SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
           ACT OF 1934 - For the fiscal year ended December 31, 2005

         Commission file number 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:

     If the Registrant is a well-known  seasoned issuer,  as defined in Rule 405
     of the Securities Act. Yes    No X
                               ---   ---

     If the Registrant is not required to file reports pursuant to Section 13 or
     Section 15(d) of the Act. Yes    No X
                                  ---   ---

     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
                              ---   ---

     Whether the Registrant is a large  accelerated  filer, an accelerated filer
     or a  non-accelerated  filer (as  defined in Rule 12b-2 of the Act).  Large
     accelerated filer    Accelerated filer    Non-accelerated filer X
                      ---                  ---                      ---

     Whether the  Registrant is a shell company (as defined in Rule 12b-2 of the
     Act). Yes    No X
              ---   ---

No common stock was held by  nonaffiliates of the Registrant as of June 30, 2005
(the last business day of the Registrant's most recently-completed second fiscal
quarter).

As of February 28,  2006,  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, 2005, (i) Valhi, Inc. (NYSE: VHI) held approximately 57% of
Kronos' common stock and NL Industries,  Inc. (NYSE:  NL) held an additional 36%
of Kronos' common stock,  (ii) Valhi held 83% of NL's  outstanding  common stock
and (iii) Contran  Corporation and its subsidiaries  held  approximately  92% 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 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 1A - "Risk Factors," 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 from those described  herein 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 benefits of
     which have been  recognized  under the  "more-likely-than-not"  recognition
     criteria,
o    Environmental matters (such as those requiring compliance with 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  currently  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 3,000 customers in over 100 countries with the
majority of sales in Europe. TiO2 is distributed by rail and truck in either dry
or slurry  form and by ocean  carrier in dry form.  Kronos,  the Company and its
predecessors  have  produced and marketed  TiO2 in North  America and Europe for
over 80 years. 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 87% of the Company's total sales in 2005.
Sales of other products,  complementary to the Company's TiO2 business, comprise
the following:

o    The Company  owns an  ilmenite  mine in Norway and  operated  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 50 years.  Ilmenite
     sales  to  third-parties  represented  approximately  6% of  the  Company's
     consolidated net sales in 2005.
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 6% of sales in 2005.
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 2005.

     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 and in 2005,  chloride-process production facilities
represented approximately 64% of industry capacity.

     The Company  produced a Company record 335,000 metric tons of TiO2 in 2005,
compared  to 328,000  metric tons  produced  in 2004 and 320,000  metric tons in
2003.  The  Company's  average  production  capacity  utilization  rate was near
capacity  in both  2005 and  2004.  The  production  rates in 2004 and 2005 were
higher than 2003 due in part to debottlenecking  activities,  with only moderate
capital  expenditures.  The  Company  believes  its  current  annual  attainable
production  capacity for 2006 is  approximately  345,000 metric tons,  with some
slight  additional   capacity  available  in  2007  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 260,000 metric
tons of chloride feedstock in 2005, 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 2005 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), under a long-term
supply  contract  that  expires at the end of 2009.  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 owns and operates a rock ilmenite mine in
Norway,  which provided all of the Company's  feedstock for its  sulfate-process
pigment plants in 2005. The Company produced  approximately  816,000 metric tons
of  ilmenite  in 2005 of which  approximately  317,000  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.

     The following table summarizes our raw materials procured or mined in 2005.
<TABLE>

                                                     Quantities of Raw Materials Procured or
                                                                      Mined
                                                   ---------------------------------------------
Production Process/Raw Material                           (In thousands of metric tons)

Chloride process plants -
<S>                                                                    <C>
  purchased slag or natural rutile ore                                 259

Sulfate process plants:
  Raw ilmenite ore mined internally                                    317
</TABLE>

     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. The Company
believes that it is the leading seller of TiO2 in Germany,  is among the leading
marketers in the Benelux and Scandinavian  markets and had an estimated 8% share
of worldwide TiO2 sales volume in 2005. Overall,  the Company is Europe's second
largest producer of TiO2.

     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.;  Tronox   Incorporated;   Huntsman
International  Holdings LLC; 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).  The
Company is not aware of any greenfield  plant under  construction  in the United
States,  Europe  or any other  part of the  world.  However,  a  competitor  has
announced its intention to build a greenfield  facility in China,  but it is not
clear when  construction  will begin and it is not likely that any product would
be available  until 2010,  at the  earliest.  During 2004,  certain  competitors
either  idled or shut down  facilities.  However,  the Company  does expect that
industry  capacity will increase as the Company and its competitors  continue to
debottleneck  their existing  facilities.  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 $7 million
in 2003,  $8 million in 2004 and $9 million in 2005.  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.  Since  1999,
thirteen  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 20 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
$349 million at December 31, 2005. 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 $690 million of
the  Company's  2005   consolidated   sales  were  to  European   customers  and
approximately  $161  million  were to  customers  in areas  other  than  Europe,
including  approximately  $52 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 ten largest TiO2 pigment customers,  excluding sales
to Kronos and  affiliates,  accounted  for  approximately  20% of sales in 2005.
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,  2005,  the Company  employed  approximately
1,945  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 Leverkusen and Nordenham,  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  plants.  With  regard to the
German  plants,  either party may terminate  the contract  after giving three or
four years advance notice, depending on the contract.

     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 2005 were approximately $4 million,  and
are currently expected to be approximately $6 million in 2006.

     Website  and other  available  information.  The Company  reports  periodic
information  with the SEC.  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, 2005, copies of the Company's  Quarterly Reports on Form 10-Q
for 2004 and 2005 and any Current Reports on Form 8-K for 2004 and 2005, 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 Company will also
provide to anyone without  charge copies of such documents upon written  request
to the  Company.  Such  requests  should be  directed  to the  attention  of the
Corporate  Secretary  at the  Company's  address  on the cover page of this Form
10-K.

     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 1A.    RISK FACTORS

     Listed below are certain risk factors  associated  with the Company and its
businesses.  In addition to the potential effect of these risk factors discussed
below,  any risk factor  which  could  result in reduced  earnings or  operating
losses,  or reduced  liquidity,  could in turn  adversely  affect our ability to
service our liabilities or pay dividends on our common stock or adversely affect
the quoted market prices for our securities.

     Demand for, and prices of,  certain of our products are cyclical and we may
experience  prolonged  depressed market  conditions for our products,  which may
result  in  reduced  earnings  or  operating  losses.  Approximately  87% of our
revenues  is  attributable  to sales of TiO2.  Pricing  within the  global  TiO2
industry  over the long term is  cyclical,  and  changes  in  industry  economic
conditions,  especially in Western  industrialized  nations,  can  significantly
impact  our  earnings  and  operating  cash  flows.  This may  result in reduced
earnings or operating losses.

     Historically,  the  markets  for  many  of our  products  have  experienced
alternating  periods of tight  supply,  causing  prices  and  profit  margins to
increase,  followed  by periods of  capacity  additions,  and demand  reductions
resulting in oversupply and declining prices and profit margins.  Selling prices
(in billing  currencies)  for TiO2 were generally:  increasing  during the first
quarter of 2003, flat during the second quarter of 2003,  decreasing  during the
last half of 2003 and the first quarter of 2004,  flat during the second quarter
of 2004,  increasing  in the last half of 2004 and the first six  months of 2005
and decreasing during the second half of 2005.

     Our overall average TiO2 selling prices in billing currencies:

     o    were nominally higher in 2003 as compared to 2002;

     o    were 3% lower in 2004 as compared to 2003; and

     o    were 5% higher in 2005 as compared to 2004.

     Future  growth in demand for TiO2 may not be  sufficient  to alleviate  any
future  conditions of excess industry  capacity,  and such conditions may not be
sustained or may be further aggravated by anticipated or unanticipated  capacity
additions  or other  events.  The  demand  for TiO2  during a given year is also
subject to annual seasonal fluctuations.  TiO2 sales are generally higher in the
first  half of the year than in the  second  half of the year due in part to the
increase  in paint  production  in the  spring  to meet the  spring  and  summer
painting season demand.

     As a global  business,  we are exposed to local business risks in different
countries,  which  could  result in  operating  losses.  We  conduct  all of our
businesses in several jurisdictions outside of the United States and are subject
to risks normally associated with international operations,  which include trade
barriers,  tariffs,  exchange  controls,  national and regional  labor  strikes,
social and political risks, general economic risks, seizures,  nationalizations,
compliance  with a  variety  of  foreign  laws,  including  tax  laws,  and  the
difficulty in enforcing  agreements and collecting  receivables  through foreign
legal systems. For example, we have substantial net operating loss carryforwards
in Germany,  and any change in German tax law that adversely impacts our ability
to fully utilize such carryforwards could adversely affect us.

     We may incur  losses from  fluctuations  in  currency  exchange  rates.  We
operate our  businesses in several  different  countries,  and sell our products
worldwide.  Therefore,  we are  exposed to risks  related to the prices  that we
receive for our products and the need to convert  currencies that we may receive
for some of our products into the  currencies  required to pay some of our debt,
or into  currencies  in which we may purchase  certain raw  materials or pay for
certain  services,  all of which  could  result in future  losses  depending  on
fluctuations in foreign currency exchange rates.

     We sell several of our products in mature and highly competitive industries
and face price pressures in the markets in which we operate, which may result in
reduced earnings or operating losses. The global markets in which we operate our
business are highly  competitive.  Competition  is based on a number of factors,
such as price, product quality and service.  Some of our competitors may be able
to drive down  prices for our  products  because  their costs are lower than our
costs. In addition, some of our competitors' financial,  technological and other
resources may be greater than our resources,  and such competitors may be better
able to withstand changes in market  conditions.  Our competitors may be able to
respond more quickly than we can to new or emerging  technologies and changes in
customer  requirements.  Further,  consolidation of our competitors or customers
may result in reduced  demand for our  products.  In addition,  new  competitors
could emerge by modifying  their  existing  production  facilities so they could
manufacture  products that compete with our products.  The  occurrence of any of
these events could result in reduced earnings or operating losses.

     Higher costs or limited  availability of our raw materials may decrease our
liquidity. The number of sources for, and availability of, certain raw materials
is  specific  to the  particular  geographical  region  in which a  facility  is
located.  For example,  titanium-containing  feedstocks  suitable for use in our
TiO2  facilities  are available  from a limited  number of suppliers  around the
world.  Political  and  economic  instability  in the  countries  from  which we
purchase our raw material  supplies could adversely  affect their  availability.
Should our vendors not be able to meet their  contractual  obligations or should
we be otherwise  unable to obtain  necessary raw materials,  we may incur higher
costs for raw materials or may be required to reduce production  levels,  either
of which may  decrease  our  liquidity as we may be unable to offset such higher
costs with increased selling prices for our products.

     We are subject to many environmental and safety regulations with respect to
our operating  facilities that may result in unanticipated costs or liabilities.
Our facilities are subject to extensive laws, regulations,  rules and ordinances
relating to the protection of the  environment,  including  those  governing the
discharge of pollutants in the air and water and the generation,  management and
disposal of hazardous  substances  and wastes or other  materials.  We may incur
substantial  costs,  including  fines,  damages and criminal  penalties or civil
sanctions,  or experience  interruptions in our operations for actual or alleged
violations or compliance  requirements  arising under  environmental  laws.  Our
operations could result in violations under environmental laws, including spills
or other  releases  of  hazardous  substances  to the  environment.  Some of our
operating facilities are in densely populated urban areas or in industrial areas
adjacent to other operating facilities. In the event of an accidental release or
catastrophic  incident,  we could incur material costs as a result of addressing
such an event and in implementing measures to prevent such incidents.  Given the
nature  of  our  business,  violations  of  environmental  laws  may  result  in
restrictions   imposed  on  our  operating   activities  or  substantial  fines,
penalties, damages or other costs, including as a result of private litigation.

     Our  production  facilities  have  been  used  for a  number  of  years  to
manufacture products or conduct mining operations. We may incur additional costs
related  to  compliance  with  environmental  laws  applicable  to our  historic
operations  and  these  facilities.   In  addition,  we  may  incur  significant
expenditures  to comply  with  existing  or  future  environmental  laws.  Costs
relating  to  environmental  matters  will be  subject  to  evolving  regulatory
requirements  and will depend on the timing of  promulgation  and enforcement of
specific  standards that impose  requirements  on our  operations.  Costs beyond
those   currently   anticipated  may  be  required  under  existing  and  future
environmental laws.

     If our patents are declared  invalid or our trade  secrets  become known to
competitors, our ability to compete may be adversely affected. Protection of our
proprietary  processes  and other  technology  is important  to our  competitive
position.  Consequently,  we rely on judicial  enforcement for protection of our
patents,  and  our  patents  may be  challenged,  invalidated,  circumvented  or
rendered unenforceable.  Furthermore, if any pending patent application filed by
us does not result in an issued patent,  or if patents are issued to us but such
patents do not provide meaningful protection of our intellectual property,  then
the use of any such  intellectual  property by our  competitors  could result in
decreasing our cash flows. Additionally,  our competitors or other third parties
may obtain patents that restrict or preclude our ability to lawfully  produce or
sell our products in a competitive manner, which could have the same effects.

     We also rely on certain  unpatented  proprietary  know-how  and  continuing
technological  innovation  and other trade  secrets to develop and  maintain our
competitive position.  Although it is our practice to enter into confidentiality
agreements to protect our intellectual  property,  because these confidentiality
agreements  may  be  breached,   such  agreements  may  not  provide  sufficient
protection for our trade secrets or proprietary  know-how,  or adequate remedies
may not be available in the event of an  unauthorized  use or disclosure of such
trade secrets and know-how.  In addition,  others could obtain knowledge of such
trade secrets through independent development or other access by legal means.

     Loss of key  personnel  or our ability to attract and retain new  qualified
personnel  could hurt our businesses and inhibit our ability to operate and grow
successfully.  Our success in the highly competitive markets in which we operate
will continue to depend to a significant  extent on the leadership  teams of our
businesses and other key management personnel.  We generally do not have binding
employment agreements with any of these managers.  This increases the risks that
we may not be able to retain our current management  personnel and we may not be
able to recruit  qualified  individuals to join our management  team,  including
recruiting  qualified  individuals to replace any of our current  personnel that
may leave in the future.

     Our relationships with our union employees could  deteriorate.  At December
31,  2005,  we employed  approximately  1,945  persons  worldwide in our various
businesses.  A  significant  number of our  employees  are subject to collective
bargaining  or  similar  arrangements.  We may not be able  to  negotiate  labor
agreements with respect to these  employees on satisfactory  terms or at all. If
our employees were to engage in a strike,  work stoppage or other  slowdown,  we
could  experience a significant  disruption of our  operations or higher ongoing
labor costs.

     Our  leverage  may impair our  financial  condition or limit our ability to
operate our  businesses.  We currently have a significant  amount of debt. As of
December 31, 2005, our total  consolidated debt was approximately  $454 million,
substantially  all of which relates to our Senior  Secured  Notes.  Our level of
debt  could have  important  consequences  to our  stockholders  and  creditors,
including:

     o    making  it more  difficult  for us to  satisfy  our  obligations  with
          respect to our liabilities;

     o    increasing our  vulnerability to adverse general economic and industry
          conditions;

     o    requiring that a portion of our cash flow from  operations be used for
          the payment of interest on our debt, therefore reducing our ability to
          use our  cash  flow to fund  working  capital,  capital  expenditures,
          dividends  on our common  stock,  acquisitions  and general  corporate
          requirements;

     o    limiting  our ability to obtain  additional  financing  to fund future
          working  capital,  capital  expenditures,   acquisitions  and  general
          corporate requirements;

     o    limiting our  flexibility  in planning for, or reacting to, changes in
          our business and the industry in which we operate; and

     o    placing  us at a  competitive  disadvantage  relative  to  other  less
          leveraged competitors.

     In addition to our  indebtedness,  we are party to various  lease and other
agreements  pursuant to which, along with our indebtedness,  we are committed to
pay  approximately  $71.3  million in 2006.  Our ability to make payments on and
refinance our debt,  and to fund planned  capital  expenditures,  depends on our
future ability to generate cash flow. To some extent, this is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our  control.  In  addition,  our  ability to borrow  funds under our
subsidiaries'  credit  facilities in the future will in some instances depend in
part on these  subsidiaries'  ability to maintain specified financial ratios and
satisfy  certain  financial   covenants   contained  in  the  applicable  credit
agreement.  Our business may not generate cash flows from  operating  activities
sufficient  to enable us to pay our debts  when they  become due and to fund our
other liquidity needs. As a result, we may need to refinance all or a portion of
our debt before  maturity.  We may not be able to  refinance  any of our debt on
favorable  terms, if at all. Any inability to generate  sufficient cash flows or
to refinance our debt on favorable terms could have a material adverse effect on
our financial condition.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     Not applicable.

ITEM 2. PROPERTIES

     During  2005,  the Company  operated  four TiO2 plants (one in  Leverkusen,
Germany;  one in Nordenham,  Germany;  one in Langerbrugge,  Belgium; and one in
Fredrikstad,  Norway).  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  also owns an
ilmenite  ore mine in Hauge i Dalane,  Norway  and  operates  it  pursuant  to a
governmental  concession with an unlimited  term. 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 with Bayer AG that expires in 2050. The Leverkusen
facility,  which is owned by the Company and which represents  approximately 50%
of the Company's  current TiO2  production  capacity,  is located within Bayer's
extensive  manufacturing  complex.  Rent for such land lease associated with 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, auxiliary and operating materials and utilities and services necessary
to operate 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.

     The Company believes the transportation access to its facilities, which are
generally  maintained by the applicable local  government,  are adequate for the
Company's purposes.

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 13 to the  Consolidated
Financial Statements, which information is incorporated herein by reference.

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

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


                                     PART II

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

     All of KII's common stock is held by Kronos. There is no established public
trading  market for KII's common  stock.  The indenture  governing  KII's 8.875%
Senior Notes Due 2009 limits the ability of the Company to pay dividends or make
other  restricted  payments,  as defined.  The aggregate amount of dividends and
other  restricted  payments  since June 2002 may not exceed 75% of the aggregate
consolidated  net income,  as defined in the  indenture,  plus $25 million.  KII
currently  expects  to pay  dividends  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,
2005, $92 million was available for dividends or other restricted  payments,  as
defined.

     The Company paid $60 million in  dividends  to Kronos in 2004.  The Company
did not pay any  dividends  to Kronos in 2005.  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,
                                                    ------------------------------------------------------------
                                                    2001         2002          2003           2004          2005
                                                    ----         ----          ----           ----          ----
                                                                     (In millions, except ratios)

 STATEMENTS OF OPERATIONS DATA:
<S>                                              <C>          <C>          <C>            <C>            <C>
    Net sales                                    $ 554.6      $ 579.7      $ 715.9        $ 808.0        $ 850.9
    Net income                                     113.7         52.3         81.8          326.0           59.8

 BALANCE SHEET DATA (at year end):
    Total assets                                 $ 532.5      $ 611.3      $ 750.5        $ 985.2        $ 955.3
    Long-term debt including current maturities    482.9        325.9        356.7          533.2          453.8
    Redeemable preferred stock and profit
      participation certificates                   617.4           -           -              -               -
    Stockholder's equity (deficit)                (777.5)        76.8        111.6          206.5          181.8

 STATEMENTS OF CASH FLOW DATA:
    Net cash provided (used) by:
       Operating activities                      $  76.0      $  68.2     $  104.8       $  142.3       $   92.7
       Investing activities                        (28.5)       (29.7)       (31.7)         (34.2)         (35.8)
       Financing activities                        (52.8)       (57.5)       (54.9)        (129.9)          (8.5)

 TiO2 OPERATING STATISTICS:
    Sales volume*                                  265          297          310            336             326
    Production volume*                             269          293          320            328             335
    Production rate as a percentage of capacity     87%          93%        Full           Full            Full

 OTHER FINANCIAL DATA:
    Ratio of earnings to combined
     fixed charges and preferred
      dividends(unaudited)(1)                        1.8          1.5          3.3            2.7            3.6
    Ratio of earnings to
      fixed charges (unaudited) (2)                  4.2          2.7          3.3            2.7            3.6
</TABLE>

__________________________________

*        Metric tons in thousands

(1)  Fixed charges  represents,  as  applicable,  the sum of (i) total  interest
     expense and (ii) the  interest  component of rent  expense  (calculated  as
     one-third of rent expense).  Earnings represents, as applicable, the sum of
     (i) fixed  charges,  (ii) income before income taxes and minority  interest
     and (iii) amortization of capitalized interest.

