  $38.5
million in 2002,  $57.8 million in 2003 and $41.9 million in 2004. Sales of TiO2
to Kronos Canada,  Inc. ("KC") were $7.7 million in 2002,  $10.9 million in 2003
and $8.9 million in 2004.

     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  $102.5  million in 2002,  $93.3  million in 2003 and
$106.2 million in 2004.

     Purchases of TiO2 from KUS were $2.6 million in 2002,  $100,000 in 2003 and
$3.5 million in 2004.  Purchases  of TiO2 from KC were  $500,000 in each of 2002
and 2003 and $700,000 in 2004.

     Royalty  income  received  from  KC for  use of  certain  of the  Company's
intellectual  property was $5.8  million in 2002,  $6.1 million in 2003 and $6.0
million in 2004.

     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 $7.0 million,  $5.2 million
and $5.3 million in 2002, 2003 and 2004, 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>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

 Current receivables from affiliates:
<S>                                                <C>                <C>
   KC                                              $ 1,877            $ 2,516
   Other                                                 7                  1
                                                   -------            -------

                                                   $ 1,884            $ 2,517
                                                   =======            =======

 Current payables to affiliates:
    KUS                                            $ 8,697            $11,033
    NL                                                -                     9
                                                   -------            -------

                                                   $ 8,697            $11,042
                                                   =======            =======
</TABLE>


     Interest  income on all loans to related parties was $22.8 million in 2002,
less than  $50,000  in 2003 and $2.8  million in 2004.  Interest  expense on all
loans from related parties was $18.7 million in 2002, less than $100,000 in 2003
and nil in 2004.

     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 12 - 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 maintain  compliance  with
applicable  environmental  laws and  regulations  at all its  facilities  and to
strive to improve its environmental performance.  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  believes  all its  plants  are in
substantial compliance with applicable environmental laws.

     Litigation  matters.  The Company's  Belgian  subsidiary and certain of its
employees  are the  subject of civil and  criminal  proceedings  relating  to an
accident that resulted in two  fatalities at the Company's  Belgian  facility in
2000. In May 2004,  the court ruled and,  among other things,  imposed a fine of
euro  200,000  against the Company and fines  aggregating  less than euro 40,000
against various Company employees. The Company and the individual employees have
appealed the ruling.

     In  addition  to the  litigation  described  above,  the  Company  and  its
affiliates  are also  involved  in  various  other  environmental,  contractual,
product  liability,  patent (or  intellectual  property),  employment  and other
claims and disputes incidental to its present and former businesses.

     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 21%, 20% and 21%, respectively of net sales in 2002,
2003 and 2004.  Approximately  73% of the Company's TiO2 sales by volume were to
Europe  in each of 2002 and 2003 and  approximately  77% of the  Company's  TiO2
sales  were to  Europe  in  2004.  Approximately  13% of sales  by  volume  were
attributable  to North  America  in 2002 and 2003 and 9%  attributable  to North
America in 2004.

     Capital  expenditures.  At December 31, 2004 the estimated cost to complete
capital projects in process approximated $5.5 million.

     Long-term  contracts.  KUS has long-term  supply contracts that provide for
certain of its affiliates', including the Company's, TiO2 feedstock requirements
through 2009. The agreements  require KUS to purchase certain minimum quantities
of feedstock with minimum annual purchase commitments aggregating  approximately
$525 million at December 31. 2004. 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 ownership and
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 $7 million in
2002,  $9 million in 2003 and $8 million in 2004.  At December 31, 2004,  future
minimum  payments  under  noncancellable  operating  leases having an initial or
remaining term of more than one year were as follows:
<TABLE>

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

<S>                                                  <C>
   2005                                              $ 3,357
   2006                                                2,130
   2007                                                1,896
   2008                                                1,698
   2009                                                1,290
   2010 and thereafter                                20,895
                                                     -------

                                                     $31,266
                                                     =======
</TABLE>

     Approximately  $25.3 million of the $31.3 million  aggregate future minimum
rental  commitments  at December  31, 2004 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, 2004.

Note 13 - Financial instruments:

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

                                                     December 31,                December 31,
                                                         2003                        2004
                                              --------------------------   -------------------------
                                                Carrying        Fair         Carrying       Fair
                                                 amount        value          amount        value
                                               ----------    ----------     ----------   ----------
                                                                  (In millions)
Cash, cash equivalents, restricted
   cash and current and noncurrent
<S>                                             <C>           <C>             <C>          <C>
   restricted marketable debt securities        $  41.0       $  41.0         $ 21.9       $  21.9

Long-term debt:
  Fixed rate with market quotes -
    8.875% Senior Secured Notes                 $ 356.1       $ 356.1         $519.2       $ 549.1
  Variable rate debt                                 -             -            13.6          13.6
  Other fixed rate debt                              .6            .6             .4            .4
</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, 2003 or 2004. See Note 1.

Note 14 - Accounting principles newly adopted in 2002, 2003 and 2004:

     Impairment  of  long-lived  assets.  The  Company  adopted  SFAS  No.  144,
"Accounting  for the  Impairment  or Disposal of Long-Lived  Assets,"  effective
January 1, 2002. SFAS No. 144 retains the  fundamental  provisions of prior GAAP
with respect to the recognition and measurement of long-lived  asset  impairment
contained in SFAS No. 121,  "Accounting for the Impairment of Long-Lived  Assets
and for  Lived-Lived  Assets to be Disposed Of." However,  SFAS No. 144 provides
new guidance intended to address certain  implementation  issues associated with
SFAS No. 121, including expanded guidance with respect to appropriate cash flows
to be used to determine  whether  recognition of any long-lived asset impairment
is required,  and if required how to measure the amount of the impairment.  SFAS
No.  144 also  requires  that net  assets  to be  disposed  of by sale are to be
reported  at the lower of  carrying  value or fair value less cost to sell,  and
expands the reporting of discontinued  operations to include any component of an
entity with operations and cash flows that can be clearly distinguished from the
rest of the entity.  Adoption of SFAS No. 144 did not have a significant  effect
on the Company.

     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>

                                                                               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) and to December 31, 2004 ($1 million)
is primarily 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
each of the years ended December 31, 2003 and 2004.

     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.

     Variable  interest  entities.  The Company complied with the  consolidation
requirements of FASB Interpretation ("FIN") No. 46R,  "Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51," as amended, as of March 31,
2004.  The Company  does not have any  involvement  with any  variable  interest
entity (as that term is defined in FIN No. 46R)  covered by the scope of FIN No.
46R that would require the Company to consolidate  such entity under FIN No. 46R
which had not  already  been  consolidated  under  prior  applicable  GAAP,  and
therefore the impact to the Company of adopting the  consolidation  requirements
of FIN No. 46R was not material.

Note 15 - Accounting principles not yet adopted:

     Inventory costs. The Company will adopt SFAS No. 151,  "Inventory Costs, an
amendment of ARB No. 43,  Chapter 4," for inventory  costs  incurred on or after
January 1, 2006.  SFAS No. 151 requires that the allocation of fixed  production
overhead costs to inventory shall be based on normal  capacity.  Normal capacity
is not defined as a fixed amount;  rather,  normal capacity refers to a range of
production  levels expected to be achieved over a number of periods under normal
circumstances,  taking into account the loss of capacity  resulting from planned
maintenance  shutdowns.  The amount of fixed overhead  allocated to each unit of
production is not increased as a consequence of idle plant or production  levels
below the low end of normal  capacity,  but instead a portion of fixed  overhead
costs  are  charged  to  expense  as  incurred.  Alternatively,  in  periods  of
production above the high end of normal  capacity,  the amount of fixed overhead
costs allocated to each unit of production is decreased so that  inventories are
not measured above cost.  SFAS No. 151 also  clarifies  existing GAAP to require
that  abnormal  freight and wasted  materials  (spoilage)  are to be expensed as
incurred.  The Company believes its production cost accounting  already complies
with the  requirements of SFAS No. 151, and the Company does not expect adoption
of SFAS No.  151 will  have a  material  effect  on its  consolidated  financial
statements.

     Stock options. The Company will adopt SFAS No. 123R, "Share-Based Payment,"
as of  July  1,  2005.  SFAS  No.  123R,  among  other  things,  eliminates  the
alternative in existing GAAP to use the intrinsic value method of accounting for
stock-based  employee  compensation under APBO No. 25. Upon adoption of SFAS No.
123R,  the Company will  generally be required to recognize the cost of employee
services  received in exchange for an award of equity  instruments  based on the
grant-date  fair value of the award,  with the cost  recognized  over the period
during  which an employee is  required to provide  services in exchange  for the
award (generally, the vesting period of the award). No compensation cost will be
recognized in the aggregate for equity  instruments  for which the employee does
not render the requisite service (generally,  the instrument is forfeited before
it has vested). The grant-date fair value will be estimated using option-pricing
models  (e.g.   Black-Scholes   or  a  lattice  model).   Under  the  transition
alternatives  permitted  under SFAS No.  123R,  the  Company  will apply the new
standard to all new awards  granted on or after July 1, 2005,  and to all awards
existing as of June 30, 2005 which are  subsequently  modified,  repurchased  or
cancelled.  Additionally,  as of July 1, 2005,  the Company  will be required to
recognize  compensation cost for the portion of any non-vested award existing as
of June 30, 2005 over the remaining vesting period.  Because the Company has not
granted any options to purchase  its common  stock and is not  expected to grant
any options prior to July 1, 2005 and because the number of non-vested awards as
of June 30,  2005 with  respect to options  granted  by NL to  employees  of the
Company is not expected to be material,  the effect of adopting SFAS No. 123R is
not  expected  to be  significant  in so far as it  relates  to  existing  stock
options.  Should the Company,  however, grant a significant number of options in
the future, the effect on the Company's  consolidated financial statements could
be material.

Note 16 -         Quarterly results of operations (unaudited):
<TABLE>

                                                                  Quarter ended
                                              ------------------------------------------------------
                                              March 31         June 30       Sept. 30        Dec. 31
                                              --------         -------       --------        -------
                                                          (In millions, except per share data)

 Year ended December 31, 2003
<S>                                           <C>              <C>            <C>            <C>
   Net sales                                  $ 178.2          $ 182.9        $ 173.4        $ 181.4
   Cost of sales                                130.8            134.2          124.2          127.7
     Net income                               $  14.8          $  36.7        $  14.2        $  16.1

 Year ended December 31, 2004
   Net sales                                  $ 192.2          $ 208.1        $ 203.4        $ 204.3
   Cost of sales                                142.6            156.3          156.1          154.6
     Net income                               $  13.2          $ 290.5        $   9.1        $  13.2
</TABLE>

     During the fourth  quarter of 2004, the Company  determined  that it should
have  recognized  an additional  $26.8  million net deferred  income tax benefit
during the  second  quarter  of 2004,  related  to the  amount of the  valuation
allowance  related to the  Company's  German  operations  which should have been
reversed.  While the  additional  tax benefit is not  material to the  Company's
second  quarter 2004 results,  the quarterly  results of operations for 2004, as
presented above, reflects this additional tax benefit. Accordingly,  income from
continuing  operations  for the  second  quarter of 2004 of $290.5  million,  as
reflected  above,  differs from the $263.7  million  previously  reported by the
Company due to such $26.8 million deferred income tax benefit.