(2)  Combined fixed charges and preferred dividends  represents,  as applicable,
     the sum of (i) total interest  expense,  (ii) preferred stock dividends and
     accretion and (iii) the interest  component of rent expense  (calculated as
     one-third of rent expense).  Earnings represents, as applicable, the sum of
     (i) combined  fixed  charges,  (ii) income before income taxes and minority
     interest and (iii) amortization of capitalized interest.

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 2003,  2004 and 2005,  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 2005, 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,  the Company has  substantial net operating
     loss  carryforwards  in Germany (the  equivalent of $593 million for German
     corporate  purposes  and $104  million  for German  trade tax  purposes  at
     December  31,  2005).   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 the  Company's  net  operating  loss
     carryforwards  in  Germany.  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 addition,  the Company makes an evaluation at the end of each  reporting
     period as to whether or not some or all of the  undistributed  earnings  of
     its  foreign  subsidiaries  are  permanently  reinvested  (as that  term is
     defined in GAAP).  While the  Company may have  concluded  in the past that
     some of such undistributed earnings are permanently  reinvested,  facts and
     circumstances can change in the future, and it is possible that a change in
     facts and circumstances,  such as a change in the expectation regarding the
     capital  needs of its foreign  subsidiaries,  could  result in a conclusion
     that some or all of such  undistributed  earnings are no longer permanently
     reinvested.  In such an event, the Company would be required to recognize a
     deferred  income  tax  liability  in  an  amount  equal  to  the  estimated
     incremental  U.S.  income tax and  withholding  tax liability that would be
     generated  if  all of  such  previously-considered  permanently  reinvested
     undistributed earnings were distributed to the U.S.

o    The Company records accruals for legal,  income tax and other contingencies
     and commitments  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 $59.8 million in 2005 compared to $326.0
million in 2004 and $81.8 million in 2003.  The  Company's net income  increased
from 2003 to 2004 as the unfavorable  effect of lower income from operations and
higher interest  expense in 2004 was more than offset by the favorable effect of
a non-cash  income tax benefit in 2004. The Company's net income  decreased from
2004 to 2005 as the favorable  effect of higher income from operations and lower
interest  expense in 2005 was more than  offset by the  favorable  effect of the
non-cash income tax benefit recognized in 2004.

     Net income in 2005  includes (i) a third  quarter net  non-cash  income tax
charge of $9.8  million  for  recent  developments  with  respect  to income tax
audits,  primarily in Germany and Belgium and (ii) a second  quarter  securities
transaction  gain of $3.5 million  related to the sale of the Company's  passive
interest in a Norwegian smelting operation. 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. 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 lower in 2006
compared to 2005, as the favorable effect of anticipated modest  improvements in
sales  volumes  and average  TiO2  selling  prices are  expected to be more than
offset by the effect of higher production  costs,  particularly raw material and
energy costs.

     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:  increasing  during 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, increasing during the second half of 2004 and first half
of 2005 and  decreasing  during the last half of 2005.  Changes in the Company's
selling  prices  are  largely  driven by  relative  industry  demand  and supply
conditions and other economic factors.

Results of operations

<TABLE>

                                                     Years ended December 31,                    % Change
                                             -------------------------------------        -----------------------
                                              2003            2004            2005         2003-04       2004-05
                                              ----            ----            ----         -------       -------
                                            (In millions, except selling price data)

<S>                                         <C>             <C>            <C>                <C>            <C>
 Net sales                                  $ 715.9         $ 808.0        $  850.9          +13%          + 5%
 Cost of sales                                516.9           609.6           613.2          +18%          + 1%
                                           --------        --------        --------

 Gross margin                                 199.0           198.4           237.7           **           +20%
 Selling, general and administrative                                         (110.2)
     expense                                  (87.0)         (104.1)                         +20%          + 6%
 Currency transaction gains (losses), net      (3.7)           (2.2)            4.1
 Royalty income                                 6.1             6.0             6.8
 Other operating income (expense), net           -              (.5)            (.9)
                                           --------        --------        --------

 Income from operations                    $  114.4        $   97.6        $  137.5          -15%          +41%
                                           ========        ========        ========

 TiO2 operating statistics:

 Percent change in average selling
     prices:
        Using actual foreign currency
           exchange rates                                                                    + 4%          + 7%
        Impact of changes in foreign
           currency exchange rates                                                           - 7%          - 2%
                                                                                             ----          ----

        In billing currencies                                                                - 3%          + 5%
                                                                                             ====          ====

 Sales volumes*                               310             336             326            + 8%          - 3%
 Production volumes*                          320             328             335            + 3%          + 2%
 Production rate as
     percent of capacity                     Full            Full            Full
____________________________

* Thousands of metric tons
** less than 1%
</TABLE>

     Year ended December 31, 2005 compared to year ended December 31, 2004

     The  Company's  sales  increased  $42.9 million (5%) in 2005 as compared to
2004 due  primarily to the net effects of higher  average  TiO2 selling  prices,
lower TiO2 sales volumes and the  favorable  effect of  fluctuations  in foreign
currency  exchange rates,  which increased sales by approximately $13 million as
further  discussed  below.  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 5% higher in 2005 as compared to 2004.  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 2005  increased 7% as compared to 2004.  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 2005 decreased 3% compared to 2004 with
volumes lower in all regions of the world.  Approximately  three-fourths  of the
Company's 2005 TiO2 sales volumes were  attributable to markets in Europe,  with
10%  attributable  to North America and the balance to export  markets.  Overall
worldwide demand for TiO2 in 2005 is estimated to have declined by approximately
5% from the exceptionally  strong demand levels in 2004. The Company  attributes
the decline in overall sales and its own sales to slower overall economic growth
in 2005 and inventory  destocking  by its  customers.  The  Company's  operating
income comparisons were favorably  impacted by higher production  levels,  which
increased  2%. The  Company's  operating  rates were near full  capacity in both
periods,  and the Company's  production volumes in 2005 set a new record for the
Company,  which was the fourth  consecutive year record production  volumes were
achieved.

     The Company's cost of sales increased $3.6 million (1%) in 2005 compared to
2004 as the effect of lower sales  volumes was offset by higher raw material and
maintenance costs.  However, the Company's cost of sales, as a percentage of net
sales, decreased from 75% in 2004 to 72% in 2005 due primarily to the effects of
higher average selling prices which more than offset higher costs.

     The Company's gross margins increased $39.3 million (20%) from 2004 to 2005
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 at 13% for both 2004 and 2005.

     The Company's income from operations  increased $39.9 million (41%) in 2005
as compared to 2004,  as the effect of higher  average TiO2  selling  prices and
higher  production  volumes more than offset the impact of lower sales  volumes,
higher  raw  material  and  maintenance  costs.  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, 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.

     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.

     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 4% and 7%
increases in the  Company's  average TiO2 selling  prices  during 2004 and 2005,
respectively,  as compared to the  respective  prior year using  actual  foreign
currency  exchange  rates  prevailing  during the  respective  periods (the GAAP
measure),  and the 3% decrease  and 5% increase 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 are 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 $13  million  in 2005 as  compared  to 2004,  and
increased  sales by a net $56 million in 2004 as compared to 2003.  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 2005 and 2004 compared to the same periods of
the  respective  prior  years.  Overall,  currency  exchange  rate  fluctuations
resulted in a net $10 million increase in the Company's operating income in 2005
as compared to 2004,  and resulted in a net increase in the Company's  operating
income in 2004 of approximately $9 million as compared to 2003.

     Outlook

     The Company  expects its income  from  operations  in 2006 will be somewhat
lower than 2005, as the favorable effect of anticipated  modest  improvements in
sales  volumes  and average  TiO2  selling  prices are  expected to be more than
offset by the effect of higher production  costs,  particularly raw material and
energy  costs.  The  Company's  expectations  as to the future  prospects of the
Company  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 the
Company's expectations, the Company's results of operations could be unfavorably
affected.

     The Company's  efforts to  debottleneck  its production  facilities to meet
long-term  demand continue to prove  successful.  Such  debottlenecking  efforts
included,  among other things,  the addition of finishing capacity in the German
facility and equipment  upgrades and enhancements in several  locations to allow
for reduced  downtime  for  maintenance  activities.  The  Company's  production
capacity  has  increased  by  approximately  25% over the past ten  years due to
debottlenecking  programs, with only moderate capital expenditures.  The Company
believes its annual  attainable  production  capacity for 2006 is  approximately
345,000  metric  tons,  with some  slight  additional  capacity  expected  to be
available in 2007 through its continued debottlenecking efforts.

Other income (expense)

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

<TABLE>

                                                   Years ended December 31,                     Change
                                             -----------------------------------       -----------------------
                                              2003          2004           2005         2003-04       2004-05
                                              ----          ----           ----         -------       -------
                                                                          (In millions)
 (In millions)Interest income from
<S>                                        <C>           <C>            <C>           <C>            <C>
     affiliates                            $   -         $  2.8         $ 18.9        $  2.8         $ 16.1
 Trade interest income                         .7           1.1            1.0            .4            (.1)
 Securities transaction gain                   -             -             5.4            -             5.4
 Interest expense to affiliates               (.1)           -              -             .1             -
 Interest expense                           (32.5)        (36.7)         (43.9)         (4.2)          (7.2)
                                           ------        ------         ------        ------         ------

                                           $(31.9)       $(32.8)        $(18.6)       $  (.9)        $ 14.2
                                           ======        ======         ======        ======         ======
</TABLE>

     Interest income  fluctuates in part based upon the amount of funds invested
and yields thereon.  Aggregate  interest income  increased $16.0 million in 2005
compared to 2004 due primarily to interest on KII's notes receivable from Kronos
entered  into  during the  fourth  quarter of 2004.  Aggregate  interest  income
increased  $3.2 million in 2004  compared to 2003  primarily  due to interest on
KII's notes  receivable  from Kronos  entered into during the fourth  quarter of
2004. The Company  expects  interest income will be slightly higher in 2006 than
2005 due to higher average yields expected on invested funds.

     Securities  transaction  gain in 2005 relates to the sale of the  Company's
passive interest in a Norwegian smelting operation, which had a nominal carrying
value  for  financial  reporting  purposes,   for  aggregate   consideration  of
approximately $5.4 million consisting of cash of $3.5 million and inventory with
a value of $1.9 million. See Note 9 to the Consolidated Financial Statements.

     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 2005
was higher than 2004 due primarily to higher levels of outstanding  indebtedness
resulting from the issuance of an additional euro 90 million principal amount of
KII Senior Secured Notes in November 2004. In addition, the increase in interest
expense was due 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 all of 2003,
2004 and 2005 by  approximately  $3 million in 2004 as  compared  to 2003 and by
approximately $1 million in 2005 as compared to 2004.

     Assuming interest rates and foreign currency exchange rates do not increase
significantly  from current levels,  interest  expense in 2006 is expected to be
comparable to 2005.

     At  December  31,  2005,   approximately  $453.8  million  of  consolidated
indebtedness,  principally  KII's Senior Secured Notes,  bears interest at fixed
interest rates  averaging  8.9% (2004 - $519.4  million with a weighted  average
interest  rate of  8.9%;  2003 - $356  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 and
2005 - none outstanding). See Note 6 to the Consolidated Financial Statements.

     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  10 to the  Consolidated  Financial
Statements.

     The Company's  income tax expense in 2005 includes the net non-cash effects
of (i) the aggregate  favorable  effects of recent  developments with respect to
certain non-U.S.  income tax audits of Kronos,  principally in Belgium,  of $7.7
million  and (ii) the  unfavorable  effect  with  respect to the loss of certain
income tax attributes of Kronos in Germany of $17.5 million.

     At December 31, 2005,  the Company had the  equivalent  of $593 million and
$104 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 10 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. 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.

     In October  2004,  the American  Jobs Creation Act of 2004 was enacted into
law.  The new law  provided for a special 85%  deduction  for certain  dividends
received from a controlled foreign  corporation in 2005. In the third quarter of
2005, the Company  completed its evaluation of this new provision and determined
that it would not benefit from such special dividends received deduction.

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

     Accounting  principles  newly adopted in 2003 and 2004.  See Note 15 to the
Consolidated Financial Statements.

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

     Defined  benefit  pension  plans.  The Company  maintains  various  defined
benefit  pension  plans in  Europe.  See Note 11 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 $5.8  million in 2003,  $10.4  million in 2004 and $11.5
million in 2005. 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  $10.2  million in 2003,  $11.7 million in 2004 and
$13.3 million in 2005.

     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, 2005,  approximately  79% and 17% 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, 2003 and     December 31, 2004 and     December 31, 2005 and
                        expense in 2004          expense in 2005           expense in 2006
                    -----------------------    ---------------------    ---------------------

<S>                          <C>                       <C>                        <C>
  Germany                    5.3%                      5.0%                       4.0%
  Norway                     5.5%                      5.0%                       4.5%
</TABLE>

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

     At December 31, 2005,  approximately 69% 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, 2005 was 23% to equity managers,  48%
     to fixed  income  managers and 29% to real estate (2004 - 23%, 48% and 29%,
     respectively).

o    In Norway,  the Company currently has a plan asset target allocation of 14%
     to  equity  managers,  64% 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% and 2.5%,
     respectively.  The plan asset  allocation  at December  31, 2005 was 16% to
     equity managers,  62% to fixed income managers and the remainder  primarily
     to cash and liquid investments (2004 - 16%, 64% and nil, respectively).

     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 2003,
2004 and 2005 were as follows:
<TABLE>

                                  2003           2004           2005
                                  ----           ----           ----

<S>                               <C>            <C>            <C>
  Germany                         6.5%           6.0%           5.5%
  Norway                          6.0%           6.0%           5.5%
</TABLE>

     The Company  currently expects to utilize the same long-term rate of return
on plan asset assumptions in 2006 as it used in 2005 for purposes of determining
the 2006 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.

     As  discussed  above,  assumed  discount  rates  and rate of return on plan
assets are  re-evaluated  annually.  A reduction  in the assumed  discount  rate
generally  results in an actuarial loss, as the  actuarially-determined  present
value of  estimated  future  benefit  payments  will  increase.  Conversely,  an
increase in the assumed discount rate generally results in an actuarial gain. In
addition,  an actual return on plan assets for a given year that is greater than
the assumed return on plan assets results in an actuarial gain,  while an actual
return  on plan  assets  that is less  than the  assumed  return  results  in an
actuarial  loss.  Other actual  outcomes that differ from previous  assumptions,
such as  individuals  living longer or shorter than assumed in mortality  tables
which are also used to determine  the  actuarially-determined  present  value of
estimated future benefit payments, changes in such mortality table themselves or
plan amendments,  will also result in actuarial losses or gains. Under GAAP, all
of such actuarial gains and losses are not recognized in earnings currently, but
instead  are  deferred  and  amortized  into income in the future as part of net
periodic defined benefit pension cost. However, any actuarial gains generated in
future periods would reduce the negative  amortization  effect of any cumulative
unrecognized  actuarial  losses,  while any actuarial losses generated in future
periods  would  reduce  the  favorable  amortization  effect  of any  cumulative
unrecognized actuarial gains.

     During 2005, all of the Company's defined benefit pension plans generated a
net actuarial loss of $84.4 million. This actuarial loss resulted primarily from
the  general  overall  reduction  in the assumed  discount  rates as well as the
unfavorable  effect of using updated  mortality tables (which generally  reflect
individuals living longer than prior mortality tables used), partially offset by
an actual return on plan assets in excess of the assumed return.

     While  actuarial gains and losses are deferred and amortized into income in
future periods,  as discussed above, GAAP also requires that a minimum amount of
accrued pension cost be recognized in a statement of financial  position for any
plans for which the accumulated  benefit  obligation is less than the fair value
of plan  assets.  To the extent GAAP  accounting  would  otherwise  result in an
accrued pension cost balance for such plans that was less than the excess of the
aggregate  accumulated  benefit  obligation  over the value of the related  plan
assets,  GAAP then requires that such excess be recognized as a component of the
consolidated  accrued pension cost,  with the offset to such additional  accrued
pension  cost  (commonly  referred  to as  an  "additional  minimum  liability")
recognized (i) first as an intangible asset up to specified amounts (referred to
as  "unrecognized  net pension  obligations" in the Company's  balance sheet and
then (ii) second as part of accumulated  other  comprehensive  income (loss). At
December 31, 2005,  and  primarily as a result of the  aggregate  $84.4  million
actuarial  loss  generated  during 2005 as  discussed  above,  the amount of the
additional  minimum liability required to be recognized by the Company increased
by  approximately  $81 million at December  31, 2005 as compared to December 31,
2004,  resulting  in the Company  recognizing  aggregate  accrued  pension  cost
(current and  noncurrent)  of $136.1 million at December 31, 2005 as compared to
$57.0 million at December 31, 2004.

     Based  on the  actuarial  assumptions  described  above  and the  Company's
current expectation for what actual average foreign currency exchange rates will
be during 2006, the Company  expects its defined  benefit  pension  expense will
approximate  $17  million in 2006.  In  comparison,  the  Company  expects to be
required to make approximately $12 million of contributions to such plans during
2006.

     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, 2005,  the  Company's
aggregate  projected  benefit  obligations would have increased by approximately
$12.7 million at that date, and the Company's  defined  benefit  pension expense
would be expected  to  increase  by  approximately  $1.6  million  during  2006.
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
2006.

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, 2005,  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,
                                                  ------------------------------------------
                                                   2003              2004             2005
                                                   ----              ----             ----
                                                                 (in millions)

<S>                                              <C>               <C>              <C>
 Operating activities                            $ 104.8           $ 142.2          $  92.7
 Investing activities                              (31.7)            (34.2)           (35.8)
 Financing activities                              (54.9)           (129.9)            (8.5)
                                                 -------           -------          -------

 Net cash provided (used) by operating,
     investing and financing activities          $  18.2           $ (21.9)         $  48.4
                                                 =======           =======          =======
</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,  deferred
income taxes 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 of 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.  The Company's average days sales outstanding ("DSO")
decreased from 58 days at December 31, 2004 to 52 days at December 31, 2005, due
to the timing of  collections.  At December 31, 2005, the average number of days
in inventory ("DII") increased to 105 days from 99 days at December 31, 2004 due
to the effects of higher production volume and lower sales volume.

     Cash flows provided from operating activities decreased from $142.2 million
in 2004 to $92.7 million in 2005. This $49.5 million  decrease was due primarily
to the net  effect of (i)  lower net  income  of  $266.2  million,  (ii)  higher
deferred  income  taxes of  $304.8  million,  (iii) a lower  amount  of net cash
provided  from  changes in the  Company's  inventories,  receivables,  payables,
accruals and accounts with affiliates of $60.3 million and (iv) higher cash paid
for income taxes of $43.8  million,  due primarily to refunds of income taxes of
$23.8 million received in 2004.

     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 $34.8  million and (v) higher cash  received  for
income taxes of $12.3 million,  which included  refunds of income taxes of $11.5
million  received in 2003 and $23.8 million of refunds of income taxes  received
in 2004.

     Investing  cash  flows.  The  Company's  capital  expenditures  were  $31.5
million,  $33.7 million and $39.5 million in 2003, 2004 and 2005,  respectively.
In  addition,  the Company  purchased  additional  shares of its  majority-owned
French  subsidiary for $575,000 in 2004 and the Company received $3.5 million in
2005 from the sale of its passive interest in a Norwegian smelting operation.

     The Company's capital  expenditures  during the past three years include an
aggregate of  approximately  $14 million ($4 million in 2005) for the  Company's
ongoing  environmental   protection  and  compliance  programs.   The  Company's
estimated 2006 capital expenditures are $37 million and include approximately $6
million in the area of environmental protection and compliance.

     Financing  cash flows.  During 2005,  KII (i) repaid euro 10 million ($12.9
million when repaid)  under its  three-year  euro 80 million  secured  revolving
credit facility  ("European  Credit  Facility") and (ii) entered into additional
capital lease  agreements  for certain  mining  equipment for the  equivalent of
approximately $4.4 million.

     During 2004, (i) KII issued an additional euro 90 million  principal amount
of its 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 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.

     Deferred financing costs of $2.0 million paid 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, 2005.

     Cash  dividends  paid during 2003 and 2004 totaled  $25.0 million and $60.0
million,  respectively.  (No dividends were paid in 2005).  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.