             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                        ON FINANCIAL STATEMENT SCHEDULES



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

     Our audits of the  consolidated  financial  statements  referred  to in our
report dated March 30, 2005, appearing on page F-2 in this 2004 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 30, 2005



                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            Condensed Balance Sheets

                           December 31, 2003 and 2004

                                 (In thousands)
<TABLE>

                                                              2003                 2004
                                                              ----                 ----

 Current assets:
<S>                                                        <C>                  <C>
   Cash and cash equivalents                               $    548             $  6,283
   Accounts and notes receivable                              7,553                8,838
   Receivable from affiliates                                 5,605               20,214
   Deferred income taxes                                       -                     206
   Other                                                         21                   48
                                                           --------             --------

       Total current assets                                  13,727               35,589
                                                           --------             --------

 Other assets:
   Notes receivable from subsidiary                          89,710                 -
   Investment in subsidiaries                               563,171              493,532
   Deferred income taxes                                       -                 222,643
   Other                                                      9,190               10,508
   Property and equipment, net                                6,454                6,917
                                                           --------             --------

       Total other assets                                   668,525              733,600
                                                           --------             --------

                                                           $682,252             $769,189
                                                           ========             ========

 Current liabilities:
   Payable to affiliates                                   $ 32,218             $ 25,621
   Accounts payable and accrued liabilities                   5,305                6,072
   Income taxes                                              95,293               10,638
   Deferred income taxes                                       -                      15
                                                           --------             --------

       Total current liabilities                            132,816               42,346
                                                           --------             --------

 Noncurrent liabilities:
   Long-term debt                                           356,136              519,225
   Deferred income taxes                                     80,741                 -
   Other                                                        997                1,138
                                                           --------             --------

       Total noncurrent liabilities                         437,874              520,363
                                                           --------             --------

 Stockholder's equity                                       111,562              206,480
                                                           --------             --------

                                                           $682,252             $769,189
                                                           ========             ========
</TABLE>





                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                         Condensed Statements of Income

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)

<TABLE>

                                                             2002           2003           2004
                                                             ----           ----           ----

 Revenues and other income:
<S>                                                        <C>            <C>            <C>
     Net sales                                             $ 28,326       $ 35,601       $  40,038
     Equity in earnings of subsidiaries                      34,308        293,623          66,049
   Interest income from affiliates                           28,405             50           2,782
   Royalty income                                            14,370         16,568          18,508
   Currency translation gains (losses), net                  14,656           (599)           (575)
   Other income, net                                            753            (38)             71
                                                           --------       --------        --------

                                                            120,818        345,205         126,873
                                                           --------       --------        --------

 Costs and expenses:
   Cost of sales                                             13,903         18,306          21,371
   General and administrative                                16,814         21,209          28,351
   Interest                                                  13,948         29,847          33,772
   Interest expense to affiliates                            20,530           -              5,754
                                                           --------       --------        --------

                                                             65,195         69,362          89,248
                                                           --------       --------        --------

   Income before income taxes                                55,623        275,843          37,625

 Provision (benefit) for income taxes                         3,332        194,082        (288,355)
                                                           --------       --------        --------

   Net income                                                52,291         81,761         325,980

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

   Net income (loss) available to common stock             $(26,309)      $ 81,761        $325,980
                                                           ========       ========        ========
</TABLE>




                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                       Condensed Statements of Cash Flows

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)
<TABLE>

                                                             2002           2003           2004
                                                             ----           ----           ----


 Cash flows from operating activities:
<S>                                                        <C>           <C>              <C>
     Net income                                            $ 52,291      $  81,761        $325,980
     Cash distributions from subsidiaries                    26,249            402          50,902
     Noncash currency transaction (gain) loss               (13,121)          -               -
     Noncash interest income                                (21,849)          -               -
     Noncash interest expense                                 6,174          1,472           1,487
     Deferred income taxes                                    5,037        238,814        (276,806)
     Equity in earnings of subsidiaries                     (34,308)      (293,623)        (66,049)
     Other, net                                                 451         (3,570)           (637)
                                                           --------      ---------        --------
                                                             20,924         25,256          34,877
   Net change in assets and liabilities                       1,220            115          25,963
                                                           --------      ---------        --------

        Net cash provided by operating activities
                                                             22,144         25,371          60,840
                                                           --------      ---------        --------

 Cash flows from investing activities:
   Capital expenditures                                      (1,730)        (2,406)         (1,544)
   Collection of loans to affiliates                         12,090           -             88,656
   Purchase of interest in subsidiaries                        -              -               (575)
   Other, net                                                    13              9            -
                                                           --------      ---------        --------

        Net cash provided (used) by investing activities     10,373         (2,397)         86,537
                                                           --------      ---------        --------

 Cash flows from financing activities:
   Indebtedness:
     Borrowings                                             280,041           -            129,524
     Principal payments                                     (26,697)          -               -
     Deferred financing fees                                 (8,600)          -             (1,989)
   Repayments of loans from affiliates                     (301,432)          -               -
   Loans to affiliates                                         -              -           (209,524)
   Dividends paid                                              -           (25,000)        (60,000)
   Other capital transactions with affiliates, net            2,925           -               -
                                                           --------      ---------        --------

        Net cash used by financing activities               (53,763)       (25,000)       (141,989)
                                                           --------      ---------        --------

 Net change during the year from operating investing and
     financing activities                                   (21,246)        (2,026)          5,388
 Currency translation                                         2,013            129             347
 Balance at beginning of year                                21,678          2,445             548
                                                           --------      ---------        --------

 Balance at end of year                                    $  2,445      $     548        $  6,283
                                                           ========      =========        ========
</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>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)
 Current:
     Receivable from:
<S>                                                <C>               <C>
        Kronos Titan GmbH ("TG") - income taxes    $  -              $ 14,386
        Kronos Titan A/S                             1,567              1,667
        Kronos Europe S.A./N.V                       1,641              2,168
        Kronos Canada                                1,354              1,482
        Kronos Denmark ApS ("KDK")                     635               -
        Titania A/S                                    360                432
        Other                                           48                 79
                                                   -------            -------

                                                   $ 5,605            $20,214
                                                   =======            =======
     Payable to:
        TG                                          31,974             25,032
        Kronos (US), Inc.                               48                145
        Kronos Chemie GmbH                             150                255
        Other                                           46                189
                                                   -------            -------

                                                   $32,218            $25,621
                                                   =======            =======

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

<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

Investment in:
<S>                                                <C>                 <C>
    TG                                             $440,844            $322,434
    KDK                                             109,010             147,904
    Other                                            13,317              23,194
                                                   --------            --------

                                                   $563,171            $493,532
                                                   ========            ========
</TABLE>


<TABLE>

                                                           Years ended December 31,
                                                     ------------------------------------
                                                     2002            2003            2004
                                                     ----            ----            ----
                                                                (In thousands)

Equity in income from continuing
  operations of subsidiaries:
<S>                                               <C>             <C>             <C>
    TG                                            $ 22,430        $270,541        $ 40,951
    KDK                                             11,344          26,892          23,816
    Other                                              534          (3,810)          1,282
                                                  --------        --------        --------

                                                  $ 34,308        $293,623        $ 66,049
                                                  ========        ========        ========
</TABLE>





                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (In thousands)

<TABLE>

                                                      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, 2002:
<S>                                     <C>           <C>            <C>            <C>           <C>        <C>
   Allowance for doubtful accounts      $ 1,626       $   381        $  (397)       $   297       $   -      $ 1,907
                                        =======       =======        =======        =======       ======     =======
   Accrual for planned major
     maintenance activities             $ 2,534       $ 1,616        $(1,374)       $   483       $   -      $ 3,259
                                        =======       =======        =======        =======       ======     =======

 Year ended December 31, 2003:
   Allowance for doubtful accounts      $ 1,907       $   233        $  (281)       $   363       $   -      $ 2,222
                                        =======       =======        =======        =======       ======     =======
   Accrual for planned major
     maintenance activities             $ 3,259       $ 1,432        $  (915)       $   684       $   -      $ 4,460
                                        =======       =======        =======        =======       ======     =======

 Year ended December 31, 2004:
   Allowance for doubtful accounts      $ 2,222       $  (169)       $  (540)       $   147       $   -      $ 1,660
                                        =======       =======        =======        =======       ======     =======
   Accrual for planned major
     maintenance activities             $ 4,460       $ 3,563        $(4,479)       $   310       $   -      $ 3,854
                                        =======       =======        =======        =======       ======     =======
</TABLE>



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




                        KRONOS TITAN GMBH AND SUBSIDIARY

                   Index of Consolidated Financial Statements


Financial Statements                                                     Pages

Report of Independent Registered Public Accounting Firm                  FA-2

Consolidated Balance Sheets - December 31, 2003 and 2004                 FA-3

Consolidated Statements of Income - Years ended
 December 31, 2002, 2003 and 2004                                        FA-5

Consolidated Statements of Comprehensive Income - Years ended
 December 31, 2002, 2003 and 2004                                        FA-6

Consolidated Statements of Partners' Capital/Owners'
 Equity - Years ended December 31, 2002, 2003 and 2004                   FA-7

Consolidated Statements of Cash Flows - Years ended
 December 31, 2002, 2003 and 2004                                        FA-8

Notes to Consolidated Financial Statements                               FA-10





             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the 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,  2003 and 2004,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2004 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 the standards of the
Public Company  Accounting  Oversight  Board (United  States).  Those  standards
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  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 30, 2005







                        KRONOS TITAN GMBH AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2003 and 2004

                                 (In thousands)
<TABLE>

                                                              2003                 2004
                                                              ----                 ----
         ASSETS

Current assets:
<S>                                                        <C>                  <C>
  Cash and cash equivalents                                $ 30,859             $  6,444
  Accounts and notes receivable                              66,565               76,732
  Receivable from affiliates                                 82,166               32,355
  Refundable income taxes                                   128,956                   59
  Inventories                                               100,133              101,850
  Prepaid expenses                                            2,389                2,078
                                                           --------             --------

    Total current assets                                    411,068              219,518
                                                           --------             --------

Other assets:
  Note receivable from Kronos Titan A/S                           -                5,449
  Unrecognized net pension obligations                        3,636                3,672
  Deferred income taxes                                      19,832               18,077
  Other                                                       1,211                1,201
                                                           --------             --------

    Total other assets                                       24,679               28,399
                                                           --------             --------

Property and equipment:
  Land                                                       13,539               14,929
  Buildings                                                 101,819              111,349
  Machinery and equipment                                   442,838              496,428
  Construction in progress                                    6,624               10,022
                                                           --------             --------
                                                            564,820              632,728

  Less accumulated depreciation and depletion               323,313              373,938
                                                           --------             --------

    Net property and equipment                              241,507              258,790
                                                           --------             --------

                                                           $677,254             $506,707
                                                           ========             ========
</TABLE>



                        KRONOS TITAN GMBH AND SUBSIDIARY

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2003 and 2004

                                 (In thousands)
<TABLE>

                                                              2003                 2004
                                                              ----                 ----
LIABILITIES AND OWNERS' EQUITY

Current liabilities:
<S>                                                        <C>                  <C>
  Accounts payable and accrued liabilities                 $ 61,252             $ 76,952
  Payable to affiliates                                      21,685               35,260
  Deferred income taxes                                       1,407                1,912
                                                           --------             --------

    Total current liabilities                                84,344              114,124
                                                           --------             --------

Noncurrent liabilities:
  Note payable to affiliate                                  89,710               12,941
  Accrued pension cost                                       50,826               45,015
  Other                                                      11,530               12,193
                                                           --------             --------

    Total noncurrent liabilities                            152,066               70,149
                                                           --------             --------

Owners' equity:
  Subscribed capital                                         12,496               12,496
  Paid in capital                                           376,634              227,037
  Retained deficit                                              -                 (9,685)
  Accumulated other comprehensive income (loss):
    Currency translation                                     75,524              111,996
    Pension liabilities                                     (23,810)             (19,410)
                                                           --------             --------

      Total owners' equity                                  440,844              322,434
                                                           --------             --------

                                                           $677,254             $506,707
                                                           ========             ========
</TABLE>


Commitments and contingencies (Notes 6, 10 and 13)


          See accompanying notes to consolidated financial statements.