     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 13 to the Consolidated  Financial  Statements,  the Company is
not party to any material off-balance sheet financing arrangements.

     KII's  assets   consist   primarily  of   investments   in  its   operating
subsidiaries, and its ability to service its parent level obligations, including
the  Senior  Secured  Notes,  depends  in large  part upon the  distribution  of
earnings  of its  subsidiaries,  whether in the form of  dividends,  advances or
payments  on account  of  intercompany  obligation,  or  otherwise.  None of its
subsidiaries have guaranteed the Senior Secured Notes,  although KII has pledged
65% of the common stock or other ownership interest of certain of its first-tier
operating subsidiaries as collateral of such Senior Secured Notes.

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

     Cash,  cash  equivalents,  restricted  cash and restricted  marketable debt
securities  and borrowing  availability.  At December 31, 2005,  the Company had
current  cash  and cash  equivalents  aggregating  $63.3  million,  had  current
restricted cash equivalents of $1.4 million and noncurrent restricted marketable
debt securities of $2.6 million.  At December 31, 2005, certain of the Company's
subsidiaries  had  approximately  $92 million  available for borrowing under the
European Credit Facility (based on borrowing availability).  The European Credit
Facility   matures  in  June  2008.  At  December  31,  2005,  the  Company  had
approximately   $92  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,  (including  debt
refinancing  expectations)  the Company expects to have sufficient  liquidity to
meet its  short-term  obligations  (defined as the  twelve-month  period  ending
December  31,  2006) and its  long-term  obligations  (defined as the  five-year
period ending December 31, 2010, the time period for which the Company generally
does long-term  budgeting),  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  13  to  the
Consolidated   Financial   Statements   for  certain   legal   proceedings   and
environmental matters with respect to the Company.

     Foreign  operations.  As discussed  above,  the  Company's  operations  are
located  outside the United States for which the functional  currency is not the
U.S.  dollar.  As a result,  the  reported  amount of the  Company's  assets and
liabilities related to its operations,  and therefore the Company's consolidated
net assets,  will fluctuate  based upon changes in currency  exchange  rates. At
December 31, 2005,  the Company had  substantial  net assets  denominated in the
euro, Norwegian kroner and United Kingdom pound sterling.

     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.

     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.

Summary of debt and other contractual commitments

     As  more  fully  described  in  the  notes  to the  Consolidated  Financial
Statements,  the Company is a party to various debt,  lease and other agreements
which  contractually  and  unconditionally  commit the  Company  to pay  certain
amounts  in  the  future.  See  Notes  6 and 13 to  the  Consolidated  Financial
Statements.  The following table summarizes such contractual  commitments of the
Company and its  consolidated  subsidiaries  as of December 31, 2005 by the type
and date of payment.

<TABLE>

                                                                  Payment due date
                                            --------------------------------------------------------------
                                                                                    2011 and
 Contractual commitment                      2006      2007/2008     2009/2010        after         Total
 ----------------------                      ----      ---------     ---------      ---------      ------
                                                                   (In millions)

<S>                                        <C>          <C>           <C>           <C>            <C>
Third-party indebtedness                   $   1.0      $   1.7       $ 451.1       $    -         $ 453.8

Interest payments on third-party
 indebtedness                                 39.1         77.8          38.8            -           155.7

Operating leases                               3.3          4.6           2.7          21.0           31.6

Fixed asset acquisitions                       6.1           -             -             -             6.1

Estimated tax obligations                     21.8           -             -             -            21.8
                                           -------      -------       -------       -------        -------

                                           $  71.3      $  84.1       $ 492.6       $  21.0        $ 669.0
                                           =======      =======       =======       =======        =======
</TABLE>

     The  timing  and  amount  shown for the  Company's  commitments  related to
indebtedness  (principal  and  interest),   operating  leases  and  fixed  asset
acquisitions  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,  2005,  and the  amount  shown for  interest  for any  outstanding
variable-rate indebtedness is based upon the December 31, 2005 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, 2005, which is assumed to be paid
during 2006. A significant portion of the amount shown for indebtedness  relates
to KII's  Senior  Secured  Notes  ($449.3  million at December 31,  2005).  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 11 and
15 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, 2004
and 2005. See Notes 1 and 14 to the Consolidated Financial Statements.


     Interest  rates.  The  Company is exposed  to market  risk from  changes in
interest  rates,  primarily  related to  indebtedness.  At December 31, 2004 and
2005, 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, 2005.
At December  31, 2004 and 2005,  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, 2005 using exchange rates of 1.18 U.S. dollars per euro.  Certain  Norwegian
kroner  denominated  capital  leases  totaling  $4.5  million  in 2005 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            $ 449.3     $ 463.6        8.9%         2009
                                   =======     =======
</TABLE>

     At December 31, 2004,  euro-denominated fixed rate indebtedness  aggregated
$519.2 million (fair value - $549.1  million) with a  weighted-average  interest
rate of 8.9%.  Variable rate indebtedness at December 31, 2004 was $13.6 million
with a weighted average interest rate of 3.9%.

     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, 2005, the Company had the equivalent of
$449.3  million  of  outstanding  euro-denominated   indebtedness  (2004  -  the
equivalent of $532.8 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  $44.4  million  at  December  31,  2005  (2004 - $52.4
million).

     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.

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, 2005.  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.

     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,  2007.  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, 2007 and be in a position to conclude that
the  Company's  internal  control  over  financial  reporting is effective as of
December  31, 2007,  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, 2007 or whether it will be able to conclude
that the Company's internal control over financial  reporting is effective as of
December 31, 2007.

     Changes in Internal  Control Over  Financial  Reporting.  There has been no
change to the Company's  internal  control over financial  reporting  during the
quarter ended December 31, 2005 that has materially  affected,  or is reasonably
likely to materially  affect,  the  Company's  internal  control over  financial
reporting.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     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 2004 and 2005.  No fees were  billed or  expected to be billed by PwC to the
Company  for  services  performed  in 2004 and 2005  for  financial  information
systems design and implementation.
<TABLE>

                                                                  December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>           <C>                                         <C>                <C>
         Audit(1)                                         $   1,149          $   1,523
         Audit related(2)                                         8                 19
         Tax(3)                                                  12                 21
                                                          ---------          ---------

         Total                                            $   1,169          $   1,563
                                                          =========          =========
</TABLE>

1)   Fees for the following services:

     a)   audits of the Company's  consolidated  year-end financials  statements
          for each year;

     b)   reviews of the unaudited quarterly financial  statements  appearing in
          the Company's  Forms 10-Q for each of the first three quarters of each
          year;

     c)   consents and assistance with  registration  statements  filed with the
          Commission;

     d)   normally provided  statutory or regulatory  filings or engagements for
          each year; and

     e)   the  estimated  out-of-pocket  costs PwC incurred in providing  all of
          such services for which the Company reimburses PwC.

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

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

     See  Appendix A to Kronos'  proxy  statement  dated  April 18, 2005 for the
Kronos' audit committee's Preapproval Policy.


                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) and (c) 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)  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, 2005 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      Second Amendment Agreement Relating to a Facility Agreement dated June
          25, 2002  executed as of June 14, 2005 by and among  Deutsche Bank AG,
          as mandated lead arranger, Deutsche Bank Luxembourg S.A. as agent, the
          participating  lenders,  Kronos Titan GmbH,  Kronos  Europe  S.A./N.V,
          Kronos Titan AS, Kronos Norge AS,  Titania AS and Kronos Denmark ApS -
          incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K
          dated June 14, 2005. Certain schedules,  exhibits, annexes and similar
          attachments  to this Exhibit 10.3 have not been filed;  upon  request,
          the Reporting Persons will furnish  supplementally to the Commission a
          copy of any omitted exhibit, annex or attachment.

10.4      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.

10.5      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.

10.6      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).

10.7      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.

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

10.9      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).

10.10     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.

10.11     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).

10.12     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).

10.13**   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.

10.14**   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).

10.15**   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).

10.16*    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.

10.17*    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.

10.18*    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.

10.19*    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.

10.20*    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.

10.21     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.

10.22     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.

10.23     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.

10.24**   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.

10.25     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.

10.26     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.

10.27     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.

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

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

12.1      Statements  of  Computation  of Ratio of Earnings  to  Combined  Fixed
          Charges and Preferred Dividends

12.2      Statements of Computation of Ratio of Earnings to Fixed Charges


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 28, 2006
                                              (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 28, 2006            Gregory M. Swalwell, March 28, 2006
(Director)                                  (Vice President, Finance;
                                             Principal Financial Officer)

/s/ Andrew Kasprowiak                       /s/ Volker Roth
--------------------------------            -----------------------------------
Andrew Kasprowiak, March 28, 2006           Volker Roth, March 28, 2006
(Director)                                 (Director)

/s/ Dr. Ulfert Fiand                        /s/ James W. Brown
--------------------------------            -----------------------------------
Dr. Ulfert Fiand, March 28, 2006            James W. Brown, March 28, 2006
(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, 2004 and 2005                 F-3

  Consolidated Statements of Income -
   Years ended December 31, 2003, 2004 and 2005                            F-5

  Consolidated Statements of Comprehensive Income (Loss) -
   Years ended December 31, 2003, 2004 and 2005                            F-6

  Consolidated Statements of Stockholder's Equity -
   Years ended December 31, 2003, 2004 and 2005                            F-7

  Consolidated Statements of Cash Flows -
   Years ended December 31, 2003, 2004 and 2005                            F-8

  Notes to Consolidated Financial Statements                              F-10


Financial Statement Schedules


  Schedule I - Condensed Financial Information of Registrant               S-1

  Schedule II - Valuation and Qualifying Accounts                          S-5

  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  consolidated  financial  statements  listed  in the
accompanying  index  present  fairly,  in all material  respects,  the financial
position of Kronos International, Inc. and Subsidiaries at December 31, 2004 and
2005,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 2005 in conformity  with accounting
principles  generally accepted in the United States of America. In addition,  in
our opinion,  the financial statement schedules listed in the accompanying index
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated  financial  statements.  These
financial statements and financial statement schedules are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial  statements and financial  statement schedules 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 28, 2006



                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2004 and 2005

                        (In thousands, except share data)

<TABLE>

               ASSETS
                                                              2004               2005
                                                              ----               ----

 Current assets:
<S>                                                       <C>                <C>
   Cash and cash equivalents                              $   17,505         $   63,284
   Restricted cash                                             1,529              1,355
   Accounts and other receivables                            130,729            120,182
   Receivables from affiliates                                 2,517              1,952
   Refundable income taxes                                     2,586              1,053
   Inventories                                               170,261            185,348
   Prepaid expenses                                            3,141              2,680
                                                          ----------         ----------

       Total current assets                                  328,268            375,854
                                                          ----------         ----------

 Other assets:
    Deferred financing costs, net                             10,404              7,722
    Restricted marketable debt securities                      2,877              2,572
    Unrecognized net pension obligation                        7,524              6,108
    Deferred income taxes                                    238,284            213,275
    Other                                                      1,591                960
                                                          ----------         ----------

       Total other assets                                    260,680            230,637
                                                          ----------         ----------

 Property and equipment:
   Land                                                       34,164             30,288
   Buildings                                                 153,442            138,925
   Equipment                                                 724,904            644,271
   Mining properties                                          71,980             68,163
   Construction in progress                                   13,560             12,112
                                                          ----------         ----------

                                                             998,050            893,759
   Less accumulated depreciation and amortization            601,815            544,984
                                                          ----------         ----------

       Net property and equipment                            396,235            348,775
                                                          ----------         ----------

                                                          $  985,183         $  955,266
                                                          ==========         ==========
</TABLE>


          See accompanying notes to consolidated financial statements.







                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2004 and 2005

                        (In thousands, except share data)


<TABLE>

    LIABILITIES AND STOCKHOLDER'S EQUITY
                                                              2004               2005
                                                              ----               ----


 Current liabilities:
<S>                                                       <C>                <C>
   Current maturities of long-term debt                   $   13,792         $      958
   Accounts payable and accrued liabilities                  126,949            118,285
   Payable to affiliates                                      11,042             14,882
   Income taxes                                               17,080             21,799
   Deferred income taxes                                       2,722              4,136
                                                          ----------         ----------

       Total current liabilities                             171,585            160,060
                                                          ----------         ----------

 Noncurrent liabilities:
   Long-term debt                                            519,403            452,865
   Deferred income taxes                                      22,358             19,265
   Accrued pension cost                                       48,441            125,766
   Other                                                      16,840             15,434
                                                          ----------         ----------

       Total noncurrent liabilities                          607,042            613,330
                                                          ----------         ----------

 Minority interest                                                76                 75
                                                          ----------         ----------

 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                                       (1,399,118)        (1,339,332)
   Notes receivable from affiliate                          (209,526)          (209,526)
   Accumulated other comprehensive loss:
     Currency translation                                    (99,764)          (130,178)
     Pension liabilities                                     (29,594)           (83,645)
                                                          ----------         ----------

       Total stockholder's equity                            206,480            181,801
                                                          ----------         ----------

                                                          $  985,183         $  955,266
                                                          ==========         ==========
</TABLE>
          See accompanying notes to consolidated financial statements.

Commitments and contingencies (Notes 10 and 13)



                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2003, 2004 and 2005

                                 (In thousands)
<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----


<S>                                                       <C>                <C>               <C>
Net sales                                                 $  715,906         $  807,970        $  850,873
Cost of sales                                                516,864            609,559           613,178
                                                          ----------         ----------        ----------

    Gross margin                                             199,042            198,411           237,695

Selling, general and administrative expense                   86,965            104,110           110,185
Other operating income (expense):
  Currency transaction gains (losses), net                    (3,721)            (2,243)            4,090
  Disposition of property and equipment                         (394)              (895)           (1,395)
  Royalty income                                               6,122              6,034             6,827
  Other income                                                   489                426               576
  Other expense                                                 (130)               (72)              (86)
                                                          ----------         ----------        ----------

    Income from operations                                   114,443             97,551           137,522

Other income (expense):
  Interest income from affiliates                                 30              2,767            18,943
  Trade interest income                                          700              1,147               951
  Securities transaction gain                                   -                  -                5,439
  Interest expense to affiliates                                 (81)                (4)             -
  Other interest expense                                     (32,529)           (36,688)          (43,950)
                                                          ----------         ----------        ----------

    Income before income taxes and minority interest          82,563             64,773           118,905

Provision (benefit) for income taxes                             730           (261,260)           59,107

Minority interest                                                 72                 53                12
                                                          ----------         ----------        ----------

    Net income                                            $   81,761         $  325,980        $   59,786
                                                          ==========         ==========        ==========
</TABLE>


          See accompanying notes to consolidated financial statements.




                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

                  Years ended December 31, 2003, 2004 and 2005

                                 (In thousands)


<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----

<S>                                                       <C>                <C>               <C>
Net income                                                $   81,761         $  325,980        $   59,786
                                                          ----------         ----------        ----------

Other comprehensive (loss) income, net of tax:

  Minimum pension liabilities adjustment                     (27,647)             4,803           (54,051)

  Currency translation adjustment                              5,600             33,661           (30,414)
                                                          ----------         ----------        ----------

      Total other comprehensive income (loss)                (22,047)            38,464           (84,465)
                                                          ----------         ----------        ----------

          Comprehensive income (loss)                     $   59,714         $  364,444        $  (24,679)
                                                          ==========         ==========        ==========
</TABLE>



          See accompanying notes to consolidated financial statements.




                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

                  Years ended December 31, 2003, 2004 and 2005
                                 (In thousands)
<TABLE>

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

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

Net income                                -            -            59,786          -            -            -            59,786
Other comprehensive loss,
  net of tax                              -            -              -             -         (30,414)     (54,051)       (84,465)
                                       -----     ----------    -----------     ---------    ---------     --------      ---------

Balance at December 31, 2005           $ 297     $1,944,185    $(1,339,332)    $(209,526)   $(130,178)    $(83,645)     $ 181,801
                                       =====     ==========    ===========     =========    =========     ========      =========
</TABLE>


          See accompanying notes to consolidated financial statements.


                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2003, 2004 and 2005

                                 (In thousands)

<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----

Cash flows from operating activities:
<S>                                                       <C>                <C>               <C>
  Net income                                              $   81,761         $  325,980        $   59,786
  Depreciation and amortization                               33,634             37,726            36,504
  Noncash interest expense                                     1,944              2,044             2,566
  Deferred income taxes                                       38,690           (273,985)           30,815
  Minority interest                                               72                 53                12
  Net loss from disposition of property and equipment            394                895             1,395
  Securities transaction gain                                   -                  -               (5,439)
  Defined benefit pension plan expense greater
     (less) than cash funding                                 (3,805)              (800)           (2,335)
  Other, net                                                     250                987            (1,839)
  Change in assets and liabilities:
    Accounts and other receivables                             1,104             (6,227)           (9,641)
    Inventories                                                  232             11,582           (38,938)
    Prepaid expenses                                           1,345               (233)             (228)
    Accounts payable and accrued liabilities                   5,495             27,922            10,781
    Income taxes                                             (37,231)            25,557             7,917
    Accounts with affiliates                                 (14,424)            (6,103)            4,674
    Other noncurrent assets                                   (3,779)             1,981              (690)
    Other noncurrent liabilities                                (894)            (5,124)           (2,636)
                                                          ----------         ----------        ----------

    Net cash provided by operating activities                104,788            142,255            92,704
                                                          ----------         ----------        ----------

Cash flows from investing activities:
  Capital expenditures                                       (31,518)           (33,679)          (39,522)
  Purchase of interest in subsidiary                            -                  (575)             -
  Proceeds from disposal of interest in Norwegian
     smelting operation                                         -                  -                3,542
  Change in restricted cash equivalents and restricted
     marketable debt securities, net                            (554)               (70)              129
    Proceeds from disposition of property and equipment          383                 99                37
                                                          ----------         ----------        ----------

        Net cash used by investing activities                (31,689)           (34,225)          (35,814)
                                                          ----------         ----------        ----------
</TABLE>


          See accompanying notes to consolidated financial statements.





                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2003, 2004 and 2005

                                 (In thousands)

<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----
Cash flows from financing activities:
  Indebtedness:
<S>                                                       <C>                <C>               <C>
    Borrowings                                            $   16,106         $  241,648        $    4,620
    Principal payments                                       (46,006)          (100,073)          (13,159)
    Deferred financing fees                                     -                (1,989)             -
  Loans to affiliates                                           -              (209,524)             -
  Dividends paid                                             (25,000)           (60,000)             -
  Distributions to minority interests                            (14)              -                 -
                                                          ----------         ----------        ----------

          Net cash used by financing activities              (54,914)          (129,938)           (8,539)
                                                          ----------         ----------        ----------

Cash and cash equivalents - net change from:
  Operating, investing and financing activities               18,185            (21,908)           48,351
  Currency translation                                         3,913              2,292            (2,572)
                                                          ----------         ----------        ----------

                                                              22,098            (19,616)           45,779

   Balance at beginning of year                               15,023             37,121            17,505
                                                          ----------         ----------        ----------

   Balance at end of year                                 $   37,121         $   17,505        $   63,284
                                                          ==========         ==========        ==========

Supplemental disclosures - cash paid
 (received) for:
   Interest                                               $   28,147         $   33,425        $   40,912
   Income taxes                                              (11,480)           (23,776)           20,033

      Inventories received as partial
        consideration for disposal of interest
         in Norwegian smelting operations                 $     -            $     -           $    1,897
</TABLE>


          See accompanying notes to consolidated financial statements.



                   KRONOS 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, 2005, (i) Valhi, Inc.
(NYSE:VHI) held  approximately  57% of Kronos'  outstanding  common stock and NL
Industries,  Inc. (NYSE:NL) held an additional 36% of Kronos' common stock, (ii)
Valhi owned approximately 83% of NL's outstanding common stock and (iii) Contran
Corporation and its subsidiaries held  approximately 92% 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  significantly  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.

     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 ($2.9
million and $2.6  million at  December  31,  2004 and 2005,  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.  While the
Company owns the land and ilmenite reserves  associated with the mine, such land
and reserves  were  acquired  for nominal  value and the Company has no material
asset  recognized for the land and reserves  related to such mining  operations.
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 $3.9  million and $3.4
million at December 31, 2004 and 2005, 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 2003, 2004 or 2005.

     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  property  and  equipment  in
accordance  with SFAS No. 144,  "Accounting  for the  Impairment  or Disposal of
Long-Lived Assets."

     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 11.

     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.  As a member of the Contran Tax Group,  KII is jointly
and  severally  liable for the federal  income tax  liability of Contran and the
other  companies  included in the Contran Tax Group for all periods in which the
Company  is  included  in the  Contran  Tax Group.  See Note 10.  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.  The Company made no payments to Kronos for
income taxes in 2003, 2004 or 2005.

     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 $527 million at December 31, 2004
and $707  million  at  December  31,  2005.  Determination  of the amount of the
unrecognized  deferred  income tax  liability  related to such  earnings  is not
practicable  due to the  complexities  associated  with  the  U.S.  taxation  on
earnings  of  foreign   subsidiaries   repatriated   to  the  U.S.  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  ($7.3  million  and $6.5  million at  December  31,  2004 and 2005,
respectively).  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 $43 million in 2003, $49 million in
2004 and $52 million in 2005.  Advertising  costs are  expensed as incurred  and
were $1  million  in each of 2003,  2004 and  2005.  Research,  development  and
certain sales technical  support costs are expensed as incurred and approximated
$7 million in 2003, $8 million in 2004 and $9 million in 2005.

     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.
Prior to 2003,  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 $300,000 in 2003 and $1.0 million in 2004,
and  compensation  income was  $600,000  in 2005.  The total  income tax benefit
related to such  compensation  cost recognized by the Company was  approximately
$100,000  in 2003 and  $400,000  in 2004,  and the total  income  tax  provision
related to the  compensation  income was $200,000 in 2005. No compensation  cost
was capitalized as part of assets  (inventory or fixed assets) during 2003, 2004
and 2005.

     The following  table presents what the Company's  consolidated  net income,
and related  per share  amounts,  would have been in 2003,  2004 and 2005 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,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In millions)

<S>                                              <C>               <C>              <C>
Net income (loss) as reported                    $  81.8           $ 326.0          $  59.8

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

Pro forma net income (loss)                      $  81.8           $ 326.6          $  59.5
                                                 =======           =======          =======
</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,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In thousands)
       Geographic areas

Net sales - point of origin:
<S>                                            <C>               <C>              <C>
    Germany                                    $  510,105        $  576,138       $  613,081
    Belgium                                       150,728           186,445          186,951
    Norway                                        131,457           144,492          160,529
    Eliminations                                  (76,384)          (99,105)        (109,688)
                                               ----------        ----------       ----------

                                               $  715,906        $  807,970       $  850,873
                                               ==========        ==========       ==========
</TABLE>
<TABLE>

                                                           Years ended December 31,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In thousands)
Net sales - point of destination:

<S>                                            <C>               <C>              <C>
    Europe                                     $  567,630        $  666,271       $  689,516
    North America                                  58,293            42,015           51,922
    Other                                          89,983            99,684          109,435
                                               ----------        ----------       ----------

                                               $  715,906        $  807,970       $  850,873
                                               ==========        ==========       ==========
</TABLE>

<TABLE>
                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

Identifiable assets -
  net property and equipment:

<S>                                                      <C>                <C>
      Germany                                            $  269,922         $  235,932
      Belgium                                                68,314             57,943
      Norway                                                 57,808             54,759
      Other                                                     191                141
                                                         ----------         ----------

                                                         $  396,235         $  348,775
                                                         ==========         ==========
</TABLE>

Note 3 -       Accounts and other receivables:
<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>                                                      <C>                <C>
Trade receivables                                        $  120,969         $  110,268
Insurance claims                                                 32                 26
Recoverable VAT and other receivables                        11,388             11,317
Allowance for doubtful accounts                              (1,660)            (1,429)
                                                         ----------         ----------

                                                         $  130,729         $  120,182
                                                         ==========         ==========
</TABLE>

Note 4 -       Inventories
<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>                                                      <C>                <C>
 Raw materials                                           $   34,303         $   42,807
 Work in process                                             13,044             13,654
 Finished products                                           90,083             98,004
 Supplies                                                    32,831             30,883
                                                         ----------         ----------

                                                         $  170,261         $  185,348
                                                         ==========         ==========
</TABLE>

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

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>                                                      <C>                <C>
 Accounts payable                                        $   67,463         $   63,382
 Employee benefits                                           27,863             27,147
 Other                                                       31,623             27,756
                                                         ----------         ----------

                                                         $  126,949         $  118,285
                                                         ==========         ==========
</TABLE>

Note 6 - Long-term debt:
<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

 Long-term debt:
<S>                                                      <C>                <C>
   8.875% Senior Secured Notes                           $  519,225         $  449,298
   Bank credit facility                                      13,622               -
   Other                                                        348              4,525
                                                         ----------         ----------

                                                            533,195            453,823
   Less current maturities                                   13,792                958
                                                         ----------         ----------

                                                         $  519,403         $  452,865
                                                         ==========         ==========
</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.  Such operating subsidiaries are Kronos Titan GmbH, Kronos Denmark
ApS,  Kronos  Limited and Societe  Industrielle  Du Titane,  S.A.  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, at redemption prices ranging
from 104.437% of the principal  amount,  declining to 100% on or after  December
30, 2008.  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, 2005, KII was in compliance with all the
covenants, and the quoted market price of the Notes was approximately euro 1,045
per euro 1,000  principal  amount  (2004 - euro  1,075 per euro 1,000  principal
amount).  At December 31, 2005,  the carrying  amount of the Notes includes euro
4.8 million ($5.7 million) of unamortized  premium  associated with the November
2004 issuance (2004 - euro 6.2 million, or $8.4 million).

     KII's operating subsidiaries in Germany,  Belgium and Norway (collectively,
the "Borrowers")  have a euro 80 million secured  revolving bank credit facility
that  matures  in June 2008  ("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 1.125%. 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,  2005,  no amounts  were  outstanding  under the
European  Credit  Facility and the equivalent of $92.3 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, 2005 are shown in
the table below.
<TABLE>

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

<S>                                                                <C>
   2006                                                            $    958
   2007                                                                 861
   2008                                                                 872
   2009                                                             450,200
   2010                                                                 932
   2011 and thereafter                                                 -
                                                                   --------

                                                                   $453,823
                                                                   ========
</TABLE>

     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, 2005,  the  restricted  net
assets of consolidated  subsidiaries  approximated  $90 million.

Note 7 - Other noncurrent liabilities:
<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>                                                      <C>                <C>
 Insurance claims and expenses                           $    1,505         $    1,255
 Employee benefits                                            5,107              4,735
 Asset retirement obligations                                   958                934
 Other                                                        9,270              8,510
                                                         ----------         ----------

                                                         $   16,840         $   15,434
                                                         ==========         ==========
</TABLE>

     The asset retirement obligations are discussed in Note 15.

Note 8 - Common stock and notes receivable from affiliates:

     NL common stock  options held by employees of the Company.  At December 31,
2005,  employees of the company held  options to purchase  approximately  68,000
shares of NL common stock,  which are  exercisable at various dates through 2010
(approximately 33,000) at exercise prices ranging from $2.66 to $9.34 per share,
and  exercisable  at various  dates  through 2011  (approximately  35,000) at an
exercise price of $11.49 per share. Such options generally vest over five years,
and vesting  ceases at the date the  employee  separates  from  service from the
Company (including retirement).

     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 2003,  2004 or 2005.  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, $60.0 million during 2004 and nil in 2005.

     Notes receivable from affiliates - contra equity.  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%, such interest was and is expected to
be paid  quarterly  to the Company by Kronos.  The notes  mature on December 31,
2010,  with all principal due at that date. The notes are unsecured,  contain no
financial covenants and provide for default only upon Kronos' failure to pay any
amount  when  due  (subject  to a  short  grace  period).  Due to the  long-term
investment  nature of these notes,  settlement of the  principal  balance of the
notes is not contemplated  within the foreseeable  future. The Company currently
expects that settlement of the principal  amount of the notes will occur through
a  capital  transaction  (i.e.  a  non-cash  dividend  to  Kronos in the form of
distributing  such  notes  receivable  to  Kronos).  Accordingly,   these  notes
receivable  have  been  classified  as a  separate  component  of the  Company's
stockholder's  equity in accordance  with GAAP.  Interest  income on such notes,
which is expected to be paid  quarterly,  is  recognized  in income when earned.
Rather than make a distribution  to Kronos in the form of a cash  dividend,  the
Company  loaned the euro 163.1 million to Kronos  pursuant to the two promissory
notes.  Until such time as the notes are  settled  (which,  as noted  above,  is
expected  to be  through  a  capital  transaction  in  the  form  of a  non-cash
dividend),  the  Company  benefits  from  the  interest  income  earned  on  the
promissory notes.

     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 - Securities transaction gain:

     A securities  transaction gain in 2005,  classified as nonoperating income,
relates to the sale of the Company's  passive  interest in a Norwegian  smelting
operation,  which had a nominal carrying value for financial reporting purposes,
for aggregate  consideration of approximately $5.4 million consisting of cash of
$3.5 million and inventory with a value of $1.9 million.

Note 10 - Income taxes:
<TABLE>

                                                           Years ended December 31,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                 (In millions)
 Pre-tax income (loss):
<S>                                              <C>               <C>              <C>
   Germany                                       $   45.8          $   30.2         $   64.3
   Other non-U.S.                                    36.8              34.6             54.6
                                                 --------          --------         --------

                                                 $   82.6          $   64.8         $  118.9
                                                 ========          ========         ========

 Expected tax expense (benefit), at U.S.
  federal statutory income tax rate of 35%       $   28.9          $   22.7         $   41.6
 Non-U.S. tax rates                                   (.9)               .3               .5
 Loss of German tax attribute                          -                 -              17.5
 Nondeductible expenses                               2.7               4.2              4.6
 Change in deferred income tax valuation
  allowance, net                                     (6.7)           (280.7)              -
 Tax contingency reserve adjustment, net             13.4              (4.6)            (7.7)
 Assessment (refund) of prior year income taxes     (38.0)             (2.6)             2.1
 Other, net                                           1.3               (.6)              .5
                                                 --------          --------         --------

                                                 $     .7          $ (261.3)        $   59.1
                                                 ========          ========         ========
 Components of income tax expense (benefit):
   Currently payable (refundable):
     Germany                                     $  (56.9)         $    (.2)        $   10.8
     Other non - U.S.                                18.9              12.9             17.5
                                                 --------          --------         --------

                                                    (38.0)             12.7             28.3
                                                 --------          --------         --------
   Deferred income taxes (benefit):
     Germany                                         44.4            (270.5)            31.2
     Other non - U.S.                                (5.7)             (3.5)             (.4)
                                                 --------          --------         --------

                                                     38.7            (274.0)            30.8
                                                 --------          --------         --------

                                                 $     .7          $ (261.3)        $   59.1
                                                 ========          ========         ========
 Comprehensive provision for
  income taxes (benefit) allocable to:
   Net income                                    $     .7          $ (261.3)        $   59.1

   Other comprehensive income -
     pension liabilities                             (9.5)             (8.1)           (32.4)
                                                 --------          --------         --------

                                                 $   (8.8)         $ (269.4)        $   26.7
                                                 ========          ========         ========
</TABLE>

     The  components  of the net deferred tax liability at December 31, 2004 and
2005, and changes in the deferred income tax valuation allowance during the past
three years, are summarized in the following tables.

<TABLE>

                                                                                 December 31,
                                                             --------------------------------------------------
                                                                       2004                       2005
                                                             -----------------------    -----------------------
                                                             Assets      Liabilities    Assets      Liabilities
                                                             ------      -----------    ------      -----------
                                                                                (In millions)

 Tax effect of temporary differences
  related to:
<S>                                                         <C>          <C>            <C>          <C>
   Inventories                                              $  1.5       $  (4.4)       $  1.6       $  (4.5)
   Property and equipment                                     37.8         (22.9)         25.5         (20.5)
   Accrued (prepaid) pension cost                             19.4         (40.4)         51.9         (35.6)
   Other accrued liabilities and
    deductible differences                                    46.1            -           25.6            -
   Other taxable differences                                    -          (43.5)           -          (28.6)
     Investment in subsidiaries/affiliates
      not in tax group                                         1.9            -             -             -
 Tax loss and tax credit carryforwards                       217.8            -          174.5            -
                                                            ------       -------        ------       -------
   Adjusted gross deferred tax assets
     (liabilities)                                           324.5        (111.2)        279.1         (89.2)
 Netting of items by tax jurisdiction                        (86.2)         86.2         (65.8)         65.8
                                                            ------       -------        ------       -------

                                                             238.3         (25.0)        213.3         (23.4)
 Less net current deferred tax
  asset (liability)                                             -           (2.7)           -           (4.1)
                                                            ------       -------        ------       -------

     Net noncurrent deferred tax asset
      (liability)                                           $238.3       $ (22.3)       $213.3       $ (19.3)
                                                            ======       =======        ======       =======
</TABLE>

<TABLE>

                                                           Years ended December 31,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                 (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    $   (6.7)         $ (280.7)        $   -
  Foreign currency translation                        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                               (12.5)            121.0             -
                                                  --------          --------         --------


                                                  $    9.0          $ (162.7)        $   -
                                                  ========          ========         ========
</TABLE>

     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 received a preliminary tax assessment  related to 1993 from the
     Belgian tax  authorities  proposing  tax  deficiencies,  including  related
     interest,  of  approximately  euro 6 million ($7  million at  December  31,
     2005). The Company filed a protest to this assessment,  and believes that a
     significant  portion of the assessment  was 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,  Kronos
     received a notification from the Belgian tax authorities of their intent to
     assess a tax deficiency  related to 1999 that,  including  interest,  would
     have aggregated approximately euro 9 million ($11 million).  Kronos filed a
     written  response to the assessment,  and in September 2005 the Belgian tax
     authorities withdrew the assessment.

o    The Norwegian tax authorities  have notified the Company of their intent to
     assess tax  deficiencies  of  approximately  kroner 12 million ($2 million)
     relating to the years 1998 through  2000.  The Company has objected to this
     proposed assessment.

     During the third  quarter of 2005,  the  Company  reached an  agreement  in
principle  with the  German  tax  authorities  regarding  such tax  authorities'
objection to the value assigned to certain intellectual  property rights held by
the Company's operating subsidiary in Germany. Under the agreement in principle,
the value assigned to such intellectual  property for German income tax purposes
will be reduced  retroactively,  resulting  in a reduction  in the amount of the
Company's  net  operating  loss  carryforward  in  Germany  as well as a  future
reduction  in  the  amount  of   amortization   expense   attributable  to  such
intellectual  property.  As a result,  the Company  recognized  a $17.5  million
non-cash  deferred  income tax expense in the third  quarter of 2005  related to
such agreement.  The $7.7 million tax contingency  adjustment income tax benefit
in the year ended  December 31, 2005 relates  primarily to the withdrawal of the
Belgium tax authorities' assessment related to 1999, as discussed above.

     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  and court and tax  proceedings.  The Company  believes  that it has
provided  adequate  accruals for additional  taxes and related  interest expense
which may  ultimately  result from all such  examinations  and believes that the
ultimate  disposition of such  examinations  should not have a material  adverse
effect  on  its  consolidated  financial  position,  results  of  operations  or
liquidity.

     At December 31, 2003, the Company had 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 principally  during the 1990's 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 the
Company  had a deferred  income tax asset  valuation  allowance  offsetting  the
benefit of such net operating  loss  carryforwards  and the Company's  other tax
attributes in Germany.  At the end of the second  quarter of 2004,  and based on
all  available  evidence,  the  Company  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,  KII believes it will take several  years to fully  utilize the
benefit  of such  loss  carryforwards.  However,  given  that  the  Company  had
generated positive taxable income in Germany in recent years,  combined with the
fact that the net operating  loss  carryforwards  have no expiration  date,  the
Company concluded,  among other reasons,  that 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.  Of the $280.7 million  valuation
allowance  related to Germany which was reversed  during 2004, and in accordance
with the  applicable  GAAP  related to  accounting  for income  taxes at interim
periods,  (i) $8.7 million was reversed during the first six months of 2004 that
related   primarily  to  the  utilization  of  the  German  net  operating  loss
carryforwards  during such period,  (ii) $268.6  million was reversed as of June
30, 2004 and (iii) $3.4 million was reversed during the last six months of 2004.

     In the first quarter of 2003, KII was notified by the German Federal Fiscal
Court that the Court had ruled in KII's favor concerning a claim for refund suit
in which KII sought  refunds of prior taxes paid during the periods 1990 through
1997. KII and KII's German  operating  subsidiary  were required to file amended
tax returns with the German tax  authorities to receive  refunds for such years,
and all of such amended  returns were filed  during 2003.  Such amended  returns
reflected an aggregate  net 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 of these net  refunds  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. In 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 recognized euro 21.5 million ($24.6 million) in 2003.

     At December 31,  2005,  the net  operating  loss  carryforwards  for German
corporate and trade tax purposes  aggregated  the equivalent of $593 million and
$104 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  provided for a special 85%  deduction  for certain  dividends
received from a controlled foreign  corporation in 2005. In the third quarter of
2005, the Company  completed its evaluation of this new provision and determined
that it would not benefit from such special dividends received deduction.

Note 11 - Employee 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. 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 2004 or 2005. At December 31, 2005,  the
Company  currently  expects to contribute  the equivalent of  approximately  $12
million to all of its defined benefit pension plans during 2006.

     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,
                                                            -------------------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)
 Change in projected benefit obligations ("PBO"):
<S>                                                      <C>                <C>
   Benefit obligations at beginning of the year          $  272,204         $  307,582
   Service cost                                               5,398              5,885
   Interest cost                                             14,132             14,038
   Participant contributions                                  1,362              1,469
   Actuarial losses                                           3,134             84,365
   Change in foreign currency exchange rates                 26,588            (43,954)
   Benefits paid                                            (15,236)           (16,808)
                                                         ----------         ----------

       Benefit obligations at end of the year            $  307,582         $  352,577
                                                         ==========         ==========

 Change in plan assets:
   Fair value of plan assets at beginning of the year    $  167,302         $  196,573
   Actual return on plan assets                              14,175              7,132
   Employer contributions                                    11,726             13,323
   Participant contributions                                  1,362              1,469
   Change in foreign currency exchange rates                 17,244            (24,793)
   Benefits paid                                            (15,236)           (16,808)
                                                         ----------         ----------

       Fair value of plan assets at end of year          $  196,573         $  176,896
                                                         ==========         ==========

 Funded status at end of the year:
   Plan assets less than PBO                             $ (111,009)        $ (175,681)
   Unrecognized actuarial losses                            107,581            175,482
   Unrecognized prior service cost                            6,829              5,550
   Unrecognized net transition obligations                      952                749
                                                         ----------         ----------

                                                         $    4,353         $    6,100
                                                         ==========         ==========

 Amounts recognized in the balance sheet:
   Unrecognized net pension obligations                  $    7,524         $    6,108
   Accrued pension costs:
     Current                                                 (8,587)           (10,314)
     Noncurrent                                             (48,441)          (125,766)
   Accumulated other comprehensive loss                      53,857            136,072
                                                         ----------         ----------

                                                         $    4,353         $    6,100
                                                         ==========         ==========
</TABLE>

<TABLE>

                                                           Years ended December 31,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In thousands)

 Net periodic pension cost:
<S>                                               <C>               <C>              <C>
   Service cost benefits                          $  4,060          $  5,398         $  5,885
   Interest cost on PBO                             12,378            14,132           14,038
   Expected return on plan assets                  (12,264)          (12,318)         (12,051)
   Amortization of prior service cost                  255               463              482
   Amortization of net transition obligations          527               368              107
   Recognized actuarial losses                         827             2,335            3,035
                                                  --------          --------         --------

                                                  $  5,783          $ 10,378         $ 11,496
                                                  ========          ========         ========
</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 plan
     asset  allocation at December 31, 2005 was 23% to equity  managers,  48% to
     fixed  income  managers  and 29% to real estate  (2004 - 23%,  48% and 29%,
     respectively).
o    In Norway,  the Company currently has a plan asset target allocation of 14%
     to  equity  managers,  64% 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% and 2.5%,
     respectively.  The plan asset  allocation  at December  31, 2005 was 16% to
     equity  managers,  62% to fixed income managers and the remainder  invested
     primarily  to  cash  and  liquid  investments  (2004 - 16%,  64%  and  20%,
     respectively).