                        KRONOS TITAN GMBH AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)
<TABLE>

                                                             2002           2003           2004
                                                             ----           ----           ----


<S>                                                        <C>            <C>             <C>
Net sales                                                  $384,361       $487,337        $552,216
Cost of sales                                               323,306        379,187         451,888
                                                           --------      ---------        --------

    Gross margin                                             61,055        108,150         100,328

Selling, general and administrative expense                  34,633         42,925          47,824
Other operating income (expense):
  Currency transaction gains (losses), net                       93         (3,519)         (2,533)
  Disposition of property and equipment                        (300)          (390)           (293)
                                                           --------      ---------        --------

    Income from operations                                   26,215         61,316          49,678

Other income (expense):
  Trade interest income                                         518            447             949
  Interest and other expense to affiliates                   (4,493)          (442)           (304)
  Interest and other income from affiliates                   3,694          3,918           8,813
  Interest expense                                             (198)          (368)           (651)
                                                           --------      ---------        --------

    Income before income taxes                               25,736         64,871          58,485

Income tax provision (benefit)                                3,306       (205,670)         17,507
                                                           --------      ---------        --------

    Net income                                             $ 22,430      $ 270,541        $ 40,978
                                                           ========      =========        ========
</TABLE>


          See accompanying notes to consolidated financial statements.


                        KRONOS TITAN GMBH AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)

<TABLE>

                                                             2002           2003           2004
                                                             ----           ----           ----



<S>                                                        <C>           <C>              <C>
Net income                                                 $ 22,430      $ 270,541        $ 40,978
                                                           --------      ---------        --------

Other comprehensive income (loss), net of tax:
   Minimum pension liabilities adjustment                    (2,915)       (17,946)          4,400
   Currency translation adjustment                           22,892         37,674          36,472
                                                           --------      ---------        --------

     Total other comprehensive income                        19,977         19,728          40,872
                                                           --------      ---------        --------

Comprehensive income                                        $42,407      $ 290,269        $ 81,850
                                                           ========      =========        ========
</TABLE>

          See accompanying notes to consolidated financial statements.




                        KRONOS TITAN GMBH AND SUBSIDIARY

          CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL / OWNERS' EQUITY

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)
<TABLE>

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

<S>                 <C> <C>          <C>           <C>            <C>           <C>           <C>            <C>           <C>
Balance at December 31, 2001         $108,865      $   -          $   -         $   -         $ 14,958       $ (2,949)     $120,874

Net income                             22,430          -              -             -             -              -           22,430
Other comprehensive income
  (loss), net of tax                     -             -              -             -           22,892         (2,915)       19,977
Cash contribution                     (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
  (loss), net of tax                     -             -              -             -           37,674        (17,946)       19,728
Partnership conversion               (389,130)       12,496        376,634          -             -              -             -
                                     --------      --------       --------      --------      --------       --------      --------

Balance at December 31, 2003             -           12,496        376,634          -           75,524        (23,810)      440,844

Net income                               -             -              -           40,978          -              -           40,978
Dividends declared                       -             -              -          (50,663)         -              -          (50,663)
Other comprehensive income,
  net of tax                             -             -              -             -           36,472          4,400        40,872
Noncash capital transaction              -             -          (149,597)         -             -              -         (149,597)
                                     --------      --------       --------      --------      --------       --------      --------

Balance at December 31, 2004         $   -         $ 12,496       $227,037      $ (9,685)     $111,996       $(19,410)     $322,434
                                     ========      ========       ========      ========      ========       ========      ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                        KRONOS TITAN GMBH AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 2002, 2003 and 2004
                                 (In thousands)
<TABLE>

                                                             2002           2003           2004
                                                             ----           ----           ----


Cash flows from operating activities:
<S>                                                        <C>           <C>              <C>
  Net income                                               $ 22,430      $ 270,541        $ 40,978
  Depreciation, depletion and amortization                   16,387         20,452          23,583
  Noncash interest expense                                       57            140             200
  Deferred income taxes                                       2,875        (39,770)          6,178
  Net loss from disposition of property and equipment           300            390             293
  Pension, net                                               (2,745)        (5,021)         (4,540)
  Other, net                                                     25             12             167
  Change in assets and liabilities:
    Accounts and notes receivable                           (27,322)         1,827          (3,205)
    Inventories                                              (2,678)         1,830           5,837
    Prepaid expenses                                             25          1,107             559
    Accounts payable and accrued liabilities                 (4,677)         3,542          13,683
    Income taxes                                             (1,164)      (130,136)        126,599
    Accounts with affiliates                                 25,616        (85,431)        (82,855)
    Accrued environmental costs                                 259           (905)              -
    Other noncurrent assets                                    (222)           481            (146)
    Other noncurrent liabilities                             (1,018)          (555)         (5,334)
                                                           --------      ---------        --------

      Net cash provided by operating activities              28,148         38,504         121,997
                                                           --------      ---------        --------

Cash flows from investing activities:
  Capital expenditures                                      (15,818)       (18,715)        (20,396)
  Loans to affiliates - collections                          18,097           -               -
  Proceeds from disposition of property and equipment             3              4            -
                                                           --------      ---------        --------

      Net cash provided (used) by investing activities        2,282        (18,711)        (20,396)
                                                           --------      ---------        --------
</TABLE>


                        KRONOS TITAN GMBH AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                        December 31, 2002, 2003 and 2004

                                 (In thousands)
<TABLE>

                                                             2002           2003           2004
                                                             ----           ----           ----


Cash flows from financing activities:
  Indebtedness:
<S>                                                         <C>          <C>              <C>
    Borrowings                                              $  -         $   -            $ 49,984
    Principal payments                                         -             -             (49,984)
  Loans from affiliates:
    Loans                                                      -             -              11,597
    Repayments                                              (12,090)         -             (88,656)
  Cash distributions                                        (12,706)         -             (50,663)
  Deferred financing fees                                      (410)         -                -
                                                           --------      ---------        --------

    Net cash used by financing activities                   (25,206)         -            (127,722)
                                                           --------      ---------        --------

Cash and cash equivalents - net change from:
    Operating, investing and financing
      activities                                              5,224         19,793         (26,121)
    Currency translation                                        924          3,241           1,706
  Balance at beginning of year                                1,677          7,825          30,859
                                                           --------      ---------        --------

  Balance at end of year                                   $  7,825      $  30,859        $  6,444
                                                           ========      =========        ========

Supplemental disclosures:
  Cash paid (received) for:
    Interest                                               $  4,463      $     674        $    626
    Income taxes                                                938           (166)       (132,629)
</TABLE>

          See accompanying notes to consolidated financial statements.



                        KRONOS TITAN GMBH AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Organization and basis of presentation:

     Kronos  Titan  GmbH  ("TG")  is  a   wholly-owned   subsidiary   of  Kronos
International,  Inc.  ("KII").  KII  is  a  wholly-owned  subsidiary  of  Kronos
Worldwide,  Inc.  (NYSE:KRO)  ("Kronos").  At December 31, 2004, (i) Valhi, Inc.
(NYSE:  VHI) and a wholly-owned  subsidiary of Valhi held  approximately  57% of
Kronos' common stock and NL Industries,  Inc. (NYSE:  NL) held an additional 37%
of the  outstanding  common  stock of Kronos,  (ii)  Valhi and its  wholly-owned
subsidiary  owned  83% of  NL's  outstanding  common  stock  and  (iii)  Contran
Corporation and its subsidiaries held  approximately 91% 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,  or is held by Mr.
Simmons or persons or other entities related to Mr. Simmons.  Consequently,  Mr.
Simmons may be deemed to control each of such companies.

     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.

     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
TG.  The  conversion   resulted  in  a  reclassification  of  partner's  capital
aggregating  $389 million at the date of conversion into other capital  accounts
(subscribed  capital and  paid-in  capital)  and had no material  effect on TG's
consolidated  financial  statements,  other than with respect to deferred income
taxes. See Note 10. In 2004, the Company forgave a $150 million  receivable from
KII which is  reflected as a noncash  capital  transaction  in the  accompanying
Consolidated Statement of Partners' Capital/Owners' Equity.

     TG is not a registrant  with the U.S.  Securities  and Exchange  Commission
("SEC")  and  therefore  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.  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, an interpretation of ARB
No. 51," as amended as of March 31, 2004.

     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.

     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 14.

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

     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.

     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,  consisting  primarily of
materials and supplies, are accrued in advance and are included in cost of goods
sold. At December 31, 2004,  accrued repair and maintenance  costs,  included in
other current liabilities, was $3.2 million (2003 - $3.3 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.  The Company accounts for the impairment of its 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 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 $25,000 in 2002, $12,000 in 2003 and $167,000 in 2004.

     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>

                                                           Years ended December 31,
                                                  -------------------------------------------
                                                  2002                2003               2004
                                                  ----                ----               ----
                                                                 (In thousands)

<S>                                             <C>                 <C>               <C>
Net income - as reported                        $22,430             $270,541          $ 40,978
Adjustments, net of applicable income
 tax effects:
  Stock-based employee compensation
   expense determined under APBO No. 25              21                   10               102
  Stock-based employee compensation
   expense determined under SFAS No. 123            (21)                  (9)               (4)
                                                -------             --------          --------

Pro forma net income                            $22,430             $270,542          $ 41,076
                                                =======             ========          ========
</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,
2003 and 2004, 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, or when services are
performed.  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.

     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 $15.1 million in 2002, $19.8 million
in 2003 and $22.3 million in 2004.

     Income taxes.  As a  partnership  under German law during 2002 and 2003, TG
was not subject to  corporate  income  taxes,  but was  subject to trade  income
taxes.  Deferred trade income tax assets and liabilities were recognized for the
expected  future tax  consequences  of temporary  differences  between the trade
income tax and financial  reporting  carrying amounts of assets and liabilities.
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 is
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.
The Company  periodically  evaluates  its  deferred  trade income tax assets and
adjusts any related valuation allowance.