     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,  2004 and 2005 are
presented in the table below. Such weighted-average  rates were determined using
the projected benefit obligations at each date.
<TABLE>

              Rate                                                 December 31,
              ----                                               --------------
                                                             2004               2005
                                                             ----               ----

<S>                                                          <C>                <C>
Discount rate                                                5.0%               4.1%
Increase in future compensation levels                       2.8%               2.8%
</TABLE>

     The weighted-average  rate assumptions used in determining the net periodic
pension  cost for 2003,  2004 and 2005 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>

              Rate                                                    December 31,
              ----                                  --------------------------------------------
                                                      2003              2004              2005
                                                      ----              ----              ----

<S>                                                   <C>               <C>               <C>
Discount rate                                         5.8%              5.3%              5.0%
Increase in future compensation levels                2.6%              2.8%              2.8%
Long-term return on plan assets                       6.9%              6.4%              6.0%
</TABLE>

     At December 31, 2005, the  accumulated  benefit  obligation  related to the
Company's  defined  benefit  pension plans  aggregated $316 million (2004 - $257
million).  At December 31, 2004 and 2005, all of the Company's  defined  benefit
pension plans have  accumulated  benefit  obligations in excess of fair value of
plan assets.

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

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

    2006                                                 $ 17,287
    2007                                                   16,277
    2008                                                   18,033
    2009                                                   16,764
    2010                                                   16,937
    2011 to 2012                                           90,812

Note 12 - Related party transactions:

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

     Under the terms of  various  intercorporate  services  agreements  ("ISAs")
entered into between the Company and various related parties, including Contran,
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  and  included in selling,
general and  administrative  expense was $1.5  million in 2003,  $2.8 million in
2004 and $2.9 million in 2005.

     Sales of TiO2 to Kronos (US), Inc. ("KUS") and Kronos Canada,  Inc. ("KC"),
affiliates of the Company,  aggregated  $68.7 million in 2003,  $50.8 million in
2004 and $63.6 million in 2005.

     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  $93.3  million in 2003,  $106.2  million in 2004 and
$120.1 million in 2005.

     Purchases of TiO2 from KUS were $100,000 in 2003,  $3.5 million in 2004 and
nil in 2005.  Purchases of TiO2 from KC were $500,000 in 2003,  $700,000 in 2004
and $600,000 in 2005.

     Royalty  income  received  from  KC for  use of  certain  of the  Company's
intellectual  property was $6.1  million in 2003,  $6.0 million in 2004 and $6.8
million in 2005.

     Tall  Pines  Insurance  Company,  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 and EWI receive  commissions from insurance and
reinsurance  underwriters  and/or assess fees for the policies that they provide
or broker.  The aggregate premiums paid to Tall Pines (including amounts paid to
Valmont Insurance Company, another subsidiary of Valhi that was merged into Tall
Pines in 2004) and EWI by the Company and its joint venture were $5.2 million in
2003, $5.3 million in 2004 and $5.5 million in 2005.  These amounts  principally
included payments for insurance and reinsurance  premiums paid to third parties,
but also included  commissions  paid to Tall Pines and EWI. Tall Pines purchases
reinsurance  for  substantially  all of the risks it  underwrites.  The  Company
expects that these relationships with Tall Pines and EWI will continue in 2006.

     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,
                                                            -------------------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

 Current receivables from affiliates:
<S>                                                        <C>               <C>
   KC                                                      $ 2,516           $ 1,948
   Other                                                         1                 4
                                                           -------           -------

                                                           $ 2,517           $ 1,952
                                                           =======           =======

 Current payables to affiliates:
    KUS                                                    $11,033           $14,882
    NL                                                           9              -
                                                           -------           -------

                                                           $11,042           $14,882
                                                           =======           =======
</TABLE>

     Interest  income on all loans to related  parties was less than  $50,000 in
2003,  $2.8 million in 2004 and $18.9 million in 2005.  Interest  expense on all
loans from  related  parties  was less than  $100,000 in 2003 and nil in each of
2004 and 2005.

Note 13 - Commitments and contingencies:

     Environmental  matters.  The Company's  operations  are governed by various
environmental laws and regulations.  Certain of the Company's businesses are, or
have been engaged in the handling, manufacture or use of substances or compounds
that may be  considered  toxic or  hazardous  within the  meaning of  applicable
environmental  laws.  As with other  companies  engaged  in similar  businesses,
certain  past and  current  operations  and  products  of the  Company  have the
potential to cause  environmental  or other damage.  The Company has implemented
and  continues  to  implement  various  policies  and  programs  in an effort to
minimize  these  risks.  The  Company's  policy is to 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 about 90% of net
sales 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  3,000  customers,  with  the top ten  customers
approximating  20%,  21%, and 20%  respectively  of net sales in 2003,  2004 and
2005.  Approximately 73% of the Company's TiO2 sales by volume were to Europe in
2003,  approximately  77% were to Europe in 2004 and  approximately  76% were to
Europe in 2005.  Approximately 13% of sales by volume were attributable to North
America in 2003, 9% attributable  to North America in 2004 and 10%  attributable
to North America in 2005.

     Long-term  contracts.  KUS has long-term  supply contracts that provide for
certain of its affiliates', including the Company's, TiO2 feedstock requirements
through 2010. The agreements  require KUS to purchase certain minimum quantities
of feedstock with minimum annual purchase commitments aggregating  approximately
$681 million at December 31, 2005. 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 with Bayer AG that expires in 2050. The Leverkusen facility itself,  which
is owned by the  Company  and which  represents  approximately  one-half  of the
Company's current TiO2 production capacity,  is located within Bayer's extensive
manufacturing  complex.  Rent for the land lease  associated with the Leverkusen
facility is  periodically  established by agreement with Bayer for periods of at
least two years at a time. The lease agreement provides for no formula, index or
other  mechanism to determine  changes in the rent for such land lease;  rather,
any change in the rent is subject solely to periodic  negotiation  between Bayer
and the Company. Any change in the rent based on such negotiations is recognized
as part of lease  expense  starting  from the time such change is agreed upon by
both  parties,  as any such  change in the rent is deemed  "contingent  rentals"
under GAAP. Under a separate supplies and services  agreement  expiring in 2011,
the lessor  provides  some raw  materials,  including  chlorine,  auxiliary  and
operating materials,  utilities and services necessary to operate 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 $9 million in
2003 and $8 million  in each of 2004 and 2005.  At  December  31,  2005,  future
minimum  payments  under  noncancellable  operating  leases having an initial or
remaining term of more than one year were as follows:

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

   2006                                                 $ 3,328
   2007                                                   2,411
   2008                                                   2,150
   2009                                                   1,562
   2010                                                   1,126
   2011 and thereafter                                   21,029
                                                        -------

                                                        $31,606
                                                        =======

     Approximately  $20.1 million of the $31.6 million  aggregate future minimum
rental  commitments  at December  31, 2005 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, 2005. As
discussed above, any change in the rent is based solely on negotiations  between
Bayer and the  Company,  and any such  change in the rent is deemed  "contingent
rentals"  under GAAP which is excluded from the future  minimum  lease  payments
disclosed above.

     Income taxes.  Contran and Valhi have agreed to a policy  providing for the
allocation  of tax  liabilities  and tax  payments as described in Note 1. Under
applicable  law, the  Company,  as well as every other member of the Contran Tax
Group,  are each jointly and severally  liable for the aggregate  federal income
tax  liability  of Contran and the other  companies  included in the Contran Tax
Group for all periods in which the Company is included in the Contran Tax Group.
Contran has agreed,  however,  to indemnify  the Company for any  liability  for
income taxes of the Contran Tax Group in excess of the  Company's  tax liability
previously  computed  and paid by Valhi in  accordance  with the tax  allocation
policy.

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,                December 31,
                                                                 2004                        2005
                                                      ---------------------------  -------------------------
                                                        Carrying        Fair         Carrying      Fair
                                                         Amount        Value          Amount       Value
                                                      ------------- -------------  -------------------------
                                                                          (In millions)
Cash, cash equivalents, restricted cash
   and current and noncurrent restricted
<S>                                                      <C>          <C>            <C>          <C>
    marketable debt securities                           $ 21.9       $  21.9        $ 67.2       $  67.2

Long-term debt:
  Fixed rate with market quotes -
    8.875% Senior Secured Notes                          $519.2       $ 549.1        $449.3       $ 463.6
  Variable rate debt                                       13.6          13.6            -             -
</TABLE>

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

Note 15 - Accounting principles newly adopted in 2003 and 2004:

     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  change  in the  asset  retirement  obligations  from  January  1, 2003
($600,000)  to December 31, 2003  ($800,000),  to December 31, 2004 ($1 million)
and to December 31, 2005  ($900,000) 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,
2004 and 2005.

     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 16 - Accounting principles not yet adopted:

     Stock options. The Company will adopt SFAS No. 123R, "Share-Based Payment,"
as of January  1, 2006.  SFAS No.  123R,  among  other  things,  eliminated  the
alternative  in previously  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  January 1,
2006, and to all awards existing as of December 31, 2005 which are  subsequently
modified,  repurchased  or cancelled.  Additionally,  as of January 1, 2006, the
Company  will be required to recognize  compensation  cost  previously  measured
under  SFAS No. 123 for the  portion  of any  non-vested  award  existing  as of
December 31, 2005 over the remaining vesting period. Because the Company has not
granted any options to purchase  its common  stock and did not grant any options
prior to  January 1, 2006 and  because  the  number of  non-vested  awards as of
December  31, 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 the  recognition  of
compensation  cost  in the  Company's  consolidated  statements  of  income  for
existing stock options. Should the Company,  however, grant a significant number
of options in the  future,  the  Company  could  recognize  material  amounts of
compensation  cost  related  to  such  options  in  its  consolidated  financial
statements.

     Also upon adoption of SFAS No. 123R, any cash income tax benefit  resulting
from the  exercise  of stock  options  in excess of the  cumulative  income  tax
benefit  related  to such  options  previously  recognized  for  GAAP  financial
reporting purposes in the Company's  consolidated  statements of income, if any,
will be reflected as a cash inflow from  financing  activities  in the Company's
consolidated  statements  of cash  flows,  and the  Company's  cash  flows  from
operating  activities  will  reflect  the effect of cash paid for  income  taxes
exclusive of such cash income tax benefit.

     SFAS No. 123R also  requires  certain  expanded  disclosures  regarding the
Company's  stock options,  and such expanded  disclosures  have been provided in
Note 8.

     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.

Note 17 - Quarterly results of operations (unaudited):
<TABLE>

                                                                           Quarter ended
                                                    ----------------------------------------------------------
                                                     March 31         June 30        Sept. 30         Dec. 31
                                                    ---------        ---------      ---------        ---------
                                                                           (In millions)

 Year ended December 31, 2004
<S>                                                  <C>              <C>            <C>              <C>
   Net sales                                         $ 192.2          $ 208.1        $ 203.4          $ 204.3
   Gross margin                                      $  49.6          $  51.8        $  47.3          $  49.7
   Net income                                        $  13.2          $ 290.5        $   9.1          $  13.2

 Year ended December 31, 2005
   Net sales                                         $  209.5         $ 227.6        $ 206.0          $ 207.8
   Gross margin                                      $   62.4         $  70.5        $  55.2          $  49.6
   Net income                                        $   18.2         $  28.5        $   6.4          $   6.7
</TABLE>





                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            Condensed Balance Sheets

                           December 31, 2004 and 2005

                                 (In thousands)
<TABLE>

                                                              2004               2005
                                                              ----               ----

 Current assets:
<S>                                                       <C>                <C>
   Cash and cash equivalents                              $    6,283         $    9,622
   Accounts and notes receivable                               8,838              9,013
   Receivable from affiliates                                 20,214             36,210
   Deferred income taxes                                         206                 68
   Other                                                          48                 56
                                                          ----------         ----------

       Total current assets                                   35,589             54,969
                                                          ----------         ----------

 Other assets:
   Investment in subsidiaries                                493,532            463,377
   Deferred income taxes                                     222,643            168,642
   Other                                                      10,508              7,399
   Property and equipment, net                                 6,917              5,814
                                                          ----------         ----------

       Total other assets                                    733,600            645,232
                                                          ----------         ----------

                                                          $  769,189         $  700,201
                                                          ==========         ==========

 Current liabilities:
   Payable to affiliates                                  $   25,621         $   34,715
   Accounts payable and accrued liabilities                    6,072              3,865
   Income taxes                                               10,638             29,483
   Deferred income taxes                                          15                 14
                                                          ----------         ----------

       Total current liabilities                              42,346             68,077
                                                          ----------         ----------

 Noncurrent liabilities:
   Long-term debt                                            519,225            449,298
   Other                                                       1,138              1,025
                                                          ----------         ----------

       Total noncurrent liabilities                          520,363            450,323
                                                          ----------         ----------

 Stockholder's equity                                        206,480            181,801
                                                          ----------         ----------

                                                          $  769,189         $  700,201
                                                          ==========         ==========
</TABLE>





                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                         Condensed Statements of Income

                  Years ended December 31, 2003, 2004 and 2005

                                 (In thousands)

<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----

 Revenues and other income:
<S>                                                       <C>                <C>               <C>
     Net sales                                            $   35,601         $   40,038        $   47,682
     Equity in earnings of subsidiaries                      293,623             66,049            90,702
   Interest income from affiliates                                50              2,782            18,947
   Royalty income                                             16,568             18,508            19,187
   Currency translation gains (losses), net                     (599)              (575)              248
   Other income, net                                             (38)                71                 1
                                                          ----------         ----------        ----------

                                                             345,205            126,873           176,767
                                                          ----------         ----------        ----------

 Costs and expenses:
   Cost of sales                                              18,306             21,371            26,995
   General and administrative                                 21,209             28,351            30,929
   Interest                                                   29,847             33,772            42,212
   Interest expense to affiliates                               -                 5,754            10,302
                                                          ----------         ----------        ----------

                                                              69,362             89,248           110,438
                                                          ----------         ----------        ----------

   Income before income taxes                                275,843             37,625            66,329

 Provision (benefit) for income taxes                        194,082           (288,355)            6,543
                                                          ----------         ----------        ----------

   Net income                                             $   81,761         $  325,980        $   59,786
                                                          ==========         ==========        ==========
</TABLE>





                   KRONOS INTERNATIONAL, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                       Condensed Statements of Cash Flows

                  Years ended December 31, 2003, 2004 and 2005

                                 (In thousands)
<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----


 Cash flows from operating activities:
<S>                                                       <C>                <C>               <C>
     Net income                                           $   81,761         $  325,980        $   59,786
     Cash distributions from subsidiaries                        402             50,902              -
     Noncash interest expense                                  1,472              1,487             2,124
     Deferred income taxes                                   238,814           (276,806)           21,827
     Equity in earnings of subsidiaries                     (293,623)           (66,049)          (90,702)
     Other, net                                               (3,570)              (637)             (719)
     Net change in assets and liabilities                        115             25,963            11,901
                                                          ----------         ----------        ----------

         Net cash provided by operating activities            25,371             60,840             4,217
                                                          ----------         ----------        ----------

 Cash flows from investing activities:
   Capital expenditures                                       (2,406)            (1,544)           (1,493)
   Collection of loans to affiliates                            -                88,656              -
   Purchase of interest in subsidiaries                         -                  (575)             -
   Other, net                                                      9               -                 -
                                                          ----------         ----------        ----------

        Net cash provided (used) by
         investing activities                                 (2,397)            86,537            (1,493)
                                                          ----------         ----------        ----------

 Cash flows from financing activities:
   Indebtedness:
     Borrowings                                                 -               129,524              -
     Deferred financing fees                                    -                (1,989)             -
   Loans to affiliates                                          -              (209,524)             -
   Dividends paid                                            (25,000)           (60,000)             -
                                                          ----------         ----------        ----------

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

 Net change during the year from operating
     investing and financing activities                       (2,026)             5,388             2,724
 Currency translation                                            129                347               615
 Balance at beginning of year                                  2,445                548             6,283
                                                          ----------         ----------        ----------

 Balance at end of year                                   $      548         $    6,283        $    9,622
                                                          ==========         ==========        ==========
</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,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)
 Current:
     Receivable from:
        <S>                                               <C>                <C>
        Kronos Titan GmbH ("TG") - income taxes           $   14,386         $   30,172
        Kronos Chemie GmbH ("KCH") - income taxes                 76                582
        Kronos Titan A/S                                       1,667              1,575
        Kronos Europe S.A./N.V                                 2,168              1,721
        Kronos Canada                                          1,482              1,716
        Titania A/S                                              432                431
        Other                                                      3                 13
                                                          ----------         ----------

                                                          $   20,214         $   36,210
                                                          ==========         ==========
     Payable to:
        TG                                                    25,032             32,833
        Kronos (US), Inc.                                        145               -
        KCH                                                      255              1,826
        Other                                                    189                 56
                                                          ----------         ----------

                                                          $   25,621         $   34,715
                                                          ==========         ==========
</TABLE>

<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

Investment in:
<S>                                                       <C>                <C>
    TG                                                    $  322,434         $  278,117
    Kronos Denmark ApS ("KDK")                               147,904            162,418
    Other                                                     23,194             22,842
                                                          ----------         ----------

                                                          $  493,532         $  463,377
                                                          ==========         ==========
</TABLE>

<TABLE>

                                                           Years ended December 31,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In thousands)

Equity in income from continuing
  operations of subsidiaries:

    <S>                                        <C>               <C>              <C>
    TG                                         $  270,541        $   40,951       $   52,233
    KDK                                            26,892            23,816           35,427
    Other                                          (3,810)            1,282            3,042
                                               ----------        ----------       ----------

                                               $  293,623        $   66,049       $   90,702
                                               ==========        ==========       ==========
</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, 2003:
<S>                                             <C>              <C>             <C>            <C>           <C>        <C>
   Allowance for doubtful accounts              $ 1,907          $   233         $  (281)       $   363       $   -      $ 2,222
                                                =======          =======         =======        =======       ======     =======
   Allowance for slow-moving inventory          $ 6,521          $   116         $  -           $  (189)      $   -      $ 6,448
                                                =======          =======         =======        =======       ======     =======
   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
                                                =======          =======         =======        =======       ======     =======
   Allowance for slow-moving inventory          $ 6,448          $   372         $  (142)       $   637       $   -      $ 7,315
                                                =======          =======         =======        =======       ======     =======
   Accrual for planned major maintenance
    activities                                  $ 4,460          $ 3,563         $(4,479)       $   310       $   -      $ 3,854
                                                =======          =======         =======        =======       ======     =======

 Year ended December 31, 2005:
   Allowance for doubtful accounts              $ 1,660          $   313         $  (333)       $  (211)      $   -      $ 1,429
                                                =======          =======         =======        =======       ======     =======
   Allowance for slow-moving inventory          $ 7,315          $   135         $   (14)       $  (926)      $   -      $ 6,510
                                                =======          =======         =======        =======       ======     =======
   Accrual for planned major maintenance
    activities                                  $ 3,854          $ 4,731         $(4,644)       $  (510)      $   -      $ 3,431
                                                =======          =======         =======        =======       ======     =======
</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, 2004 and 2005                  FA-3

Consolidated Statements of Income - Years ended
 December 31, 2003, 2004 and 2005                                         FA-5

Consolidated Statements of Comprehensive Income (Loss) - Years ended
 December 31, 2003, 2004 and 2005                                         FA-6

Consolidated Statements of Partners' Capital/Owners'
 Equity - Years ended December 31, 2003, 2004 and 2005                    FA-7

Consolidated Statements of Cash Flows - Years ended
 December 31, 2003, 2004 and 2005                                         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  (loss),
partners'  capital/owners' equity and cash flows present fairly, in all material
respects, the financial position of Kronos Titan GmbH and Subsidiary at December
31, 2004 and 2005, and the results of their  operations and their cash flows for
each of the three years in the period ended December 31, 2005 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 28, 2006







                        KRONOS TITAN GMBH AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2004 and 2005

                                 (In thousands)

<TABLE>


               ASSETS
                                                              2004               2005
                                                              ----               ----

Current assets:
<S>                                                       <C>                <C>
  Cash and cash equivalents                               $    6,444         $   50,765
  Accounts and notes receivable                               76,732             73,059
  Receivable from affiliates                                  32,355             43,021
  Refundable income taxes                                         59             14,695
  Inventories                                                101,850            113,677
  Prepaid expenses                                             2,078              1,629
                                                          ----------         ----------

    Total current assets                                     219,518            296,846
                                                          ----------         ----------

Other assets:
  Note receivable from Kronos Titan A/S                        5,449               -
  Unrecognized net pension obligations                         3,672              3,000
  Deferred income taxes                                       18,077             47,044
  Other                                                        1,201                808
                                                          ----------         ----------

    Total other assets                                        28,399             50,852
                                                          ----------         ----------

Property and equipment:
  Land                                                        14,929             13,460
  Buildings                                                  111,349            101,151
  Machinery and equipment                                    496,428            434,895
  Construction in progress                                    10,022              9,853
                                                          ----------         ----------

                                                             632,728            559,359

  Less accumulated depreciation and depletion                373,938            332,840
                                                          ----------         ----------

    Net property and equipment                               258,790            226,519
                                                          ----------         ----------

                                                          $  506,707         $  574,217
                                                          ==========         ==========
</TABLE>








                        KRONOS TITAN GMBH AND SUBSIDIARY

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2004 and 2005

                                 (In thousands)

<TABLE>

LIABILITIES AND OWNERS' EQUITY
                                                              2004               2005
                                                              ----               ----


Current liabilities:
<S>                                                       <C>                <C>
  Accounts payable and accrued liabilities                $   76,952         $   71,987
  Payables to affiliates                                      35,260             75,447
  Deferred income taxes                                        1,912              3,508
                                                          ----------         ----------

    Total current liabilities                                114,124            150,942
                                                          ----------         ----------

Noncurrent liabilities:
  Note payable to affiliate                                   12,941             11,239
  Accrued pension cost                                        45,015            120,872
  Other                                                       12,193             13,047
                                                          ----------         ----------

    Total noncurrent liabilities                              70,149            145,158
                                                          ----------         ----------

Owners' equity:
  Subscribed capital                                          12,496             12,496
  Paid in capital                                            227,037            227,037
  Retained earnings (deficit)                                 (9,685)            42,548
  Accumulated other comprehensive income (loss):
    Currency translation                                     111,996             68,897
    Pension liabilities                                      (19,410)           (72,861)
                                                          ----------         ----------

      Total owners' equity                                   322,434            278,117
                                                          ----------         ----------

                                                          $  506,707         $  574,217
                                                          ==========         ==========
</TABLE>

Commitments and contingencies (Notes 6, 9 and 12)

          See accompanying notes to consolidated financial statements




                        KRONOS TITAN GMBH AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2003, 2004 and 2005

                                 (In thousands)
<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----


<S>                                                       <C>                <C>               <C>
Net sales                                                 $  487,337         $  552,216        $  584,219
Cost of sales                                                379,187            451,888           462,558
                                                          ----------         ----------        ----------

    Gross margin                                             108,150            100,328           121,661

Selling, general and administrative expense                   42,925             47,824            50,140
Other operating income (expense):
  Currency transaction gains (losses), net                    (3,519)            (2,533)            3,906
  Disposition of property and equipment                         (390)              (293)           (1,080)
                                                          ----------         ----------        ----------

    Income from operations                                    61,316             49,678            74,347

Other income (expense):
  Trade interest income                                          447                949               733
  Interest and other income from affiliates                    3,918              8,813            13,224
  Interest and other expense to affiliates                      (442)              (304)             (791)
  Interest expense                                              (368)              (651)             (595)
                                                          ----------         ----------        ----------

    Income before income taxes                                64,871             58,485            86,918

Income tax provision (benefit)                              (205,670)            17,507            34,685
                                                          ----------         ----------        ----------

    Net income                                            $  270,541         $   40,978        $   52,233
                                                          ==========         ==========        ==========
</TABLE>

          See accompanying notes to consolidated financial statements.



                        KRONOS TITAN GMBH AND SUBSIDIARY

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

                  Years ended December 31, 2003, 2004 and 2005

                                 (In thousands)

<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----


<S>                                                       <C>                <C>               <C>
Net income                                                $  270,541         $   40,978        $   52,233
                                                          ----------         ----------        ----------

Other comprehensive income (loss), net of tax:
   Minimum pension liabilities adjustment                    (17,946)             4,400           (53,451)
   Currency translation adjustment                            37,674             36,472           (43,099)
                                                          ----------         ----------        ----------

     Total other comprehensive income                         19,728             40,872           (96,550)
                                                          ----------         ----------        ----------

Comprehensive income (loss)                               $  290,269         $   81,850        $  (44,317)
                                                          ==========         ==========        ==========
</TABLE>


          See accompanying notes to consolidated financial statements.



                        KRONOS TITAN GMBH AND SUBSIDIARY

          CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL / OWNERS' EQUITY

                  Years ended December 31, 2003, 2004 and 2005

                                 (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>
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

Net income                                     -           -              -         52,233         -            -          52,233
Other comprehensive income, net of tax         -           -              -           -         (43,099)     (53,451)     (96,550)
                                           --------    --------       --------    --------     --------     --------     --------

Balance at December 31, 2005               $   -       $ 12,496       $227,037    $ 42,548     $ 68,897     $(72,861)    $278,117
                                           ========    ========       ========    ========     ========     ========     ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                        KRONOS TITAN GMBH AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 2003, 2004 and 2005
                                 (In thousands)
<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----

Cash flows from operating activities:
<S>                                                       <C>                <C>               <C>
  Net income                                              $  270,541         $   40,978        $   52,233
  Depreciation, depletion and amortization                    20,452             23,583            20,980
  Noncash interest expense                                       140                200               141
  Deferred income taxes                                      (39,770)             6,178             9,427
  Net loss from disposition of property and equipment            390                293             1,080
  Pension, net                                                (5,021)            (4,540)           (3,328)
  Other, net                                                      12                167               155
  Change in assets and liabilities:
    Accounts and notes receivable                              1,827             (3,205)           (9,294)
    Inventories                                                1,830              5,837           (26,334)
    Prepaid expenses                                           1,107                559              (144)
    Accounts payable and accrued liabilities                   2,637             13,683             5,412
    Income taxes                                            (130,136)           126,599           (13,859)
    Accounts with affiliates                                 (85,431)           (82,855)           29,420
    Other noncurrent assets                                      481               (146)              109
    Other noncurrent liabilities                                (555)            (5,334)             (713)
                                                          ----------         ----------        ----------

      Net cash provided by operating activities               38,504            121,997            65,285
                                                          ----------         ----------        ----------

Cash flows from investing activities:
  Capital expenditures                                       (18,715)           (20,396)          (22,896)
  Proceeds from disposition of property and equipment              4               -                 -
                                                          ----------         ----------        ----------

      Net cash provided (used) by investing activities       (18,711)           (20,396)          (22,896)
                                                          ----------         ----------        ----------
</TABLE>





                        KRONOS TITAN GMBH AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                        December 31, 2003, 2004 and 2005

                                 (In thousands)
<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----

Cash flows from financing activities:
  Indebtedness:
<S>                                                       <C>                <C>               <C>
    Borrowings                                            $    -             $   49,984        $     -
    Principal payments                                         -                (49,984)             -
  Loans from affiliates:
    Loans                                                      -                 11,597             4,860
    Repayments                                                 -                (88,656)             -
  Cash distributions                                           -                (50,663)             -
                                                          ----------         ----------        ----------

    Net cash used by financing activities                      -               (127,722)            4,860
                                                          ----------         ----------        ----------

Cash and cash equivalents - net change from:
    Operating, investing and financing
     activities                                               19,793            (26,121)           47,249
    Currency translation                                       3,241              1,706            (2,928)
  Balance at beginning of year                                 7,825             30,859             6,444
                                                          ----------         ----------        ----------

  Balance at end of year                                  $   30,859         $    6,444        $   50,765
                                                          ==========         ==========        ==========

Supplemental disclosures:
  Cash paid (received) for:
    Interest                                              $      674         $      626        $      516
    Income taxes                                                (166)          (132,629)            6,517
</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, 2005, (i) Valhi, Inc.
(NYSE:  VHI) held  approximately  57% of Kronos' common stock and NL Industries,
Inc.  (NYSE:  NL) held an  additional  36% of the  outstanding  common  stock of
Kronos,  (ii) Valhi owned 83% of NL's outstanding common stock and (iii) Contran
Corporation and its subsidiaries held  approximately 92% 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. 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:

     Management's   estimates.   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.

     Principles of consolidation.  The 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 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.

     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.

     Property and equipment and depreciation.  Property and equipment are stated
at cost. Depreciation of property and equipment for financial reporting purposes
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 $3.2  million and $2.2
million at December 31, 2004 and 2005, 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 2003, 2004 or 2005.

     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."

     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.  As a  partnership  under German law during 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.  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 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. See Note
9.

     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.

     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.

     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 $19.8 million in 2003, $22.3 million
in 2004 and $23.1  million in 2005.  Advertising  costs are expensed as incurred
and were approximately $300,000 in each of 2003, 2004 and 2005.

     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.
Prior to 2003,  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 $12,000 in 2003 and  $167,000 in 2004 and
compensation income was $74,000 in 2005. The total income tax benefit related to
such  compensation  cost recognized by the Company was  approximately  $4,000 in
2003 and  $66,000  in 2004 and the total  income  tax  provision  related to the
compensation income was $29,000 in 2005. No compensation cost was capitalized as
part of assets (inventory or fixed assets) during 2003, 2004 and 2005.

     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,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In thousands)

<S>                                             <C>                <C>                <C>
Net income - as reported                        $270,541           $ 40,978           $ 52,233
Adjustments, net of applicable income
 tax effects:
  Stock-based employee compensation
  (income) expense determined under
    APBO No. 25                                       10                102                (45)
  Stock-based employee compensation
   expense determined under SFAS No. 123              (9)                (4)                (1)
                                                --------           --------           --------

Pro forma net income                            $270,542           $ 41,076           $ 52,187
                                                ========           ========           ========
</TABLE>

Note 3 - Accounts and notes receivable:

<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>                                                      <C>                <C>
Trade receivables                                        $   71,914         $   69,019
Recoverable VAT and other receivables                         6,058              5,189
Allowance for doubtful accounts                              (1,240)            (1,149)
                                                         ----------         ----------

                                                         $   76,732         $   73,059
                                                         ==========         ==========
</TABLE>

Note 4 - Inventories:
<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>                                                      <C>                <C>
Raw materials                                            $   20,379         $   21,386
Work in process                                              10,173             11,884
Finished products                                            55,349             65,242
Supplies                                                     15,949             15,165
                                                         ----------         ----------

                                                         $  101,850         $  113,677
                                                         ==========         ==========
</TABLE>

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

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>                                                      <C>                <C>
Accounts payable                                         $   39,732         $   39,206
Accrued liabilities:
  Employee benefits                                          15,957             16,632
  Waste acid recovery                                         9,598              9,149
  Other                                                      11,665              7,000
                                                         ----------         ----------

                                                         $   76,952         $   71,987
                                                         ==========         ==========
</TABLE>

Note 6 - Long-term debt:

     The Company and certain of KII's subsidiaries in Belgium and Norway (Kronos
Europe S.A./N.V.-"KEU", Kronos Titan A/S - "TAS" and Titania A/S - "TIA," Kronos
Norge A/S, the parent company of TAS and TIA, and Kronos Denmark ApS, the parent
company of Kronos Norge and KEU), referred to as the "Borrowers", have a euro 80
million secured revolving credit facility that matures in June 2008.  Borrowings
may be denominated in euros, Norwegian kroner or U.S. dollars, and bear interest
at the applicable  interbank market rate plus 1.125%. The facility also provides
for the issuance of letters of credit up to euro 5 million.  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 the Belgian  borrower.  The
credit  facility  contains  certain  restrictive  covenants  which,  among other
things,  restrict 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 Borrowers, KII and its other subsidiaries.  At December 31, 2005,
no  amounts  were  outstanding  under  the  European  Credit  Facility  and  the
equivalent  of $92.3  million was  available  for  additional  borrowing  by the
Borrowers.  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.

     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.  Such operating subsidiaries are the Company,  Kronos Denmark ApS,
Kronos  Limited and Societe  Industrielle  Du Titane,  S.A. 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,  at redemption prices ranging from 104.437% of the
principal amount,  declining to 100% on or after December 30, 2008. 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.

Note 7 - Other noncurrent liabilities:
<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>                                                      <C>                <C>
Employee benefits                                        $    4,111         $    3,842
Insurance claims expense                                      1,362              1,124
Other                                                         6,720              8,081
                                                         ----------         ----------

                                                         $   12,193         $   13,047
                                                         ==========         ==========
</TABLE>

Note 8 - Employee benefit plans:

     The Company  maintains a defined  benefit  pension  plan and certain  other
benefits  covering  substantially  all  employees.  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,  2005,  the  Company  expects  to  contribute  the  equivalent  of
approximately $11 million to its defined benefit pension plans during 2006.

     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,  2004 and 2005 are
presented in the table below. Such weighted-average  rates were determined using
the projected benefit obligations at each date.
<TABLE>

                                                                                December 31,
                                                                            ------------------
                              Rate                                          2004          2005
                              ----                                          ----          ----

<S>                                                                         <C>           <C>
Discount rate                                                               5.0%          4.0%
Increase in future compensation levels                                      2.8%          2.8%
</TABLE>

     The weighted-average  rate assumptions used in determining the net periodic
pension  cost for 2003,  2004 and 2005 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,
                                                                       ------------------------------
                              Rate                                     2003         2004         2005
                              ----                                     ----         ----         ----

<S>                                                                    <C>          <C>          <C>
   Discount rate                                                       5.3%         5.3%         5.0%
   Increase in future compensation levels                              2.8%         2.8%         2.8%
   Long-term return on plan assets                                     6.5%         6.5%         6.0%
</TABLE>

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

     The  components of the net periodic  defined  benefit  pension cost are set
forth below.

<TABLE>

                                                           Years ended December 31,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In thousands)

Net periodic pension cost:
<S>                                             <C>                <C>                <C>
  Service cost benefits                         $  2,621           $  3,289           $  3,742
  Interest cost on projected benefit
   obligation ("PBO")                              9,354             10,558             10,540
  Expected return on plan assets                  (8,831)            (9,448)            (8,841)
  Amortization of prior service cost                   -                196                200
  Amortization of net transition obligation          251                 69               -
  Recognized actuarial losses                         20                782              1,644
                                                --------           --------           --------

                                                $  3,415           $  5,446           $  7,285
                                                ========           ========           ========
</TABLE>

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

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)
Change in projected benefit obligations ("PBO"):
<S>                                                      <C>                <C>
  Benefit obligations at beginning of year               $  205,440         $  232,308
  Service cost                                                3,289              3,742
  Interest cost                                              10,558             10,540
  Participant contributions                                   1,206              1,316
  Actuarial losses                                            4,968             81,199
  Benefits paid                                             (12,442)           (35,385)
  Change in currency exchange rates                          19,289            (13,780)
                                                         ----------         ----------

    Benefit obligations at end of year                   $  232,308         $  279,940
                                                         ----------         ----------

Change in fair value of plan assets:
  Fair value of plan assets at beginning of year         $  116,275         $  136,919
  Actual return on plan assets                               10,026              4,596
  Employer contributions                                     10,432             11,182
  Participant contributions                                   1,206              1,316
  Change in currency exchange rates                          11,422            (18,204)
  Benefits paid                                             (12,442)           (13,780)
                                                         ----------         ----------

      Fair value of plan assets at end of year           $  136,919         $  122,029
                                                         ----------         ----------

Funded status at year end:
  Plan assets less than PBO                              $  (95,389)        $ (157,911)
  Unrecognized actuarial loss                                79,381            147,873
  Unrecognized prior service cost                             3,672              3,000
                                                         ----------         ----------

                                                         $  (12,336)        $   (7,038)
                                                         ==========         ==========

Amounts recognized in the balance sheet:
  Unrecognized net pension obligations                   $    3,672         $    3,000
  Accrued pension cost:
    Current                                                  (8,587)          (120,872)
    Noncurrent                                              (45,015)            (9,858)
  Accumulated other comprehensive loss                       37,594            120,692
                                                         ----------         ----------

                                                         $  (12,336)        $   (7,038)
                                                         ==========         ==========
</TABLE>

     SFAS No. 87,  "Employers'  Accounting for Pension  Costs"  requires that an
additional pension liability be recognized when the unfunded accumulated pension
benefit  obligation   exceeds  the  unfunded  accrued  pension  liability.   The
accumulated benefit obligation of the Company's defined benefit pension plan was
$255.4  million at December  31, 2005 (2004 - $193.6  million).  Variances  from
actuarially assumed rates will change the actuarial valuation of accrued pension
liabilities, pension expense and funding requirements in future periods.

     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 plan asset allocation at December 31, 2005 was 23% to equity  managers,  48%
to  fixed  income  managers  and 29% to real  estate  (2004 - 23%,  48% and 29%,
respectively).  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  total  defined  benefit  pension  plan  expense to be
approximately $12 million in 2006. 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>                                                         <C>
    2006                                                        $13,274
    2007                                                         13,392
    2008                                                         13,510
    2009                                                         13,628
    2010                                                         13,746
    2011 to 2015                                                 69,319
</TABLE>

Note 9 - 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 2003 and 26.4% in 2004 and 2005,
(ii) the  provision for income taxes and (iii) the  comprehensive  tax provision
are presented below.

<TABLE>

                                                           Years ended December 31,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In thousands)

<S>                                             <C>               <C>              <C>
Pretax income                                   $  64,871         $  58,485        $  86,918
                                                =========         =========        =========

Expected tax expense                            $  16,218         $  15,440        $  22,946
Trade income tax                                   11,365             7,773           11,212
German tax refund                                (123,033)           (2,508)            -
Change in deferred income tax
  valuation allowance, net                           -               (3,146)            -
Tax contingency reserve adjustment                   -                 -               1,387
Organschaft adjustment                            (94,079)             -                -
No corporation tax provision due
  to partnership structure                        (16,218)             -                -
Other, net                                             77               (52)            (860)
                                                ---------         ---------        ---------

    Income tax expense (benefit)                $(205,670)        $  17,507        $  34,685
                                                =========         =========        =========

Provision for income taxes:
  Current income tax expense (benefit)          $(165,900)        $  11,329        $  25,258
  Deferred income tax expense (benefit)           (39,770)            6,178            9,427
                                                ---------         ---------        ---------

                                                $(205,670)        $  17,507        $  34,685
                                                =========         =========        =========

Comprehensive provision (benefit) for income
 taxes allocable to:
  Pretax income                                 $(205,670)        $  17,507        $  34,685
  Other comprehensive loss - pension
   liabilities                                     (5,331)           (8,081)         (32,649)
                                                ---------         ---------        ---------

                                                $(211,001)        $   9,426        $   2,036
                                                =========         =========        =========
</TABLE>

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

                                                                                 December 31,
                                                             ---------------------------------------------------
                                                                       2004                        2005
                                                             -----------------------     -----------------------
                                                             Assets      Liabilities     Assets      Liabilities
                                                             ------      -----------     ------      -----------
Tax effect of temporary differences
 relating to:
<S>                                                         <C>           <C>          <C>            <C>
  Inventories                                               $  -          $ (1,816)    $   -          $ (2,375)
  Property and equipment                                     38,327           -          26,362           -
  Accrued (prepaid) pension cost                             14,770        (27,598)      47,420        (24,398)
  Other taxable differences                                    -            (7,518)        -            (3,473)
Tax loss and tax credit carryforwards                          -              -            -              -
                                                            -------       --------     --------       --------

  Gross deferred tax assets (liabilities)                    53,097        (36,932)      73,782        (30,246)

Reclassification, principally netting by
 tax jurisdiction                                           (35,020)        35,020      (26,738)        26,738
                                                            -------       --------     --------       --------

  Net total deferred tax liabilities                         18,077         (1,912)      47,044         (3,508)
  Net current deferred tax liabilities                         -            (1,912)        -            (3,508)
                                                            -------       --------     --------       --------

  Net noncurrent deferred tax liabilities                   $18,077       $   -        $ 47,044       $   -
                                                            =======       ========     ========       ========
</TABLE>

     The Company's has no deferred income tax valuation allowance as of December
31, 2004 and 2005.

     During  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 was also 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.  In 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.

     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  and 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,  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 $7.1 million
in 2003, $7.8 million in 2004 and $7.9 million in 2005 related to these services
and costs.

     The Company  charges  affiliates  for  certain  management,  financial  and
administrative  services costs, which totaled  approximately $4.3 million,  $4.4
million and $4.8 million in 2003, 2004 and 2005, respectively.  These charges to
affiliates  were  reflected  primarily  as a reduction  of selling,  general and
administrative expense.