Note 3 - Accounts and notes receivable:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                               <C>                 <C>
Trade receivables                                 $  62,225           $  71,914
Insurance claims receivable                               9                  12
Recoverable VAT and other receivables                 5,800               6,046
Allowance for doubtful accounts                      (1,469)             (1,240)
                                                  ---------           ---------

                                                  $  66,565           $  76,732
                                                  =========           =========
</TABLE>

Note 4 - Inventories:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                               <C>                 <C>
Raw materials                                     $  13,424           $  20,379
Work in process                                      14,169              10,173
Finished products                                    57,267              55,349
Supplies                                             15,273              15,949
                                                  ---------           ---------

                                                  $ 100,133           $ 101,850
                                                  =========           =========
</TABLE>

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

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                               <C>                 <C>
Accounts payable                                  $  29,886           $  39,732
Accrued liabilities:
  Employee benefits                                  13,180              15,957
  Waste acid recovery                                 8,187               9,598
  Other                                               9,999              11,665
                                                  ---------           ---------

                                                  $  61,252           $  76,952
                                                  =========           =========
</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").  During 2004,
Kronos Norge A/S, the parent company of TAS and TIA, and Kronos Denmark ApS, the
parent  company of both Kronos Norge and KEU, were added as Borrowers  under the
Credit Facility. Borrowings may be denominated in multiple currencies, including
U.S. dollars,  euros and Norwegian  kroner,  and bear interest at the applicable
interbank  market rate plus 1.75%.  As of December 31, 2004,  the Company had no
amounts outstanding under the Credit Facility. However at December 31, 2004, KEU
had borrowed a net euro 10 million ($13.6 million) under the Credit Facility. At
December 31, 2004,  euro 68 million ($92.6  million) was available for borrowing
by the Borrowers.

     The Credit Facility is collateralized by accounts  receivable and inventory
of certain 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, KEU and Kronos Denmark
are  unconditionally  jointly and severally  liable for any and all  outstanding
borrowings under the Credit Facility.  TAS, TIA and Kronos Norge A/S are 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 million ($3 million)
letters of credit issued at December 31, 2004.  The Borrowers were in compliance
with all the covenants as of December 31, 2004.

     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, 2004.

     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. Such amounts were repaid in the
second quarter of 2004.

     In June 2002,  KII issued at par value euro 285  million  principal  amount
($280  million when issued) of its 8.875%  Senior  Secured Notes due 2009 and in
November 2004 KII issued at 107% of par an additional euro 90 million  principal
amount ($130 million when issued) of the KII senior secured notes  (collectively
the  "Notes").  The Notes are  collateralized  by a pledge of 65% of the  common
stock or other  ownership  interests  of certain of KII's  first-tier  operating
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,  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.




Note 7 - Other noncurrent liabilities:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                               <C>                 <C>
Employee benefits                                 $   3,962           $   4,111
Insurance claims expense                              1,112               1,362
Other                                                 6,456               6,720
                                                  ---------           ---------

                                                  $  11,530           $  12,193
                                                  =========           =========
</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,  2003 and 2004 are
presented in the table below. Such weighted-average  rates were determined using
the projected benefit obligations at each date.

                                                           December 31,
                                                     ------------------------
        Rate                                         2003                2004
        ----                                         ----                ----

Discount rate                                        5.3%                5.0%
Increase in future compensation levels               2.8%                2.8%

     The weighted-average  rate assumptions used in determining the net periodic
pension  cost for 2002,  2003 and 2004 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>

                                                        Years ended December 31,
                                                     2002         2003         2004
                                                     ----         ----         ----
       Rate
       ----
<S>                                                  <C>          <C>          <C>
  Discount rate                                      5.5%         5.3%         5.3%
  Increase in future compensation levels             2.5%         2.8%         2.8%
  Long-term return on plan assets                    6.8%         6.5%         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
$193.6  million at December  31, 2004 (2003 - $177.3  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>

                                                        Years ended December 31,
                                                     2002         2003         2004
                                                     ----         ----         ----
                                                             (In thousands)

Net periodic pension cost:
<S>                                                <C>          <C>          <C>
  Service cost benefits                            $ 2,120      $ 2,621      $ 3,289
  Interest cost on projected benefit
   obligation ("PBO")                                8,353        9,354       10,558
  Expected return on plan assets                    (8,210)      (8,831)      (9,448)
  Amortization of prior service cost                  -            -             196
  Amortization of net transition obligation            210          251           69
  Recognized actuarial losses                          329           20          782
                                                   -------      -------      -------

                                                   $ 2,802      $ 3,415      $ 5,446
                                                   =======      =======      =======
</TABLE>

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

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)
Change in PBO:
<S>                                               <C>                 <C>
  Beginning of year                               $ 160,871           $ 205,440
  Service cost                                        2,621               3,289
  Interest                                            9,354              10,558
  Participant contributions                           1,156               1,206
  Plan amendments                                     3,200                   -
  Actuarial losses                                    6,398               4,968
  Benefits paid                                     (10,947)            (12,442)
  Change in currency exchange rates                  32,787              19,289
                                                  ---------           ---------

    End of year                                   $ 205,440           $ 232,308
                                                  ---------           ---------

Change in fair value of plan assets:
  Beginning of year                               $ 112,674           $ 116,275
  Actual return on plan assets                      (15,643)             10,026
  Employer contributions                              8,919              10,432
  Participant contributions                           1,156               1,206
  Benefits paid                                     (10,947)            (12,442)
  Change in currency exchange rates                  20,116              11,422
                                                  ---------           ---------

    End of year                                   $ 116,275           $ 136,919
                                                  ---------           ---------

Funded status at year end:
  Plan assets less than PBO                       $ (89,165)          $ (95,389)
  Unrecognized actuarial loss                        68,627              79,381
  Unrecognized prior service cost                     3,566               3,672
  Unrecognized net transition obligation                 70                -
                                                  ---------           ---------

                                                  $ (16,902)          $ (12,336)
                                                  =========           =========

Amounts recognized in the balance sheet:
  Accrued pension cost:
    Current                                       $  (7,878)          $  (8,587)
    Noncurrent                                      (50,826)            (45,015)
  Unrecognized net pension obligations                3,636               3,672
  Accumulated other comprehensive loss               38,166              37,594
                                                  ---------           ---------

                                                  $ (16,902)          $ (12,336)
                                                  =========           =========
</TABLE>

     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.   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,  2004 was 23% to equity
managers,  48% to fixed  income  managers  and 29% to real  estate.  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.

     At December 31, 2004,  the Company  expects to contribute the equivalent of
approximately $3 million to its defined benefit pension plan during 2005.

     The Company  expects  total  defined  benefit  pension  plan  expense to be
approximately  $7 million in 2005. The Company expects future benefits paid from
all defined benefit pension plans to be as follows:

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

   2005                                              $12,700
   2006                                               12,838
   2007                                               12,963
   2008                                               13,088
   2009                                               13,213
   2010 to 2014                                       67,938

Note 9 - Other items:

     Advertising  costs are expensed as incurred and were $.3 million in each of
2002, 2003 and 2004.

     Interest  capitalized in connection with long-term capital projects was nil
in each of 2002, 2003 and 2004.

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% in 2002 and 2003 and 26.4% in 2004,
(ii) the  provision for income taxes and (iii) the  comprehensive  tax provision
are presented below.



<TABLE>

                                                        Years ended December 31,
                                                     2002         2003         2004
                                                     ----         ----         ----
                                                             (In thousands)

<S>                                                <C>          <C>            <C>
Pretax income                                      $ 25,736     $  64,871      $ 58,485
                                                   ========     =========      ========

Expected tax expense                               $  6,434     $  16,218      $ 15,440
Trade income tax                                      2,561        11,365         7,773
German tax refund                                      -         (123,033)       (2,508)
Change in deferred income tax
  valuation allowance, net                             -              -          (3,146)
Organschaft adjustment                                 -          (94,079)         -
No corporation tax provision
  due to partnership structure                       (6,434)      (16,218)         -
Other, net                                              745            77           (52)
                                                   --------     ---------      --------

    Income tax expense (benefit)                   $  3,306     $(205,670)     $ 17,507
                                                   ========     =========      ========

Provision for income taxes:
  Current income tax expense (benefit)             $    431      (165,900)       11,329
  Deferred income tax expense (benefit)               2,875       (39,770)        6,178
                                                   --------     ---------      --------

                                                   $  3,306     $(205,670)     $ 17,507
                                                   ========     =========      ========

Comprehensive provision (benefit) for income
 taxes allocable to:
  Pretax income                                    $  3,306     $(205,670)     $ 17,507
  Other comprehensive loss - pension
   liabilities                                         (732)       (5,331)       (8,081)
                                                   --------     ---------      --------

                                                   $  2,574     $(211,001)     $  9,426
                                                   ========     =========      ========
</TABLE>

     The components of the net deferred tax liability are summarized below.



<TABLE>

                                                                     December 31,
                                                  --------------------------------------------------
                                                            2003                      2004
                                                  ------------------------   -----------------------
                                                   Assets      Liabilities   Assets      Liabilities
                                                  -------     ------------   ------      -----------
                                                                      (In millions)
Tax effect of temporary differences
 relating to:
<S>                                              <C>            <C>          <C>          <C>
  Inventories                                    $   -          $  (1,407)   $   -        $ (1,816)
  Property and equipment                           38,400           -          38,327         -
  Accrued (prepaid) pension cost                    6,690         (22,716)     14,770      (27,598)
  Other taxable differences                          -             (2,880)       -          (7,518)
Tax loss and tax credit carryforwards                 338            -           -            -
                                                 --------       ---------    --------     --------

  Gross deferred tax assets (liabilities)          45,428         (27,003)     53,097      (36,932)

Reclassification, principally netting by
  tax jurisdiction                                (25,596)         25,596     (35,020)      35,020
                                                 --------       ---------    --------     --------

  Net total deferred tax liabilities               19,832          (1,407)     18,077       (1,912)
  Net current deferred tax liabilities               -             (1,407)       -          (1,912)
                                                 --------       ---------    --------     --------

  Net noncurrent deferred tax liabilities        $ 19,832       $    -       $ 18,077     $   -
                                                 ========       =========    ========     ========
</TABLE>


     The Company's has no deferred income tax valuation allowance as of December
31, 2003 and 2004.

     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 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 the Company's
consolidated financial position, results of operations or liquidity.

     During 2002 and 2003, the Company's  legal form was as a partnership.  As a
partnership,  the Company  was not  subject to  corporation  tax,  although  the
Company was 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.

     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) and the Company
recognized  the benefit for these net funds in its 2003  results of  operations.
For the year ended  December 31, 2004,  the Company  recognized a refund of euro
4.0 million ($5.3 million)  related to additional net interest which has accrued
on the  outstanding  refund amount.  Through  December 2004, TG had received net
refunds of euro 107.2  million  ($135.4  million  when  received).  All  refunds
relating  from the periods 1990 to 1997 were  received by December 31, 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.

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

Note 11 - 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,  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  services  and cost  sharing  agreements  among
several affiliates of the Company whereby Kronos,  KII, KEU and other affiliates
provide certain management,  financial, insurance and administrative services to
the Company on a fee basis. The Company's expense was approximately $5.7 million
in 2002, $7.1 million in 2003 and $7.8 million in 2004 related to these services
and costs.