     Tall Pines Insurance Company 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 and EWI receive commissions from
insurance and reinsurance  underwriters and/or assess fees for the policies that
they provide or broker.  The aggregated  premiums paid to Tall Pines  (including
amounts paid to Valmont Insurance Company,  another subsidiary of Valhi that was
merged into Tall Pines in 2004) and EWI by the Company were $4.1  million,  $4.0
million and $3.5 million in 2003,  2004 and 2005,  respectively.  These  amounts
principally included payments for insurance,  but also included commissions paid
to Tall Pines and EWI. Tall Pines purchases reinsurance for substantially all of
the risks it underwrites. The Company expects that these relationships with Tall
Pines and EWI will continue in 2006.

     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,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In thousands)

   Sales to:
<S>                    <C>                      <C>               <C>              <C>
     Kronos (US), Inc. ("KUS")                  $  37,550         $  21,448        $  25,977
     Societe Industrielle du Titane,
      S.A. ("SIT")                                 32,969            39,091           40,116
     KEU                                           22,417            23,872           26,943
     Kronos Limited ("KUK")                        22,151            18,677           21,162
     Kronos Canada, Inc. ("KC")                     5,026             5,414            8,623
     Other affiliates                              16,368            24,936           31,178
                                                ---------         ---------        ---------

                                                $ 136,481         $ 133,438        $ 153,999
                                                =========         =========        =========

   Purchases from:
     KEU                                        $  33,061         $  42,836        $  43,914
     TAS                                            5,722            10,796           11,296
     KC                                              -                  271               41
                                                ---------         ---------        ---------

                                                $  38,783         $  53,903        $  55,251
                                                =========         =========        =========
</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 $56.2 million in 2003, $66.7 million in 2004 and $72.3 million in
2005.

     The Company sells water treatment  chemicals  (derived from  co-products of
the TiO2 production  processes) to KII. Such water treatment chemical sales were
$12.8 million in 2003, $16.1 million in 2004 and $18.8 million in 2005.

     The  Company  purchases   ilmenite  (sulfate   feedstock)  from  TIA  on  a
year-to-year  basis. Such feedstock  purchases were $15.5 million in 2003, $17.4
million in 2004 and $21.4 million in 2005.

     At  January  1,  2002,  the  Company  is  party to an  accounts  receivable
factoring  agreement with certain European affiliates of the Company pursuant to
which  these  affiliates  factored  their  export  accounts  receivable  without
recourse to the  Company for a fee of 0.85%.  Upon  non-recourse  transfer  from
these  affiliates,  the Company  assumes  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  purchased  by  the  Company  during  2003,  2004  and  2005
aggregated $101 million, $120 million and $124 million, respectively.

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



<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

Receivable from:
<S>                                                      <C>                <C>
  KUK                                                    $      862         $     -
  SIT                                                         1,632               -
  KEU                                                             -              9,068
  Kronos B.V.                                                 2,055               -
  KII                                                        25,032             32,833
  KC                                                          1,496                227
  Other affiliates                                            1,278                893
                                                         ----------         ----------

                                                         $   32,355         $   43,021
                                                         ==========         ==========

Current payable to:
  KII - income taxes                                     $   14,386         $   30,173
  KUS                                                         5,390              9,553
  TIA                                                         8,817             25,090
  Kronos B.V.                                                  -                 8,596
  KEU                                                         4,456               -
  TAS                                                         2,139                521
  Other affiliates                                               72              1,514
                                                         ----------         ----------

                                                         $   35,260         $   75,447
                                                         ==========         ==========

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

Noncurrent payables to KDK                               $   12,941         $   11,239
                                                         ==========         ==========
</TABLE>

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

     The  Company  borrowed  euro 9.5  million  from KDK in October  2004 ($11.2
million at December 31, 2005). This note bears an interest rate of 2.675% and is
due on March 31, 2006, with an option to renew.

     The Company loaned TAS euro 4 million ($5.4 million) during 2004. This note
receivable bore interest at 3.1% and was repaid in 2005.

     Included in other affiliate  income and other  affiliate  expense was other
affiliate interest income/expense, factoring fees and service fees.

Note 11 - NL common stock options held by employees of the Company:

     At December  31,  2005,  employees  of the Company held options to purchase
approximately  9,000 shares of NL common stock, which are exercisable at various
dates through 2010 (approximately  4,000) at an exercise of $5.63 per share, and
exercisable at various dates through 2011  (approximately  5,000) 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  2003,  2004 or 2005.  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  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 with Bayer AG that expires in 2050. The Leverkusen  facility
itself,  which  is owned  by the  Company  and  which  represents  approximately
two-thirds of the Company's current TiO2 production capacity,  is located within
the lessor's extensive manufacturing complex. Rent for the land lease associated
with the Leverkusen facility is periodically established by agreement with Bayer
for periods of at least two years at a time. The lease agreement provides for no
formula, index or other mechanism to determine changes in the rent for such land
lease;  rather, any change in the rent is subject solely to periodic negotiation
between Bayer and the Company. Any change in the rent based on such negotiations
is  recognized  as part of lease  expense  starting from the time such change is
agreed  upon  by  both  parties,  as any  such  change  in the  rent  is  deemed
"contingent  rentals"  under  GAAP.  Under  a  separate  supplies  and  services
agreement  expiring in 2011, the lessor  provides some raw materials,  including
chlorine, auxiliary and operating materials, utilities and services necessary to
operate the Leverkusen facility.

     Net rent  expense  aggregated  $5 million in 2003 and $4 million in each of
2004 and 2005. At December 31, 2005,  minimum rental commitments under the terms
of noncancellable operating leases were as follows:
<TABLE>

                                                                           Amount
                                                                       --------------
                                                                       (in thousands)
Years ending December 31,
--------------------------
<S> <C>                                                                    <C>
    2006                                                                   $ 2,248
    2007                                                                     1,522
    2008                                                                     1,370
    2009                                                                     1,294
    2010                                                                     1,034
    2011 and thereafter                                                     20,931
                                                                           -------

                                                                           $28,399
                                                                           =======
</TABLE>

     Approximately  $20.1 million of the $28.4 million  aggregate future minimum
rental  commitments  at December  31, 2005 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, 2005. As
discussed above, any change in the rent is based solely on negotiations  between
Bayer and the  Company,  and any such  change in the rent is deemed  "contingent
rentals"  under GAAP which is excluded from the future  minimum  lease  payments
disclosed above.

     Purchase  commitments.  KUS has long-term supply contracts that provide for
certain affiliates'  chloride feedstock  requirements  through 2010. 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  $618
million at December 31, 2005.

     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 2003,  2004 and 2005.  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 2003, 22% of
net  sales  in 2004  and 21% of net  sales  in  2005.  Approximately  74% of the
Company's  TiO2  sales by volume  were to Europe in 2003 and 78% in each of 2004
and 2005.  Approximately 11% in 2003 and 7% in each of 2004 and 2005 of sales by
volume were to North America.

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,
                                                 2004                        2005
                                      ---------------------------  -------------------------
                                        Carrying        Fair         Carrying      Fair
                                         Amount        Value          Amount       Value
                                      ------------- -------------  -------------------------
                                                          (In millions)

<S>                                      <C>           <C>            <C>         <C>
Cash and cash equivalents                $ 6.4         $ 6.4          $ 50.8      $ 50.8

Note payable to affiliate                 12.9          12.9            11.2        11.2
</TABLE>

     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 2003, 2004 and 2005.

     Other than as described  above, the Company was not a party to any material
derivative financial  instruments during 2003, 2004 or 2005. There was no impact
on the Company's financial statements from adopting SFAS No. 133.

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

     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:

     Stock options. The Company will adopt SFAS No. 123R, "Share-Based Payment",
as of January  1, 2006.  SFAS No.  123R,  among  other  things,  eliminated  the
alternative  in previously  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  January 1,
2006, and to all awards existing as of December 31, 2005 which are  subsequently
modified,  repurchased  or cancelled.  Additionally,  as of January 1, 2006, the
Company  will be required to recognize  compensation  cost  previously  measured
under  SFAS No. 123 for the  portion  of any  non-vested  award  existing  as of
December 31, 2005 over the remaining vesting period. Because the Company has not
granted any options to purchase  its common  stock and did not grant any options
prior to January 1, 2006,  and  because  the number of  non-vested  awards as of
December  31, 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 the  recognition  of
compensation  cost  in the  Company's  consolidated  statements  of  income  for
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 Company could recognize  material  amounts of  compensation  cost related to
such options in its consolidated financial statements.

     Also upon adoption of SFAS No. 123R, any cash income tax benefit  resulting
from the  exercise  of stock  options  in excess of the  cumulative  income  tax
benefit  related  to such  options  previously  recognized  for  GAAP  financial
reporting purposes in the Company's  consolidated  statements of income, if any,
will be reflected as a cash inflow from  financing  activities  in the Company's
consolidated  statements  of cash  flows,  and the  Company's  cash  flows  from
operating  activities  will  reflect  the effect of cash paid for  income  taxes
exclusive of such cash income tax benefit.

     SFAS No. 123R also  requires  certain  expanded  disclosures  regarding the
Company's  stock options,  and such expanded  disclosures  have been provided in
Note 2.

     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.


                       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, 2004 and 2005                 FB-3

Consolidated Statements of Income - Years ended
  December 31, 2003, 2004 and 2005                                       FB-5

Consolidated Statements of Comprehensive Income - Years ended
  December 31, 2003, 2004 and 2005                                       FB-6

Consolidated Statements of Stockholder's Equity - Years ended
  December 31, 2003, 2004 and 2005                                       FB-7

Consolidated Statements of Cash Flows - Years ended
  December 31, 2003, 2004 and 2005                                       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, 2004 and 2005,
and the results of their  operations  and their cash flows for each of the three
years in the period  ended  December  31,  2005 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 28, 2006





                       KRONOS DENMARK APS AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2004 and 2005

                        (In thousands, except share data)
<TABLE>

               ASSETS
                                                              2004               2005
                                                              ----               ----

Current assets:
<S>                                                       <C>                <C>
    Cash and cash equivalents                             $    3,566         $    1,042
    Restricted cash                                            1,529              1,355
    Accounts and notes receivable                             18,422             17,319
    Receivable from affiliates                                16,029             27,493
    Refundable income taxes                                    1,542                205
    Inventories                                               65,282             69,506
    Prepaid expenses                                             908                900
                                                          ----------         ----------

        Total current assets                                 107,278            117,820
                                                          ----------         ----------


Other assets:
    Note receivable from affiliate                            12,941             11,239
    Other                                                      7,013              6,153
                                                          ----------         ----------

        Total other assets                                    19,954             17,392
                                                          ----------         ----------


Property and equipment:
    Land                                                      19,236             16,829
    Buildings                                                 41,196             36,995
    Machinery and equipment                                  190,748            176,849
    Mining properties                                         72,384             68,163
    Construction in progress                                   3,443              1,964
                                                          ----------         ----------

                                                             327,007            300,800
    Less accumulated depreciation and amortization           200,873            188,090
                                                          ----------         ----------

        Net property and equipment                           126,134            112,710
                                                          ----------         ----------

                                                          $  253,366         $  247,922
                                                          ==========         ==========

</TABLE>




                       KRONOS DENMARK APS AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2004 and 2005

                        (In thousands, except share data)

<TABLE>

         LIABILITIES AND STOCKHOLDER'S EQUITY
                                                              2004               2005
                                                              ----               ----


Current liabilities:
<S>                                                       <C>                <C>
    Current maturities of long-term debt                  $   13,792         $      958
    Accounts payable and accrued liabilities                  38,776             38,406
    Payable to affiliates                                     10,142              9,058
    Income taxes                                               6,427              6,564
    Deferred income taxes                                      2,363              2,194
                                                          ----------         ----------

        Total current liabilities                             71,500             57,180
                                                          ----------         ----------

Noncurrent liabilities:
    Long-term debt                                               178              3,567
    Note payable to affiliate                                  5,449               -
    Deferred income taxes                                     22,358             19,266
    Accrued pension costs                                      2,493              4,129
    Other                                                      3,484              1,362
                                                          ----------         ----------

        Total noncurrent liabilities                          33,962             28,324
                                                          ----------         ----------

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                                    (69,643)           (34,216)
      Accumulated other comprehensive loss:
        Currency translation adjustment                        9,686            (10,584)
        Minimum pension liability                             (9,271)            (9,914)
                                                          ----------         ----------

             Total stockholder's equity                      147,904            162,418
                                                          ----------         ----------

                                                          $  253,366         $  247,922
                                                          ==========         ==========
</TABLE>

Commitments and contingencies (Notes 7, 10 and 13)

          See accompanying notes to consolidated financial statements.

                       KRONOS DENMARK APS AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2003, 2004 and 2005

                                 (In thousands)

<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----

<S>                                                       <C>                <C>               <C>
Net sales                                                 $  292,611         $  345,962        $  364,865
Cost of sales                                                234,881            284,902           291,075
                                                          ----------         ----------        ----------

    Gross margin                                              57,730             61,060            73,790

Selling, general and administrative expense                   19,596             23,874            24,868
Other operating income (expense):
  Currency transaction gains (losses), net                       355                980               173
  Disposition of property and equipment                           37               (596)             (220)
  Other, net                                                     350                286               489
                                                          ----------         ----------        ----------

    Income from operations                                    38,876             37,856            49,364

Other income (expense):
  Trade interest income                                          163                 73                88
  Securities transaction gain                                   -                  -                5,439
  Other income from affiliates                                   198                202               387
  Interest and other expense to affiliates                    (2,608)            (2,943)           (2,572)
  Interest expense                                            (2,309)            (1,529)           (1,142)
                                                          ----------         ----------        ----------

    Income before income taxes                                34,320             33,659            51,564

Provision for income taxes                                     7,428              9,843            16,137
                                                          ----------         ----------        ----------

   Net income                                             $   26,892         $   23,816        $   35,427
                                                          ==========         ==========        ==========
</TABLE>

          See accompanying notes to consolidated financial statements.


                       KRONOS DENMARK APS AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 2003, 2004 and 2005

                                 (In thousands)

<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----


<S>                                                       <C>                <C>               <C>
Net income                                                $   26,892         $   23,816        $   35,427
                                                          ----------         ----------        ----------

Other comprehensive income (loss), net of tax:
      Currency translation adjustment                         10,998             13,890           (20,270)
      Minimum pension liability                              (10,459)             1,188              (643)
                                                          ----------         ----------        ----------

      Total other comprehensive income                           539             15,078           (20,913)
                                                          ----------         ----------        ----------

Comprehensive income                                      $   27,431         $   38,894        $   14,514
                                                          ==========         ==========        ==========
</TABLE>


          See accompanying notes to consolidated financial statements.




                       KRONOS DENMARK APS AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

                  Years ended December 31, 2003, 2004 and 2005

                                 (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, 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

Net income                                   -                -          35,427            -                 -           35,427
Other comprehensive income, net of tax       -                -            -            (20,270)             (643)      (20,913)
                                         --------        ---------    ---------       ---------         ---------     ---------

Balance at December 31, 2005             $    136        $ 216,996    $ (34,216)      $ (10,584)        $  (9,914)    $ 162,418
                                         ========        =========    =========       =========         =========     =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                       KRONOS DENMARK APS AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2003, 2004 and 2005

                                 (In thousands)

<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----


Cash flows from operating activities:
<S>                                                       <C>                <C>               <C>
  Net income                                              $   26,892         $   23,816        $   35,427
  Depreciation and amortization                               11,446             12,041            13,379
  Noncash interest expense                                       332                358               302
  Deferred income taxes                                       (5,405)            (2,983)             (265)
  Securities transaction gain                                   -                  -               (5,439)
  Net loss (gain) from disposition of
   property and equipment                                        (37)               596               220
  Pension, net                                                 2,278              4,372             1,469
  Change in assets and liabilities:
    Accounts and notes receivable                                437               (967)           (1,727)
    Inventories                                               (2,250)             6,500           (12,685)
    Prepaid expenses                                             143                 17              (104)
    Accounts payable and accrued liabilities                   4,107              3,130             5,324
    Income taxes                                              (2,902)              (453)            2,379
    Accounts with affiliates                                  10,403            (37,220)          (13,683)
    Other noncurrent assets                                   (4,181)             2,257              (552)
    Other noncurrent liabilities                                 547             (1,420)           (1,936)
                                                          ----------         ----------        ----------

      Net cash provided by operating activities               41,810             10,044            22,109
                                                          ----------         ----------        ----------

Cash flows from investing activities:
  Capital expenditures                                       (10,274)           (11,725)          (15,044)
  Loans to affiliates                                           -               (11,597)             -
  Proceeds from disposal of interest in
       Norwegian smelting operation                             -                  -                3,542
  Change in restricted cash equivalents and restricted                                                129
       marketable debt securities, net                          (554)               (70)
  Proceeds from disposition of property and equipment            350                100                29
                                                          ----------         ----------        ----------

        Net cash used by investing activities                (10,478)           (23,292)          (11,344)
                                                          ----------         ----------        ----------
</TABLE>




                       KRONOS DENMARK APS AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2003, 2004 and 2005

                                 (In thousands)

<TABLE>

                                                             2003                2004              2005
                                                             ----                ----              ----


Cash flows from financing activities:
  Indebtedness:
<S>                                                       <C>                <C>               <C>
    Borrowings                                            $   16,106         $   62,140        $    4,620
    Principal payments                                       (46,006)           (50,089)          (13,159)
  Loans from affiliates - repayments                            -                  -               (4,648)
                                                          ----------         ----------        ----------

Net cash provided (used) by financing activities             (29,900)            12,051           (13,187)
                                                          ----------         ----------        ----------

Cash and cash equivalents:
  Net change during the year from:
    Operating, investing and financing
     activities                                                1,432             (1,197)           (2,422)
    Currency translation                                         336                 82              (102)
  Balance at beginning of  period                              2,913              4,681             3,566
                                                          ----------         ----------        ----------

  Balance at end of period                                $    4,681         $    3,566        $    1,042
                                                          ==========         ==========        ==========


Supplemental disclosures:
  Cash paid for:
    Interest                                              $    4,638         $    4,198        $      446
    Income taxes                                              11,525             13,331            13,885

Inventories received as partial consideration
    for disposal of interest in Norwegian
     smelting operation                                   $     -            $     -           $    1,897
</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,
2005, (i) Valhi, Inc (NYSE: VHI) owned approximately 57% of Kronos' common stock
and NL Industries,  Inc.  (NYSE:  NL) held an additional 36% of the  outstanding
common stock of Kronos,  (ii) Valhi owned 83% of NL's  outstanding  common stock
and (iii) Contran  Corporation and its subsidiaries  held  approximately  92% 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.

     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 ($2.9
million and $2.6  million at  December  31,  2004 and 2005,  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.  While the
Company owns the land and ilmenite reserves  associated with the mine, such land
and reserves  were  acquired  for nominal  value and the Company has no material
asset  recognized for the land and reserves  related to such mining  operations.
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 $600,000 and $1.2 million at
December 31, 2004 and 2005, 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 2003, 2004 or 2005.

     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."

     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 9.

     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 $11.2 million in 2003, $13.1 million
in 2004 and $13.2  million in 2005.  Advertising  costs are expensed as incurred
and were  approximately  $100,000  in each of 2003,  2004  and  2005.  Research,
development and certain sales  technical  support costs are expensed as incurred
and approximated $300,000 in 2003, $200,000 in 2004 and $300,000 in 2005.

     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.
Prior to 2003,  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 $117,000 in 2003 and $319,000 in 2004, and compensation income was
$185,000 in 2005. The total income tax benefit related to such compensation cost
recognized by the Company was approximately $41,000 in 2003 and $96,000 in 2004,
and the total  income  tax  provision  related  to the  compensation  income was
$52,000  in  2005.  No  compensation  cost  was  capitalized  as part of  assets
(inventory or fixed assets) during 2003, 2004 and 2005.

     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,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                   (In millions, except per share amounts)

<S>                                             <C>               <C>              <C>
Net income - as reported                        $ 26,892          $ 23,816         $ 35,427

Adjustments, net of applicable income tax
 effects:
  Stock-based employee compensation
     (income) expense determined under
      APBO No. 25                                     77               223             (133)
  Stock-based employee compensation
   expense determined under SFAS No. 123             (38)               (8)              (3)
                                                --------          --------         --------

Pro forma net income                            $ 26,931          $ 24,031         $ 35,291
                                                ========          ========         ========
</TABLE>

Note 3 - Accounts and notes receivable:
<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>                                                      <C>                <C>
Trade receivables                                        $   15,487         $   13,992
Recoverable VAT and other receivables                         2,960              3,349
Allowance for doubtful accounts                                 (25)               (22)
                                                         ----------         ----------

                                                         $   18,422         $   17,319
                                                         ==========         ==========
</TABLE>




Note 4 - Inventories:
<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>                                                      <C>                <C>
Raw materials                                            $   13,804         $   21,359
Work in process                                               2,871              1,771
Finished products                                            31,725             30,659
Supplies                                                     16,882             15,717
                                                         ----------         ----------

                                                         $   65,282         $   69,506
                                                         ==========         ==========
</TABLE>

Note 5 - Other noncurrent assets:
<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>                                                      <C>                <C>
Unrecognized net pension obligations                     $    3,852         $    3,108
Restricted marketable debt securities                         2,877              2,572
Deferred financing costs, net                                   198                400
Other                                                            86                 73
                                                         ----------         ----------

                                                         $    7,013         $    6,153
                                                         ==========         ==========
</TABLE>

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

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

<S>                                                      <C>                <C>
Accounts payable                                         $   21,695         $   20,048
                                                         ----------         ----------
Accrued liabilities:
  Employee benefits                                          10,462              9,664
  Other                                                       6,619              8,694
                                                         ----------         ----------

                                                             17,081             18,358
                                                         ----------         ----------

                                                         $   38,776         $   38,406
                                                         ==========         ==========
</TABLE>

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

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

Long-term debt:
<S>                                                      <C>                <C>
  Bank credit facility                                   $   13,622         $     -
  Other                                                         348              4,525
                                                         ----------         ----------

                                                             13,970              4,525
Less current maturities                                      13,792                958
                                                         ----------         ----------

                                                         $      178         $    3,567
                                                         ==========         ==========
</TABLE>

     The Company and certain of KII's subsidiaries in Belgium and Norway (Kronos
Europe S.A./N.V.-"KEU", Kronos Titan A/S - "TAS" and Titania A/S - "TIA," Kronos
Norge A/S,  the  parent  company of TAS and TIA,  and Kronos  Titan GmbH  "TG"),
referred to as the "Borrowers",  have a euro 80 million secured revolving credit
facility  that matures in June 2008.  Borrowings  may be  denominated  in euros,
Norwegian kroner or U.S. dollars,  and bear interest at the applicable interbank
market rate plus 1.125%.  The facility also provides for the issuance of letters
of credit up to euro 5 million.  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 the Belgian  borrower.  The credit facility  contains
certain restrictive covenants which, among other things, restrict 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 Borrowers,  KII and its
other subsidiaries.  At December 31, 2005, no amounts were outstanding under the
European  Credit  Facility and the equivalent of $92.3 million was available for
additional   borrowing  by  the   Borrowers.   The  Company,   KEU  and  TG  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.

     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, 2005.

     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.  Such operating  subsidiaries are the Company,  Kronos Titan GmbH,
Kronos  Limited and Societe  Industrielle  Du Titane,  S.A. 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,  at redemption prices ranging from 104.437% of
the principal  amount,  declining to 100% on or after  December 30, 2008. 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.

     Other long-term debt relates  primarily to certain capital lease agreements
which expire at various dates through 2011.

     The aggregate  maturities of long-term  debt at December 31, 2005 are shown
in the table below.
<TABLE>

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

    <S>                                         <C>
    2006                                        $  958
    2007                                           861
    2008                                           872
    2009                                           902
    2010                                           932
                                                ------

                                                $4,525
                                                ======
</TABLE>

Note 8 - Securities transaction gain:


     A securities  transaction gain in 2005,  classified as nonoperating income,
relates to the sale of the Company's  passive  interest in a Norwegian  smelting
operation,  which had a nominal carrying value for financial reporting purposes,
for aggregate  consideration of approximately $5.4 million consisting of cash of
$3.5 million and inventory with a value of $1.9 million.

Note 9 - 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 2004 or 2005. At December 31, 2005,  the
Company  expects to contribute the equivalent of  approximately  $1.6 million to
its defined benefit pension plans during 2006.

     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,  2004 and 2005 are
presented in the table below. Such weighted-average  rates were determined using
the projected benefit obligations at each date.
<TABLE>

              Rate                                                 December 31,
              ----                                               --------------
                                                             2004               2005
                                                             ----               ----

<S>                                                          <C>                <C>
Discount rate                                                5.0%               4.4%
Increase in future compensation levels                       3.0%               3.0%
</TABLE>

     The weighted-average  rate assumptions used in determining the net periodic
pension  cost for 2003,  2004 and 2005 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>

              Rate                                                    December 31,
              ----                                    ----------------------------------------
                                                      2003              2004              2005
                                                      ----              ----              ----

<S>                                                   <C>               <C>               <C>
Discount rate                                         5.9%              5.5%              5.0%
Increase in future compensation levels                3.0%              3.0%              3.0%
Long-term return on plan assets                       7.0%              6.0%              6.0%
</TABLE>

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

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

                                                           Years ended December 31,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In thousands)

Net periodic pension cost:
<S>                                             <C>               <C>              <C>
  Service cost benefits                         $  1,430          $  2,096         $  2,133
  Interest cost on projected benefit
   obligation ("PBO")                              2,907             3,436            3,345
  Expected return on plan assets                  (3,335)           (2,815)          (3,142)
  Amortization of prior service cost                 255               267              282
  Amortization of net transition obligation          296               321              129
  Recognized actuarial losses                        732             1,428            1,276
                                                --------          --------         --------

                                                $  2,285          $  4,733         $  4,023
                                                ========          ========         ========
</TABLE>

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



<TABLE>

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

Change in projected benefit obligations ("PBO"):
<S>                                                      <C>                <C>
  Benefit obligations at beginning of year               $   64,161         $   72,361
  Service cost                                                2,096              2,133
  Interest cost                                               3,436              3,345
  Participant contributions                                     152                149
  Actuarial gains (losses)                                   (1,891)             2,933
  Change in currency exchange rates                           7,081             (8,259)
  Benefits paid                                              (2,674)            (2,886)
                                                         ----------         ----------

      Benefit obligations at end of year                 $   72,361         $   69,776
                                                         ----------         ----------

Change in fair value of plan assets:
  Fair value of plan assets at beginning of year         $   49,540         $   57,754
  Actual return on plan assets                                3,881              2,203
  Employer contributions                                      1,170              1,977
  Participant contributions                                     152                149
  Change in currency exchange rates                           5,685             (6,375)
  Benefits paid                                              (2,674)            (2,886)
                                                         ----------         ----------

      Fair value of plan assets at end of year           $   57,754         $   52,822
                                                         ----------         ----------

Funded status at year end:
  Plan assets less than PBO                              $  (14,607)        $  (16,954)
  Unrecognized actuarial loss                                26,344             26,024
  Unrecognized prior service cost                             3,157              2,550
  Unrecognized net transition obligation                        999                770
                                                         ----------         ----------

                                                         $   15,893         $   12,390
                                                         ==========         ==========

Amounts recognized in the balance sheet:

  Accrued pension cost:
    Current                                              $     -            $     (456)
    Non current                                              (2,469)            (4,129)
  Unrecognized net pension obligations                        3,852              3,108
  Accumulated other comprehensive loss                       14,510             13,867
                                                         ----------         ----------

                                                         $   15,893         $   12,390
                                                         ==========         ==========
</TABLE>

     SFAS No. 87,  "Employers'  Accounting for Pension  Costs"  requires that an
additional pension liability be recognized when the unfunded accumulated pension
benefit  obligation  exceeds the unfunded accrued pension  liability.  Variances
from  actuarially  assumed rates will change the actuarial  valuation of accrued
pension liabilities, pension expense and funding requirements in future periods.
The  accumulated  benefit  obligation of the Company's  defined  benefit pension
plans was $58.0 million at December 31, 2005 (2004 - $60.8 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,  64% 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% and 2.5%, respectively. The
plan asset  allocation at December 31, 2005 was 16% to equity  managers,  62% to
fixed  income  managers and the  remainder  invested  primarily  cash and liquid
investments  (2004 - 16%,  64% and 20%,  respectively).  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:
<TABLE>

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

<S> <C>                                                            <C>
    2006                                                           $3,921
    2007                                                            2,790
    2008                                                            4,425
    2009                                                            3,036
    2010                                                            3,087
    2011 to 2015                                                   20,926
</TABLE>

Note 10 - Income taxes:

     The components of (i) income from continuing operations before income taxes
("pretax  income"),  (ii) the difference  between the provision for income taxes
attributable  to pretax income and the amounts that would be expected  using the
Danish  statutory income tax rate of 30% in 2003 and 2004 and 28% in 2005, (iii)
the  provision  for income taxes and (iv) the  comprehensive  tax  provision are
presented below.

<TABLE>

                                                           Years ended December 31,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In thousands)
Pretax income (loss):
<S>                                             <C>               <C>              <C>
  Denmark                                       $    170          $   (101)        $    526
  Non-Denmark                                     34,150            33,760           51,038
                                                --------          --------         --------

                                                $ 34,320          $ 33,659         $ 51,564
                                                ========          ========         ========

Expected tax expense                            $ 10,296          $ 10,099         $ 14,438
Non-Denmark tax rates                                428               527            1,360
Non deductible expenses                             -                 -                 281
Tax contingency reserve adjustment                (5,100)             (125)            (653)
Refund of prior year taxes                          -                 (595)             (45)
Tax on partnership income                          1,245              (358)            -
Other, net                                           559               295              756
                                                --------          --------         --------

        Income tax expense                      $  7,428          $  9,843         $ 16,137
                                                ========          ========         ========


Provision for income taxes:
  Current income tax expense:
    Denmark                                     $     63          $      2         $    224
    Non-Denmark                                   12,770            12,824           16,178
                                                --------          --------         --------

                                                  12,833            12,826           16,402
                                                --------          --------         --------

  Deferred income tax expense (benefit):
    Denmark                                       (5,104)             (139)            (644)
    Non-Denmark                                     (301)           (2,844)             379
                                                --------          --------         --------

                                                  (5,405)           (2,983)            (265)
                                                --------          --------         --------

                                                $  7,428          $  9,843         $ 16,137
                                                ========          ========         ========

Comprehensive provision for income taxes
 allocable to:
  Pretax income                                 $  7,428          $  9,843         $ 16,137
  Other comprehensive loss -
   pension liabilities                            (4,068)                5              180
                                                --------          --------         --------

                                                $  3,360          $  9,848         $ 16,317
                                                ========          ========         ========
</TABLE>




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

                                                                                 December 31,
                                                             ---------------------------------------------------
                                                                       2004                        2005
                                                             -----------------------     -----------------------
                                                             Assets      Liabilities     Assets      Liabilities
                                                             ------      -----------     ------      -----------
                                                                               (In thousands)

Tax effect of temporary differences relating to:
<S>                                                         <C>           <C>            <C>         <C>
  Inventories                                               $   61        $ (2,546)      $   72      $ (2,067)
  Property and equipment                                       181         (20,214)        -          (18,199)
  Accrued (prepaid) pension cost                             4,063          (4,624)       3,883        (3,659)
  Accrued liabilities and other deductible differences         199            -           1,420          -
  Other taxable differences                                   -             (3,746)        -           (2,910)
    Incremental tax and rate differences on equity in
      earnings of non-tax group companies                    1,905            -            -             -
                                                            ------        --------       ------      --------

    Gross deferred tax assets (liabilities)                  6,409         (31,130)       5,375       (26,835)

Reclassification, principally netting by tax
   jurisdiction                                             (6,409)          6,409       (5,375)        5,375
                                                            ------        --------       ------      --------

    Net total deferred tax assets (liabilities)               -            (24,721)        -          (21,460)
    Net current deferred tax assets (liabilities)             -             (2,363)        -           (2,194)
                                                            ------        --------       ------      --------

    Net noncurrent deferred tax liabilities                 $ -           $(22,358)      $ -         $(19,266)
                                                            ======        ========       ======      ========
</TABLE>


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

                                                                 December 31,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In millions)

<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       -                 -                -
 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                           $ 683             $ -              $ -
                                                  =====             =====            =====
</TABLE>

     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 received a preliminary tax assessment  related to 1993 from the
     Belgian tax  authorities  proposing  tax  deficiencies,  including  related
     interest,  of  approximately  euro 6 million ($7  million at  December  31,
     2005). The Company filed a protest to this assessment,  and believes that a
     significant  portion of the assessment  was 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,
     would have  aggregated  approximately  euro 9 million  ($11  million).  The
     Company filed a written  response to the assessment,  and in September 2005
     the Belgian tax authorities withdrew the assessment.

o    The Norwegian tax authorities  have notified the Company of their intent to
     assess tax  deficiencies  of  approximately  kroner 12 million ($2 million)
     relating to the years 1998 through  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  and court and tax  proceedings.  The Company  believes  that it has
provided  adequate  accruals for additional  taxes and related  interest expense
which may  ultimately  result from all such  examinations  and believes that the
ultimate  disposition of such  examinations  should not have a material  adverse
effect  on  its  consolidated  financial  position,  results  of  operations  or
liquidity.

Note 11 - Related party transactions:

     The Company may be deemed to be controlled  by Harold C. Simmons.  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.

     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 2003, $2.1 million in 2004 and $2.5 million in 2005 related to these services
and costs.

     Tall Pines Insurance Company 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 and EWI receive commissions from insurance and reinsurance
underwriters  and/or  assess fees for the policies  that they provide or broker.
The  aggregate  premiums paid to Tall Pines  (including  amounts paid to Valmont
Insurance  Company,  another subsidiary of Valhi that was merged into Tall Pines
in 2004) and EWI by the Company were $900,000 in 2003,  $1.1 million in 2004 and
$2.0 million in 2005. These amounts principally  included payments for insurance
and reinsurance  premiums paid to third parties,  but also included  commissions
paid to Tall Pines and EWI. Tall Pines purchases  reinsurance for  substantially
all of the risks it underwrites.  The Company  expects that these  relationships
with Tall Pines and EWI will continue in 2006.

     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,
                                                  -----------------------------------------
                                                   2003              2004            2005
                                                   ----              ----            ----
                                                                (In thousands)

Sales to:
<S>                                             <C>               <C>              <C>
  TG                                            $ 38,783          $ 53,631         $ 55,210
  Kronos Limited ("KUK")                          18,856            25,285           20,408
  Kronos (US), Inc. ("KUS")                       18,792            19,180           25,445
  Societe Industrielle du Titane, S.A. ("SIT")     8,138             8,868            9,054
  Kronos Canada, Inc. ("KC")                       4,308             2,596            3,009
                                                --------          --------         --------

                                                $ 88,877          $109,560         $113,126
                                                ========          ========         ========

Purchases from:
  TG                                            $ 38,785          $ 48,808         $ 58,121
  KUS                                                101             3,489             -
  KC                                                 223                22              103
                                                --------          --------         --------

                                                $ 39,109          $ 52,319         $ 58,224
                                                ========          ========         ========
</TABLE>

     Sales of ilmenite to TG were $15.5  million in 2003,  $17.4 million in 2004
and $21.4 million in 2005.

     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 $39.5 million in 2003, $40.5 million in 2004 and $47.8
million in 2005.

     Royalties  paid to KII for use of  certain of KII's  intellectual  property
totaled $10.4 million in 2003,  $12.5 million in 2004 and $12.4 million in 2005,
and was included as a component of cost of sales.

     During 2003, 2004 and 2005, 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 2003, 2004 and 2005 aggregated $101.4 million,
and $119.9 million and $124.5 million, respectively.

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

                                                                   December 31,
                                                                 --------------
                                                             2004               2005
                                                             ----               ----
                                                                  (In thousands)

Receivable from:
<S>                                                      <C>                <C>
  SIT                                                    $      814         $      864
  KUK                                                         1,766              1,638
  TG                                                         13,342             24,967
  Other                                                         107                 24
                                                         ----------         ----------

                                                         $   16,029         $   27,493
                                                         ==========         ==========

Noncurrent receivable from TG                            $   12,941         $   11,239
                                                         ==========         ==========

Payable to:
  KII                                                    $    4,266         $    3,740
  KUS                                                         5,486              5,317
  KC                                                            390               -
                                                         ----------         ----------

                                                         $   10,142         $    9,057
                                                         ==========         ==========

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

     At December  31,  2005,  employees  of the Company held options to purchase
approximately  23,000 shares of NL common stock, of which 13,000 are exercisable
at various dates  through 2010 at an exercise  price ranging from $2.66 to $5.63
per share and  10,000  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 2003,  2004, or 2005. 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 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 $3 million in each of 2003,  2004 and 2005. At
December 31, 2005,  minimum rental commitments under the terms of noncancellable
operating leases were as follows:
<TABLE>

                                                                          Equipment
                                                                        --------------
                                                                        (in thousands)
Years ending December 31,
--------------------------
<S> <C>                                                                    <C>
    2006                                                                   $  603
    2007                                                                      520
    2008                                                                      516
    2009                                                                      253
    2010                                                                       92
    2011 and thereafter                                                        99
                                                                           ------

                                                                           $2,083
                                                                           ======
</TABLE>

     Long-term  contracts.  KUS has long-term  supply contracts that provide for
certain of its affiliates',  including KDK's,  chloride  feedstock  requirements
through  2010.  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  $681  million at December 31,
2005.

     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
78%,  79% and 78% of net sales  during 2003,  2004 and 2005,  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 26% of net sales in 2003, 24% of net sales
in 2004 and 17% of net sales in 2005.  Approximately  80% of the Company's  TiO2
sales by volume were to Europe in each of 2003, 2004 and 2005. Approximately 10%
of sales by volume were to North America in each of 2003, 2004 and 2005.

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,                December 31,
                                                                 2004                        2005
                                                      ---------------------------  -------------------------
                                                        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                          $   8.0       $   8.0        $   5.0       $   5.0

Notes payable and long-term debt -
 variable rate debt                                     $  13.6       $  13.6        $    -        $    -
</TABLE>

     The Company held no derivative  financial  instruments during 2003, 2004 or
2005.

Note 15 - Accounting principles recently adopted in 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  change  in the  asset  retirement  obligations  from  January  1, 2003
($600,000)  to December 31, 2003  ($800,000),  to December 31, 2004 ($1 million)
and to December 31, 2005  ($900,000) 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,
2004 and 2005.

     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 16 - Accounting principles not yet adopted:

     Stock options. The Company will adopt SFAS No. 123R, "Share-Based Payment,"
as of January  1, 2006.  SFAS No.  123R,  among  other  things,  eliminated  the
alternative  in previously  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  January 1,
2006,  and to all awards  existing  as of June 30,  2005 which are  subsequently
modified,  repurchased  or cancelled.  Additionally,  as of January 1, 2006, the
Company  will be required to recognize  compensation  cost  previously  measured
under  SFAS No. 123 for the  portion  of any  non-vested  award  existing  as of
December 31, 2005 over the remaining vesting period. Because the Company has not
granted any options to purchase  its common  stock and did not grant any options
prior to  January 1, 2006 and  because  the  number of  non-vested  awards as of
December  31, 2005 with  respect to options  granted by NL to  employees  of the
Company  was not  material,  the  effect  of  adopting  SFAS  No.  123R  was not
significant in so far as it relates to the recognition of  compensation  cost in
the  Company's  consolidated  statements of income for existing  stock  options.
Should  the  Company,  however,  grant a  significant  number of  options in the
future,  the Company  could  recognize  material  amounts of  compensation  cost
related to such options in its consolidated financial statements.

     Also upon adoption of SFAS No. 123R, any cash income tax benefit  resulting
from the  exercise  of stock  options  in excess of the  cumulative  income  tax
benefit  related  to such  options  previously  recognized  for  GAAP  financial
reporting purposes in the Company's  consolidated  statements of income, if any,
will be reflected as a cash inflow from  financing  activities  in the Company's
consolidated  statements  of cash  flows,  and the  Company's  cash  flows  from
operating  activities  will  reflect  the effect of cash paid for  income  taxes
exclusive of such cash income tax benefit.

     SFAS No. 123R also  requires  certain  expanded  disclosures  regarding the
Company's  stock options,  and such expanded  disclosures  have been provided in
Note 12.

     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.