     The Company  charges  affiliates  for  certain  management,  financial  and
administrative  services costs, which totaled  approximately $3.4 million,  $4.3
million, and $4.4 million in 2002, 2003 and 2004, 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 (which merged into Tall Pines
in December 2004, with Tall Pines surviving the merger) and EWI RE, Inc. ("EWI")
provide for or broker certain insurance  policies for Contran and certain of its
subsidiaries and affiliates,  including KII, Kronos and the Company.  Tall Pines
is wholly owned by a 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.  The costs  associated with these policies
aggregated  $5.6 million,  $4.1 million and $4.0 million in 2002, 2003 and 2004,
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 Kronos,  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 titanium dioxide pigments  ("TiO2").  Intercompany  sales to (purchases from)
affiliates of TiO2 are summarized in the following table.
<TABLE>

                                                        Years ended December 31,
                                                     ------------------------------
                                                     2002         2003         2004
                                                     ----         ----         ----
                                                             (In thousands)

Sales to:
<S>                 <C>                           <C>           <C>           <C>
  Kronos (US), Inc. ("KUS")                       $ 24,511      $ 37,550      $ 21,448
  Societe Industrielle du Titane, S.A. ("SIT")      23,681        32,969        39,091
  KEU                                               19,141        22,417        23,872
  Kronos Limited ("KUK")                            16,864        22,151        18,677
  Kronos Canada, Inc. ("KC")                         4,494         5,026         5,414
  Other affiliates                                  10,564        29,200        41,052
                                                  --------      --------      --------

                                                  $ 99,255      $149,313      $149,554
                                                  ========      ========      ========

Purchases from:
  KEU                                             $ 26,868      $ 33,061      $ 42,836
  TAS                                                3,209         5,722        10,796
  KC                                                  -             -              271
                                                  --------      --------      --------

                                                  $ 30,077      $ 38,783      $ 53,903
                                                  ========      ========      ========
</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 $64.3 million in 2002, $56.2 million in 2003 and $66.7 million in
2004.

     The Company sells water treatment  chemicals  (derived from  co-products of
the TiO2 production  processes) to KII. Such water treatment chemical sales were
$8.4 million in 2002, $12.8 million in 2003 and $15.9 million in 2004.

     The  Company  purchases   ilmenite  (sulfate   feedstock)  from  TIA  on  a
year-to-year  basis. Such feedstock  purchases were $13.4 million in 2002, $15.5
million in 2003 and $17.4 million in 2004.

     At  January  1,  2002,  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 2002 aggregated $59 million, and export receivables  purchased by the
Company  during  2003  and  2004  aggregated  $108  million  and  $129  million,
respectively.

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


                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

Receivable from:
  KUK                                              $    886           $    862
  TAS                                                15,533                  -
  SIT                                                     -              1,632
  KEU                                                32,342                  -
  Kronos B.V.                                             -              2,055
  KII                                                31,974             25,032
  KC                                                     92              1,496
  Other affiliates                                    1,339              1,278
                                                   --------           --------

                                                   $ 82,166           $ 32,355
                                                   ========           ========

Current payable to:
  KII - income taxes                               $   -              $ 14,386
  KUS                                                 5,856              5,390
  TIA                                                 6,631              8,817
  Kronos B.V.                                         8,609                  -
  KEU                                                     -              4,456
  TAS                                                     -              2,139
  Other affiliates                                      589                 72
                                                   --------           --------

                                                   $ 21,685           $ 35,260
                                                   ========           ========

Noncurrent receivable from TAS                     $   -              $  5,449
                                                   ========           ========

Noncurrent payables to:
  KII                                              $ 89,710           $   -
  KDK                                                  -                12,941
                                                   --------           --------

                                                   $ 89,710           $ 12,941
                                                   ========           ========

     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 2002 during a  recapitalization  of the Company.  The note payable (euro 71.8
million, or $89.7 million and nil, at December 31, 2003 and 2004,  respectively)
bore interest through 2002 at EURIBOR plus 1% (4.30% at December 31, 2002). This
note was fully repaid in October 2004.

     The  Company  borrowed  euro 9.5  million  from KDK in October  2004 ($12.9
million at December 31, 2004). This note bears an interest rate of 2.675% and is
due on June 30, 2005, with an option to renew.

     The  Company  loaned  TAS euro 4 million  ($5.4  million)  all of which was
outstanding at December 31, 2004.  This note  receivable  bears interest at 3.1%
and is due on March 31, 2005.

     Interest expense to affiliates  related to the note payable to KII was $3.7
million  in 2002,  and nil in 2003 and 2004.  Interest  income  from  affiliates
related to a note receivable from KEU, repaid in June 2002, $.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 12 - NL common stock options held by employees of the Company:

     At December  31,  2004,  employees  of the Company held options to purchase
approximately  14,000 shares of NL common stock,  of which 5,000 were granted in
2000 and are  exercisable  at various dates through 2010 at an exercise price of
$5.63 per share,  and 9,000 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 Notes 2 and 15. No options  were  granted  during  2002,  2003 or 2004.  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:

     Operating leases. The Company leases, pursuant to operating leases, various
manufacturing  facilities  and 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 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 ownership and use of the Leverkusen facility.

     Net rent expense  aggregated  $4 million in 2002, $5 million in 2003 and $4
million in 2004.  At December 31, 2004,  minimum  rental  commitments  under the
terms of noncancellable operating leases were as follows:

                                                    Amount
                                              -------------------
                                                (in thousands)
Years ending December 31,
    2005                                           $ 2,173
    2006                                             1,357
    2007                                             1,259
    2008                                             1,150
    2009                                             1,093
    2010 and thereafter                             20,736
                                                   -------

                                                   $27,768
                                                   =======

     Approximately  $25.3 million of the $27.8 million  aggregate future minimum
rental  commitments  at December  31, 2004 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, 2004.

     Capital  expenditures.  At December 31, 2004 the estimated cost to complete
capital projects in process approximated $3.9 million.

     Purchase  commitments.  KUS has long-term supply contracts that provide for
certain affiliates'  chloride feedstock  requirements  through 2009. 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 minimum  purchase  commitments  aggregating  approximately  $525
million at December 31, 2004.

     Environmental,  product  liability and  litigation  matters.  The Company's
operations are governed by various  environmental laws and regulations.  Certain
of the  Company's  operations  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 Company's  policy 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.  The  Company  believes  all of its plants are in
substantial compliance with applicable environmental laws.

     Concentrations of credit risk. Sales of TiO2 accounted for more than 97% of
net sales during each of 2002,  2003 and 2004.  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  20% of net sales in each of 2002
and 2003 and 22% of net sales in 2004.  Approximately  75% of the Company's TiO2
sales  by  volume  were  to  Europe  in  2002,  68% in  2003  and  78% in  2004.
Approximately  8% in 2002, 12% in 2003 and 7% in 2004 of sales by volume were to
North America.

Note 14 - Financial instruments:

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

                                                        December 31,
                                    -------------------------------------------------------
                                              2003                           2004
                                    ------------------------    ---------------------------
                                    Carrying          Fair        Carrying           Fair
                                     amount           value        amount            value
                                    --------         ------       --------          ------
                                                         (In millions)

<S>                                  <C>             <C>            <C>              <C>
Cash and cash equivalents            $30.9           $30.9          $ 6.4            $ 6.4

Note payable to affiliate             89.7            89.7           12.9             12.9
</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 2002, 2003 and 2004.

     Other than as described  above, the Company was not a party to any material
derivative financial  instruments during 2002, 2003 or 2004. There was no impact
on the Company's financial statements from adopting SFAS No. 133.

Note 15- Accounting principles not yet adopted:

     Inventory costs. The Company will adopt SFAS No. 151,  "Inventory Costs, an
amendment of ARB No. 43,  Chapter 4," for inventory  costs  incurred on or after
January 1, 2006.  SFAS No. 151 requires that the allocation of fixed  production
overhead costs to inventory shall be based on normal  capacity.  Normal capacity
is not defined as a fixed amount;  rather,  normal capacity refers to a range of
production  levels expected to be achieved over a number of periods under normal
circumstances,  taking into account the loss of capacity  resulting from planned
maintenance  shutdowns.  The amount of fixed overhead  allocated to each unit of
production is not increased as a consequence of idle plant or production  levels
below the low end of normal  capacity,  but instead a portion of fixed  overhead
costs  are  charged  to  expense  as  incurred.  Alternatively,  in  periods  of
production above the high end of normal  capacity,  the amount of fixed overhead
costs allocated to each unit of production is decreased so that  inventories are
not measured above cost.  SFAS No. 151 also  clarifies  existing GAAP to require
that  abnormal  freight and wasted  materials  (spoilage)  are to be expensed as
incurred.  The Company believes its production cost accounting  already complies
with the  requirements of SFAS No. 151, and the Company does not expect adoption
of SFAS No.  151 will  have a  material  effect  on its  consolidated  financial
statements.

     Stock options. The Company will adopt SFAS No. 123R, "Share-Based Payment",
as of  July  1,  2005.  SFAS  No.  123R,  among  other  things,  eliminates  the
alternative in existing GAAP to use the intrinsic value method of accounting for
stock-based  employee  compensation under APBO No. 25. Upon adoption of SFAS No.
123R,  the Company will  generally be required to recognize the cost of employee
services  received in exchange for an award of equity  instruments  based on the
grant-date  fair value of the award,  with the cost  recognized  over the period
during  which an employee is  required to provide  services in exchange  for the
award (generally, the vesting period of the award). No compensation cost will be
recognized in the aggregate for equity  instruments  for which the employee does
not render the requisite service (generally,  the instrument is forfeited before
it has vested). The grant-date fair value will be estimated using option-pricing
models  (e.g.   Black-Scholes   or  a  lattice  model).   Under  the  transition
alternatives  permitted  under SFAS No.  123R,  the  Company  will apply the new
standard to all new awards  granted on or after July 1, 2005,  and to all awards
existing as of June 30, 2005 which are  subsequently  modified,  repurchased  or
cancelled.  Additionally,  as of July 1, 2005,  the Company  will be required to
recognize  compensation cost for the portion of any non-vested award existing as
of June 30, 2005 over the remaining vesting period.  Because the Company has not
granted any options to purchase  its common  stock and is not  expected to grant
any options prior to July 1, 2005,  and because the number of non-vested  awards
as of June 30, 2005 with  respect to options  granted by NL to  employees of the
Company is not expected to be material,  the effect of adopting SFAS No. 123R is
not  expected  to be  significant  in so far as it  relates  to  existing  stock
options.  Should  the  Company  or one  of  its  affiliates,  however,  grant  a
significant  number of options in the future to employees  of the  Company,  the
effect on the Company's consolidated financial statements could be material.



                       KRONOS DENMARK APS AND SUBSIDIARIES

                   Index of Consolidated Financial Statements


Financial Statements
                                                                        Pages

Report of Independent Registered Public Accounting Firm                  FB-2

Consolidated Balance Sheets - December 31, 2003 and 2004                 FB-3

Consolidated Statements of Income - Years ended
  December 31, 2002, 2003 and 2004                                       FB-5

Consolidated Statements of Comprehensive Income -
  Years ended December 31, 2002, 2003 and 2004                           FB-6

Consolidated Statements of Stockholder's Equity -
  Years ended December 31, 2002, 2003 and 2004                           FB-7

Consolidated Statements of Cash Flows -
  Years ended December 31, 2002, 2003 and 2004                           FB-8

Notes to Consolidated Financial Statements                               FB-10





             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




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, 2003 and 2004,
and the results of their  operations  and their cash flows for each of the three
years in the period  ended  December  31,  2004 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 the
standards of the Public  Company  Accounting  Oversight  Board (United  States).
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  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 30, 2005





                       KRONOS DENMARK APS AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2003 and 2004

                        (In thousands, except share data)
<TABLE>

                                                              2003                 2004
                                                              ----                 ----
         ASSETS

Current assets:
<S>                                                        <C>                  <C>
    Cash and cash equivalents                              $  4,681             $  3,566
    Restricted cash                                           1,313                1,529
    Accounts and notes receivable                            15,605               18,422
    Receivable from affiliates                                1,987               16,029
    Refundable income taxes                                     587                1,542
    Inventories                                              66,156               65,282
    Prepaid expenses                                            834                  908
    Deferred income taxes                                        26                 -
                                                           --------             --------

        Total current assets                                 91,189              107,278
                                                           --------             --------


Other assets:
    Note receivable from affiliate                               -                12,941
    Other                                                     7,387                7,013
                                                           --------             --------

        Total other assets                                    7,387               19,954
                                                           --------             --------


Property and equipment:
    Land                                                     17,568               19,236
    Buildings                                                37,025               41,196
    Machinery and equipment                                 168,549              190,748
    Mining properties                                        63,700               72,384
    Construction in progress                                    237                3,443
                                                           --------             --------

                                                            287,079              327,007
    Less accumulated depreciation and amortization          171,338              200,873
                                                           --------             --------

        Net property and equipment                          115,741              126,134
                                                           --------             --------

                                                           $214,317             $253,366
                                                           ========             ========
</TABLE>



                       KRONOS DENMARK APS AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2003 and 2004

                        (In thousands, except share data)
<TABLE>

                                                              2003                 2004
                                                              ----                 ----
         LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
<S>                                                        <C>                <C>
    Current maturities of long-term debt                   $     288           $ 13,792
    Accounts payable and accrued liabilities                  31,536             38,776
    Payable to affiliates                                     39,661             10,142
    Income taxes                                               5,411              6,427
    Deferred income taxes                                      2,030              2,363
                                                           ---------           --------

        Total current liabilities                             78,926             71,500
                                                           ---------           --------

Noncurrent liabilities:
    Long-term debt                                               315                178
    Note payable to affiliate                                   -                 5,449
    Deferred income taxes                                     23,320             22,358
    Accrued pension costs                                      1,191              2,493
    Other                                                      1,555              3,484
                                                           ---------           --------

        Total noncurrent liabilities                          26,381             33,962
                                                           ---------           --------

Stockholder's equity:
      Common stock - 100 Danish kroner par value;
        10,000 shares authorized; 10,000 shares
        issued and outstanding                                   136                136
      Additional paid-in capital                             216,996            216,996
      Accumulated deficit                                    (93,459)           (69,643)
      Accumulated other comprehensive loss:
      Currency translation adjustment                         (4,204)             9,686
      Minimum pension liability                              (10,459)            (9,271)
                                                           ---------           --------

             Total stockholder's equity                      109,010            147,904
                                                           ---------           --------

                                                           $ 214,317           $253,366
                                                           =========           ========
</TABLE>

Commitments and contingencies (Notes 7, 9 and 12)

          See accompanying notes to consolidated financial statements.



                       KRONOS DENMARK APS AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)

<TABLE>

                                                             2002           2003           2004
                                                             ----           ----           ----


<S>                                                       <C>            <C>            <C>
Net sales                                                 $ 243,412      $ 292,611      $ 345,962
Cost of sales                                               206,690        234,881        284,902
                                                          ---------      ---------      ---------

    Gross margin                                             36,722         57,730         61,060

Selling, general and administrative expense                  17,406         19,596         23,874
Other operating income (expense):
  Currency transaction gains (losses), net                      399            355            980
  Disposition of property and equipment                        (239)            37           (596)
  Other, net                                                    176            350            286
                                                          ---------      ---------      ---------

    Income from operations                                   19,652         38,876         37,856

Other income (expense):
  Trade interest income                                         231            163             73
  Interest and other expense to affiliates                   (2,938)        (2,608)        (2,943)
  Interest and other income from affiliates                     325            198            202
  Interest expense                                           (2,548)        (2,309)        (1,529)
                                                          ---------      ---------      ---------

    Income before income taxes                               14,722         34,320         33,659

Provision for income taxes                                    3,378          7,428          9,843
                                                          ---------      ---------      ---------

   Net income                                             $  11,344      $  26,892      $  23,816
                                                          =========      =========      =========
</TABLE>




                       KRONOS DENMARK APS AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)

<TABLE>

                                                             2002           2003           2004
                                                             ----           ----           ----



<S>                                                       <C>            <C>            <C>
Net income                                                $  11,344      $  26,892      $  23,816
                                                          ---------      ---------      ---------

Other comprehensive income (loss), net of tax:
      Currency translation adjustment                        17,081         10,998         13,890
      Minimum pension liability                                -           (10,459)         1,188
                                                          ---------      ---------      ---------

      Total other comprehensive income                       17,081            539         15,078
                                                          ---------      ---------      ---------

Comprehensive income                                      $  28,425      $  27,431      $  38,894
                                                          =========      =========      =========
</TABLE>







                       KRONOS DENMARK APS AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)

<TABLE>

                                                                                      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, 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

Net income                                  -             -             23,816           -               -          23,816
Other comprehensive income,
  net of tax                                -             -               -            13,890           1,188       15,078
                                         ------      ---------       ---------      ---------        --------     --------

Balance at December 31, 2004             $  136      $ 216,996       $ (69,643)     $   9,686        $ (9,271)    $147,904
                                         ======      =========       =========      =========        ========     ========
</TABLE>



                       KRONOS DENMARK APS AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)

<TABLE>

                                                             2002           2003           2004
                                                             ----           ----           ----



Cash flows from operating activities:
<S>                                                        <C>            <C>           <C>
  Net income                                               $ 11,344       $ 26,892      $  23,816
  Depreciation and amortization                               9,408         11,446         12,041
  Noncash interest expense                                      150            332            358
  Deferred income taxes                                      (2,011)        (5,405)        (2,983)
  Net loss (gain) from disposition of
    property and equipment                                      239            (37)           596
  Pension, net                                                1,132          2,278          4,372
  Change in assets and liabilities:
    Accounts and notes receivable                            (1,307)           437           (967)
    Inventories                                               1,377         (2,250)         6,500
    Prepaid expenses                                            909            143             17
    Accounts payable and accrued liabilities                  5,098          4,107          3,130
    Income taxes                                             (1,542)        (2,902)          (453)
    Accounts with affiliates                                 19,152         10,403        (37,220)
    Other noncurrent assets                                     263         (4,181)         2,257
    Other noncurrent liabilities                                (73)           547         (1,420)
                                                           --------       --------      ---------

      Net cash provided by operating activities              44,139         41,810         10,044
                                                           --------       --------      ---------

Cash flows from investing activities:
  Capital expenditures                                      (10,329)       (10,274)       (11,725)
  Loans to affiliates                                          -              -           (11,597)
  Change in restricted cash equivalents and restricted                                        (70)
       marketable debt securities, net                       (2,891)          (554)
  Proceeds from disposition of property and equipment           823            350            100
                                                           --------       --------      ---------

        Net cash used by investing activities               (12,397)       (10,478)       (23,292)
                                                           ========       ========      =========
</TABLE>



                       KRONOS DENMARK APS AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)

<TABLE>

                                                             2002           2003           2004
                                                             ----           ----           ----

Cash flows from financing activities:
  Indebtedness:
<S>                                                        <C>            <C>            <C>
    Borrowings                                             $  55,727      $  16,106      $  62,140
    Principal payments                                       (58,117)       (46,006)       (50,089)
    Deferred financing fees                                     (953)          -              -
  Loans from affiliates - repayments                         (18,097)          -              -
  Dividends paid                                             (13,360)          -              -
                                                           ---------      ---------      ---------

Net cash provided (used) by financing activities             (34,800)       (29,900)        12,051
                                                           ---------      ---------      ---------

Cash and cash equivalents:
  Net change during the year from:
    Operating, investing and financing
     activities                                               (3,058)         1,432         (1,197)
    Currency translation                                         541            336             82
  Balance at beginning of  period                              5,430          2,913          4,681
                                                           ---------      ---------      ---------

  Balance at end of period                                 $   2,913      $   4,681      $   3,566
                                                           =========      =========      =========

Supplemental disclosures:
  Cash paid for:
    Interest                                               $   5,461      $   4,638      $   4,198
    Income taxes                                               6,931         11,525         13,331
</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. (NYSE:KRO).  At December 31,
2004,  (i)  Valhi,  Inc  (NYSE:   VHI)  and  a  wholly-owned   subsidiary  owned
approximately  57% of Kronos' common stock and NL Industries,  Inc.  (NYSE:  NL)
held an additional 37% of the outstanding common stock of Kronos, (ii) Valhi and
its wholly-owned subsidiary owned 83% of NL's outstanding common stock and (iii)
Contran  Corporation  and its  subsidiaries  held  approximately  91% 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,  or is
held by Mr.  Simmons  or  persons  or other  entities  related  to Mr.  Simmons.
Consequently, Mr. Simmons may be deemed to control each of such companies.

     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  titanium  dioxide  pigments  ("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.  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,  an interpretation of ARB No. 51.," as amended as of
March 31, 2004.

     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,  net of related deferred income taxes.
Currency transaction gains and losses are recognized in income currently.

     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, as amended,  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.

     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 ($2.6
million and $2.9  million at  December  31,  2003 and 2004,  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.

     Expenditures  for  maintenance,  repairs and minor  renewals are  expensed;
expenditures  for major  improvements  are  capitalized.  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  and
consisting primarily of materials and supplies, was $1.1 million and $600,000 at
December 31, 2003 and 2004, 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 2002, 2003 or 2004.

     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.  The Company assesses  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," which among
other things provided certain implementation guidance in relation to prior GAAP.
See Note 14.

     Long-term debt.  Long-term debt is stated net of any  unamortized  original
issue premium or discount. Amortization of deferred financing costs, included in
interest  expense,  is  computed  by the  interest  method  over the term of the
applicable issue.

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

     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.

     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,  packaging and  finishing,  utilities,  salary and
benefits, maintenance and depreciation.

     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 $9.2 million in 2002, $11.2 million
in 2003 and $13.1  million in 2004.  Advertising  costs are expensed as incurred
and were  approximately  $100,000  in each of 2002,  2003  and  2004.  Research,
development and certain sales  technical  support costs are expensed as incurred
and approximated $300,000 in each of 2002 and 2003 and $200,000 in 2004.

     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. 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 $126,000 in 2002,  $117,000 in 2003 and $319,000 in
2004.

     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>

                                                        Years ended December 31,
                                                     ------------------------------
                                                     2002         2003         2004
                                                     ----         ----         ----
                                                 (In thousands except per share amounts)

<S>                                                <C>           <C>          <C>
Net income - as reported                           $11,344       $26,892      $23,816

Adjustments, net of applicable income tax
 effects:
  Stock-based employee compensation
   expense determined under APBO No. 25                 75            77          223
  Stock-based employee compensation
   expense determined under SFAS No. 123               (79)          (38)          (8)
                                                   -------       -------      -------

Pro forma net income                               $11,340       $26,931      $24,031
                                                   =======       =======      =======
</TABLE>

Note 3 - Accounts and notes receivable:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                                 <C>                 <C>
Trade receivables                                   $13,117             $15,487
Recoverable VAT and other receivables                 2,510               2,960
Allowance for doubtful accounts                         (22)                (25)
                                                    -------             -------

                                                    $15,605             $18,422
                                                    =======             =======
</TABLE>





Note 4 - Inventories:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                                 <C>                 <C>
Raw materials                                       $16,793             $13,804
Work in process                                       1,454               2,871
Finished products                                    32,943              31,725
Supplies                                             14,966              16,882
                                                    -------             -------

                                                    $66,156             $65,282
                                                    =======             =======
</TABLE>

Note 5 - Other noncurrent assets:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                                 <C>                <C>
Unrecognized net pension obligations                $ 4,176             $ 3,852
Restricted marketable debt securities                 2,586               2,877
Deferred financing costs, net                           542                 198
Other                                                    83                  86
                                                    -------             -------

                                                    $ 7,387             $ 7,013
                                                    =======             =======
</TABLE>

Note 6 - Accounts payable and accrued liabilities:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                                 <C>                 <C>
Accounts payable                                    $16,609             $21,695
                                                    -------             -------
Accrued liabilities:
  Employee benefits                                   8,786              10,462
  Other                                               6,141               6,619
                                                    -------             -------

                                                     14,927              17,081
                                                    -------             -------

                                                    $31,536             $38,776
                                                    =======             =======
</TABLE>

Note 7 - Notes payable and long-term debt:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

Long-term debt:
<S>                                                 <C>                 <C>
  Bank credit facility                              $  -                $ 13,622
  Other                                                 603                  348
                                                    -------             -------

                                                        603               13,970
Less current maturities                                 288               13,792
                                                    -------             -------

                                                    $   315             $   178
                                                    =======             =======
</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
bank credit  facility  ("Credit  Facility").  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 (euro 2 million, or $3 million, issued at
December  31,  2004).  The Credit  Facility is  collateralized  by the  accounts
receivable and inventories of the borrowers, plus a limited pledge of all of the
other assets of KEU. The 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 Credit
Facility contains customary cross-default  provisions with respect to other debt
and obligations of the Borrowers,  KII and its other  subsidiaries.  At December
31, 2004,  euro 10 million  ($13.6  million) were  outstanding  under the Credit
Facility.  At December 31, 2004, euro 68.0 million ($92.6 million) was available
for borrowing by the Borrowers.

     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, 2004.

     Unused lines of credit available for borrowing under the Company's non-U.S.
credit facilities approximated $94.3 million at December 31, 2004.

     In June 2002,  KII issued at par value euro 285  million  principal  amount
($280 million when issued) of its 8.875% Senior  Secured Notes due 2009,  and in
November 2004 KII issued at 107% of par an additional euro 90 million  principal
amount ($130 million when issued) of the KII Senior Secured Notes  (collectively
the  "Notes").  The Notes are  collateralized  by a pledge of 65% of the  common
stock or other  ownership  interests  of certain of KII's  first-tier  operating
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.

     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 Credit Facility,  any
outstanding  borrowings  under the 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).  The
Credit  Facility  contains  provisions  that allow the lender to accelerate  the
maturity of the Credit Facility in the event of a change of control, as defined,
of  the  applicable  borrower.  In  the  event  any of  these  cross-default  or
change-of-control   provisions  become  applicable,  and  such  indebtedness  is
accelerated,  KII would be  required to repay such  indebtedness  prior to their
stated maturity.

     The aggregate  maturities of long-term  debt at December 31, 2004 are shown
in the table below.

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

    2005                                        $13,792
    2006                                            159
    2007                                             19
                                                -------

                                                $13,970
                                                =======

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 2003 or 2004. At December 31, 2004,  the
Company  expects to contribute the equivalent of  approximately  $1.4 million to
its defined benefit pension plans during 2005.

     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,  2003 and 2004 are
presented in the table below. Such weighted-average  rates were determined using
the projected benefit obligations at each date.

                                                            December 31,
                                                       ---------------------
                                                       2003             2004
                                                       ----             ----

Discount rate                                          5.5%             5.0%
Increase in future compensation levels                 3.0%             3.0%

     The weighted-average  rate assumptions used in determining the net periodic
pension  cost for 2002,  2003 and 2004 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.

                                                   Years ended December 31,
                                                ------------------------------
                                                2002         2003         2004
                                                ----         ----         ----

Discount rate                                   6.0%         5.9%         5.5%
Increase in future compensation levels          3.0%         3.0%         3.0%
Long-term return on plan assets                 6.9%         7.0%         6.0%

     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>

                                                        Years ended December 31,
                                                     ------------------------------
                                                     2002         2003         2004
                                                     ----         ----         ----
                                                             (In thousands)

Net periodic pension cost:
<S>                                                <C>           <C>          <C>
  Service cost benefits                            $ 1,264       $ 1,430      $ 2,096
  Interest cost on projected benefit                                            3,436
   obligation ("PBO")                                2,508         2,907
  Expected return on plan assets                    (2,660)       (3,335)      (2,815)
  Amortization of prior service cost                   223           255          267
  Amortization of net transition obligation            140           296          321
  Recognized actuarial losses                          668           732        1,428
                                                   -------       -------      -------

                                                   $ 2,143       $ 2,285      $ 4,733
                                                   =======       =======      =======
</TABLE>

     The funded status of the  Company's  defined  benefit  pension plans is set
forth below.

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

Change in PBO:
  Beginning of year                                $ 50,061           $ 64,161
  Service cost                                        1,430              2,096
  Interest                                            2,907              3,436
  Participant contributions                             135                152
  Actuarial gains (losses)                           10,745             (1,891)
  Benefits paid                                      (4,736)            (2,674)
  Change in currency exchange rates                   3,619              7,081
                                                   --------           --------

      End of year                                  $ 64,161           $ 72,361
                                                   --------           --------

Change in fair value of plan assets:
  Beginning of year                                $ 47,324           $ 49,540
  Actual return on plan assets                        2,943              3,881
  Employer contributions                              1,223              1,170
  Participant contributions                             135                152
  Benefits paid                                      (4,736)            (2,674)
  Change in currency exchange rates                   2,651              5,685
                                                   --------           --------

      End of year                                  $ 49,540           $ 57,754
                                                   --------           --------

Funded status at year end:
  Plan assets less than PBO                        $(14,621)          $(14,607)
  Unrecognized actuarial loss                        27,815             26,344
  Unrecognized prior service cost                     3,112              3,157
  Unrecognized net transition obligation              1,223                999
                                                   --------           --------

                                                   $ 17,529           $ 15,893
                                                   ========           ========

Amounts recognized in the balance sheet:

  Accrued pension cost, noncurrent                 $ (1,174)          $ (2,469)
  Unrecognized net pension obligations                4,176              3,852
  Accumulated other comprehensive loss               14,527             14,510
                                                   --------           --------

                                                   $ 17,529           $ 15,893
                                                   ========           ========

     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 $60.8 million at December 31, 2004 (2003 - $51.1 million).

     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.  The Company currently has a plan asset target allocation
of 14% to  equity  managers,  62% to fixed  income  managers  and the  remainder
primarily to cash and liquid investments.  The expected long-term rate of return
for such investments is approximately  8%, 4.5% to 6.5% and 2.5%,  respectively.
The  current  plan  asset  allocation  at  December  31,  2004 was 16% to equity
managers,  64% to fixed income  managers and the  remainder  primarily  cash and
liquid  investments.  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  expects future benefits paid from its defined benefit plans to
be as follows:

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

   2005                                               $2,804
   2006                                                4,046
   2007                                                2,923
   2008                                                4,545
   2009                                                3,185
   2010 to 2014                                       21,472

Note 9 - 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 2002,  2003 and  2004,  (iii)  the
provision  for  income  taxes  and  (iv) the  comprehensive  tax  provision  are
presented below.



<TABLE>

                                                        Years ended December 31,
                                                     ------------------------------
                                                     2002         2003         2004
                                                     ----         ----         ----
                                                             (In thousands)
Pretax income (loss):
<S>                                                <C>          <C>           <C>
  Denmark                                          $   207      $   170       $  (101)
  Non-Denmark                                       14,515       34,150        33,760
                                                   -------      -------       -------

                                                   $14,722      $34,320       $33,659

Expected tax expense                               $ 4,417      $10,296       $10,099
Non-Denmark tax rates                                  650          428           527
Valuation allowance                                    658         -             -
Tax contingency reserve adjustment                    -          (5,100)         (125)
Refund of prior year taxes                            -            -             (595)
Tax on partnership income                             -           1,245          (358)
Rate change adjustment of deferred taxes            (2,332)        -             -
Other, net                                             (15)         559           295
                                                   -------      -------       -------

        Income tax expense                         $ 3,378      $ 7,428       $ 9,843
                                                   =======      =======       =======

Provision for income taxes:
  Current income tax expense:
    Denmark                                        $    48       $    63      $     2
    Non-Denmark                                      5,341        12,770       12,824
                                                   -------       -------      -------

                                                     5,389        12,833       12,826
                                                   -------       -------      -------

  Deferred income tax expense (benefit):
    Denmark                                             (1)       (5,104)        (139)
    Non-Denmark                                     (2,010)         (301)      (2,844)
                                                   -------       -------      -------

                                                    (2,011)       (5,405)      (2,983)
                                                   -------       -------      -------

                                                   $ 3,378       $ 7,428      $ 9,843
                                                   =======       =======      =======

Comprehensive provision for income taxes
 allocable to:
  Pretax income                                    $ 3,378       $ 7,428      $ 9,843
  Other comprehensive loss - pension  liabilities     -           (4,068)           5
                                                   -------       -------      -------
                                                   $ 3,378       $ 3,360      $ 9,848
                                                   =======       =======      =======
</TABLE>




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

                                                                     December 31,
                                                  --------------------------------------------------
                                                            2003                      2004
                                                  ------------------------   -----------------------
                                                   Assets      Liabilities   Assets      Liabilities
                                                  -------     ------------   ------      -----------
                                                                      (In millions)

Tax effect of temporary differences
 relating to:
<S>                                               <C>           <C>           <C>         <C>
  Inventories                                     $   26        $ (2,035)     $   61      $ (2,546)
  Property and equipment                             143         (18,856)        181       (20,214)
  Accrued (prepaid) pension cost                   4,068          (4,970)      4,063        (4,624)
  Accrued liabilities and other
    deductible differences                           834            -            199          -
  Other taxable differences                         -             (3,851)       -           (3,746)

  Incremental tax and rate
    differences on equity in
    earnings of non-tax group companies             -               -          1,905          -
Valuation allowance                                 (683)           -           -             -
                                                  ------        --------      ------      --------

    Gross deferred tax assets (liabilities)        4,388         (29,712)      6,409       (31,130)

Reclassification, principally netting by tax                       4,362
   jurisdiction                                   (4,362)                     (6,409)        6,409
                                                  ------        --------      ------      --------

    Net total deferred tax assets
      (liabilities)                                   26         (25,350)       -          (24,721)
    Net current deferred tax assets
      (liabilities)                                   26          (2,030)       -           (2,363)
                                                  ------        --------      ------      --------

    Net noncurrent deferred tax liabilities       $  -          $(23,320)     $ -         $(22,358)
                                                  ======        ========      ======      ========
</TABLE>


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

                                                        Years ended December 31,
                                                     ------------------------------
                                                     2002         2003         2004
                                                     ----         ----         ----
                                                             (In thousands)

<S>                                                  <C>         <C>           <C>
  Balance at beginning of year                       $ -         $ 658         $ 683
  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
    Offset to the change in gross deferred
      income tax assets due principally
      to redeterminations of certain tax
      attributes and implementation of
      certain planning strategies                      -            -           (683)
                                                     ----        -----         -----

  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,  2004).  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 9 million ($13 million).  The Company
     believes the proposed  assessment is  substantially  without merit, and the
     Company has filed a written response.

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,  2004)  relating  to the years 1998 to 2000.  The Company has
     objected 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 10 - 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,  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.

     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  services  and cost  sharing  agreements  among
several  affiliates  of the Company  whereby  Kronos,  KII and other  affiliates
provide certain management,  financial, insurance and administrative services to
the Company on a fee basis. The Company's expense was approximately $1.9 million
in each of 2002 and 2003 and $2.1 million in 2004 related to these  services and
costs.

     Tall Pines Insurance Company,  Valmont Insurance Company (which merged into
Tall Pines in December 2004,  with Tall Pines  surviving the merger) and EWI RE,
Inc. provide for or broker certain insurance policies for Contran and certain of
its  subsidiaries  and  affiliates,   including  the  Company.   Tall  Pines  is
wholly-owned by a 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. The aggregate premiums paid to Tall Pines,
Valmont and EWI by the Company and its joint  venture were $1.3 million in 2002,
$900,000 in 2003 and $1.1 million in 2004.  These amounts  principally  included
payments for insurance and reinsurance  premiums paid to third parties, but also
included  commissions  paid to Tall Pines,  Valmont and EWI. The Company expects
that these relationships with Tall Pines and EWI will continue in 2005.

     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>

                                                        Years ended December 31,
                                                     ------------------------------
                                                     2002         2003         2004
                                                     ----         ----         ----
                                                             (In thousands)

Sales to:
<S>                                                <C>           <C>           <C>
  TG                                               $ 30,077      $ 38,783      $ 53,631
  Kronos Limited ("KUK")                             17,148        18,856        25,285
  Kronos (US), Inc. ("KUS")                          13,189        18,792        19,180
  Societe Industrielle du Titane, S.A. ("SIT")        8,924         8,138         8,868
  Kronos Canada, Inc. ("KC")                          3,231         4,308         2,596
                                                   --------      --------      --------

                                                   $ 72,569      $ 88,877      $109,560
                                                   ========      ========      ========

Purchases from:
  TG                                               $ 29,706      $ 38,785      $ 48,808
  KUS                                                 2,553           101         3,489
  KC                                                    170           223            22
                                                   --------      --------      --------

                                                   $ 32,429      $ 39,109      $ 52,319
                                                   ========      ========      ========
</TABLE>

     Sales of ilmenite to TG were $13.4  million in 2002,  $15.5 million in 2003
and $17.4 million in 2004.

     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 $32.9 million in 2002, $39.5 million in 2003 and $40.5
million in 2004.

     Interest expense to affiliates related to a note payable to TG was $300,000
in 2002.  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 $8.6 million in 2002,  $10.4  million in 2003 and $12.5 million in 2004,
and was included as a component of cost of sales.

     During 2002, 2003 and 2004, 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 2002, 2003 and 2004 aggregated $92.0 million,
$101.4 million, and $119.9 million, respectively.

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

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

Receivable from:
<S>                                                <C>                <C>
  SIT                                              $    501           $    814
  KUK                                                 1,085              1,766
  TG                                                   -                13,342
  KC                                                    401               -
  Other                                                -                   107
                                                   --------           --------

                                                   $  1,987           $ 16,029
                                                   ========           ========

Noncurrent receivable from TG                      $   -              $ 12,941
                                                   ========           ========

Payable to:
  KII                                              $  4,203           $  4,266
  KUS                                                 2,770              5,486
  TG                                                 32,635               -
  KC                                                   -                   390
  Other affiliates                                       53               -
                                                   --------           --------

                                                   $ 39,661           $ 10,142
                                                   ========           ========

Noncurrent payable to TG                           $   -              $  5,449
                                                   ========           ========
</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 11 - NL common stock options held by employees of the Company:

     At December  31,  2004,  employees  of the Company held options to purchase
approximately  26,000 shares of NL common stock, of which 14,000 are exercisable
at various dates  through 2010 at an exercise  price ranging from $2.66 to $5.63
per share and  12,000  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. No options were granted during 2002,  2003, or 2004. For purposes of
pro forma  disclosures,  the estimated fair value of the options is amortized to
expense over the options' vesting period.

Note 12 - Commitments and contingencies:

     Operating 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 $2 million in 2002, $3 million in each of 2003
and 2004. At December 31, 2004,  minimum rental  commitments  under the terms of
noncancellable operating leases were as follows:

                                            Equipment
                                         --------------
                                         (in thousands)
Years ending December 31,
---------------------------
    2005                                    $  678
    2006                                       579
    2007                                       486
    2008                                       489
    2009                                       197
    2010 and thereafter                        159
                                            ------

                                            $2,588
                                            ======

     Long-term  contracts.  KUS has long-term  supply contracts that provide for
certain of its affiliates',  including KDK's,  chloride  feedstock  requirements
through  2009.  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 minimum
purchase  commitments  aggregating  approximately  $525  million at December 31,
2004.

     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 and regulations.  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 maintain  compliance
with applicable  environmental laws and regulations at all its facilities and to
strive to improve its environmental performance.  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  believes  all of its plants are in
substantial compliance with applicable environmental laws.

     Litigation  matters.  The Company's  Belgian  subsidiary and certain of its
employees  are the  subject of civil and  criminal  proceedings  relating  to an
accident that resulted in two  fatalities at the Company's  Belgian  facility in
2000. In May 2004,  the court ruled and,  among other things,  imposed a fine of
euro  200,000  against the Company and fines  aggregating  less than euro 40,000
against various Company employees. The Company and the individual employees have
appealed the ruling.

     In  addition  to the  litigation  described  above,  the  Company  and  its
affiliates  are also  involved  in  various  other  environmental,  contractual,
product  liability,  patent (or  intellectual  property),  employment  and other
claims and disputes incidental to its present and former businesses.

     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
77%,  78% and 81% of net sales  during 2002,  2003 and 2004,  respectively.  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
certain  titanium  chemical  products  (derived  from  co-products  of the  TiO2
production  process).  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 1,000 customers,  with the top
ten external customers  approximating 28% of net sales in 2002, 26% of net sales
in 2003 and 24% of net sales in 2004.  Approximately  80% of the Company's  TiO2
sales by volume were to Europe in each of 2002, 2003 and 2004. Approximately 10%
of sales by volume were to North America in each of 2002, 2003 and 2004.

     Capital expenditures.  At December 31, 2004, the estimated cost to complete
capital projects in process approximated $1.4 million.

Note 13 - Financial instruments:

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

                                                        December 31,
                                    -------------------------------------------------------
                                              2003                           2004
                                    ------------------------    ---------------------------
                                    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      $   8.6         $   8.6       $   8.0           $  8.0

Notes payable and long-term
  debt - variable rate debt         $    .6         $    .6       $  14.0           $ 14.0
</TABLE>

     The Company held no derivative  financial  instruments during 2002, 2003 or
2004.



Note 14 - Accounting principles recently adopted in 2002, 2003 and 2004:

     Asset retirement obligations. 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, 2002 is
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 was
not material,  as summarized in the table below and is not separately recognized
in the accompanying Statement of Income.
<TABLE>

                                                             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) and to December 31, 2004 ($1 million)
is primarily due to accretion  expense and the effects of currency  translation.
Accretion  expense,  which is reported  as a  component  of cost of sales in the
accompanying  Consolidated Statements of Income,  approximated $100,000 for each
of the years ended December 31, 2003 and 2004.

     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.

     Variable  interest  entities.  The Company complied with the  consolidation
requirements of FASB Interpretation ("FIN") No. 46R,  "Consolidation of Variable
Interest Entities,  an interpretation of ARB No. 51," as amended as of March 31,
2004.  The Company  does not have any  involvement  with any  variable  interest
entity (as that term is defined in FIN No. 46R)  covered by the scope of FIN No.
46R that would require the Company to consolidate such entity under FIN No. 46R,
which had not  already  been  consolidated  under  prior  applicable  GAAP,  and
therefore the impact to the Company of adopting the  consolidation  requirements
of FIN No. 46R was not material.

Note 15 - Accounting principles not yet adopted:

     Inventory costs. The Company will adopt SFAS No. 151,  "Inventory Costs, an
amendment of ARB No. 43,  Chapter 4," for inventory  costs  incurred on or after
January 1, 2006.  SFAS No. 151 requires that the allocation of fixed  production
overhead costs to inventory shall be based on normal  capacity.  Normal capacity
is not defined as a fixed amount;  rather,  normal capacity refers to a range of
production  levels expected to be achieved over a number of periods under normal
circumstances,  taking into account the loss of capacity  resulting from planned
maintenance  shutdowns.  The amount of fixed overhead  allocated to each unit of
production is not increased as a consequence of idle plant or production  levels
below the low end of normal  capacity,  but instead a portion of fixed  overhead
costs  are  charged  to  expense  as  incurred.  Alternatively,  in  periods  of
production above the high end of normal  capacity,  the amount of fixed overhead
costs allocated to each unit of production is decreased so that  inventories are
not measured above cost.  SFAS No. 151 also  clarifies  existing GAAP to require
that  abnormal  freight and wasted  materials  (spoilage)  are to be expensed as
incurred.  The Company believes its production cost accounting  already complies
with the  requirements of SFAS No. 151, and the Company does not expect adoption
of SFAS No.  151 will  have a  material  effect  on its  consolidated  financial
statements.

     Stock options. The Company will adopt SFAS No. 123R, "Share-Based Payment,"
as of  July  1,  2005.  SFAS  No.  123R,  among  other  things,  eliminates  the
alternative in existing GAAP to use the intrinsic value method of accounting for
stock-based  employee  compensation under APBO No. 25. Upon adoption of SFAS No.
123R,  the Company will  generally be required to recognize the cost of employee
services  received in exchange for an award of equity  instruments  based on the
grant-date  fair value of the award,  with the cost  recognized  over the period
during  which an employee is  required to provide  services in exchange  for the
award (generally, the vesting period of the award). No compensation cost will be
recognized in the aggregate for equity  instruments  for which the employee does
not render the requisite service (generally,  the instrument is forfeited before
it has vested). The grant-date fair value will be estimated using option-pricing
models (e.g. Black-Sholes or a lattice model). Under the transition alternatives
permitted  under SFAS No.  123R,  the Company will apply the new standard to all
new awards  granted on or after July 1, 2005,  and to all awards  existing as of
June 30,  2005  which  are  subsequently  modified,  repurchased  or  cancelled.
Additionally,  as of July 1, 2005,  the Company  will be  required to  recognize
compensation  cost for the portion of any  non-vested  award existing as of June
30, 2005 over the remaining vesting period.  Because the Company has not granted
any  options to  purchase  its  common  stock and is not  expected  to grant any
options prior to July 1, 2005 and because the number of non-vested  awards as of
June 30, 2005 with respect to options  granted by NL to employees of the Company
is not  expected to be  material,  the effect of  adopting  SFAS No. 123R is not
expected to be  significant  in so far as it relates to existing  stock options.
Should  the  Company,  however,  grant a  significant  number of  options in the
future, the effect on the Company's  consolidated  financial statements could be
material.