TITANIUM METALS CORP
General.  Titanium  Metals  Corporation  ("TIMET"  or  the  "Company")  was originally formed in 1950 and was incorporated in Delaware in 1955. TIMET is one of the world's  leading  producers  of titanium  melted and mill  products.  The Company is the only producer with major titanium  production  facilities in both the United  States and  Europe,  the  world's  principal  markets  for  titanium consumption.  TIMET is currently the only major producer of titanium  sponge,  a key raw material, in the United States.       Titanium was first manufactured for commercial use in the 1950s. Titanium's unique combination of corrosion resistance, elevated-temperature performance and high  strength-to-weight  ratio  makes  it  particularly  desirable  for  use in commercial  and  military  aerospace  applications  where  these  qualities  are essential  design  requirements for certain critical parts such as wing supports and jet  engine  components.  While  aerospace  applications  have  historically accounted for a substantial  portion of the worldwide  demand for titanium,  the number of non-aerospace end-use markets for titanium has expanded substantially. Today,  numerous industrial uses for titanium exist,  including chemical plants, power plants,  desalination  plants and pollution control equipment.  Demand for titanium  is also  increasing  in emerging  markets  with such  diverse  uses as offshore oil and gas production installations, automotive, geothermal facilities and architectural applications.       TIMET's products include  titanium sponge,  melted products,  mill products and  industrial  fabrications.  The  titanium  industry is  comprised of several manufacturers that, like TIMET,  produce a relatively complete range of titanium products and a  significant  number of producers  worldwide  that  manufacture a limited range of titanium mill products.       The  Company's  long-term  strategy  is to  maximize  the value of its core aerospace business while also developing new markets,  applications and products to help reduce its historical  dependence on the commercial  aerospace industry. In the  near-term,  the Company  continues to focus on  maintaining  a lean cost structure, managing its raw material requirements,  improving the quality of its products and  processes  and taking other  actions to maximize its cash flow and profitability.       Industry.  The Company  develops  certain  industry  estimates based on its extensive  experience  within  the  titanium  industry  as well  as  information obtained  from  publicly  available  external  resources  (e.g.,  United  States Geological  Survey,   International  Titanium  Association  and  Japan  Titanium Society).  The Company estimates that it accounted for approximately 18% and 19% of  worldwide  industry  shipments of titanium  mill  products in 2005 and 2004, respectively,  and  approximately  8%  and  10%  of  worldwide  titanium  sponge production in 2005 and 2004,  respectively.  The following table illustrates the Company's estimates of aggregate titanium industry mill product shipments during 2005 and 2004:                                                                             Year ended December 31,               %                                                                   ----------------------------------                                                                        2005               2004             change                                                                   ----------------    --------------     -----------                                                                             (metric tons) Mill product shipments to:       Commercial aerospace sector                                           24,000              20,900            +15%   Military sector                                                        6,200               4,700            +32%   Industrial sector                                                     35,600              32,300            +10%   Emerging markets sector                                                2,700               2,300            +17%                                                                   ----------------    --------------  Aggregate mill product shipments to all sectors                         68,500              60,200            +14%                                                                   ================    ==============        The titanium industry historically has derived a substantial portion of its business from the  commercial  aerospace  sector.  Demand for titanium  products within  the  commercial  aerospace  sector  is  derived  from  both  jet  engine components (e.g., blades, discs, rings and engine cases) and airframe components (e.g., bulkheads, tail sections, landing gear, wing supports and fasteners). The commercial  aerospace sector has a significant  influence on titanium companies, particularly mill product producers such as TIMET.       The Company's  business is more  dependent on commercial  aerospace  demand than is the overall titanium  industry,  as  approximately  59% of the Company's mill product  shipment  volume in 2005 was to the commercial  aerospace  sector, whereas,  as  indicated  by the above  table,  approximately  35% of the overall titanium  industry's  shipment  volume in 2005 was to the  commercial  aerospace sector.       The  cyclical  nature of the  commercial  aerospace  industry  has been the principal  driver of the  historical  fluctuations  in the  performance  of most titanium  companies.  Over the past 20 years, the titanium industry had cyclical peaks in mill  product  shipments in 1989,  1997 and 2001 and  cyclical  lows in 1983,  1991,  1999 and 2003.  Prior to 2004,  demand for  titanium  reached  its highest level in 1997 when industry mill product shipments reached approximately 60,700 metric tons.  However,  since 1997,  industry mill product shipments have fluctuated  significantly,  primarily  due to a  continued  change in demand for titanium  from the  commercial  aerospace  sector.  The Company  estimates  that industry  shipments  approximated  60,200  metric tons in 2004 and 68,500 metric tons in 2005.  The Company  currently  expects 2006 total  industry mill product shipments to increase by only 5% to 10% as compared to 2005, due to tightness of raw material supply.       The Airline Monitor, a leading aerospace publication,  traditionally issues forecasts for commercial aircraft deliveries each January and July. According to The Airline Monitor,  large commercial  aircraft deliveries for the 1996 to 2005 period peaked in 1999 with 889  aircraft,  including 254 wide body aircraft that use  substantially  more  titanium  than their narrow body  counterparts.  Large commercial  aircraft deliveries totaled 650 (including 152 wide bodies) in 2005. The following  table  summarizes  The Airline  Monitor's  most  recently  issued forecast (January 2006) for large commercial  aircraft  deliveries over the next five years:                                                                                    % increase (decrease)                                      Forecasted deliveries                     over previous year                                -----------------------------------    --------------------------------------             Year                   Total           Wide bodies             Total             Wide bodies       ------------------       --------------    -----------------    ----------------    ------------------                               2006                    840                193                    29.2%               27.0%             2007                    920                217                     9.5%               12.4%             2008                    985                259                     7.1%               19.4%             2009                   1,030               294                     4.6%               13.5%             2010                   1,030               314                     -                   6.8%        The  latest  forecast  from The  Airline  Monitor  reflects  a  significant increase from earlier such forecasts,  in large part due to record levels of new orders placed for Boeing and Airbus models during 2005. Total order bookings for Boeing and Airbus in 2005 were 2,109 planes. Expectations are that new orders in 2006 will be significantly lower than 2005; however, the strong bookings in 2005 have  increased  the order backlog for both Boeing and Airbus in support of this increased forecast.       Deliveries of titanium  generally precede aircraft  deliveries by about one year, although this varies considerably by titanium product.  This correlates to the  Company's  cycle,  which  historically  precedes  the cycle of the aircraft industry and related deliveries.  Although persistently high oil prices have had an adverse impact on the commercial airline industry,  global commercial airline traffic  increased in 2005  compared to 2004.  The Company  estimates  that 2006 industry  mill  product  shipments  into the  commercial  aerospace  sector will increase 15% to 20%, as compared to 2005.       Wide body  planes  tend to use a higher  percentage  of  titanium  in their airframes,  engines and parts than narrow body  planes.  Newer  models of planes tend to use a higher  percentage of titanium than older models.  Newer wide body models such as the Airbus A380 and the Boeing 787 Dreamliner are expected to use an even greater quantity of titanium than previous wide body models. See further discussion  of  titanium  usage for these new planes in  "Business - Markets and customer base."       Titanium   shipments  into  the  military  sector  are  largely  driven  by government  defense  spending in North  America and Europe.  Military  aerospace programs  were the first to  utilize  titanium's  unique  properties  on a large scale,  beginning in the 1950s. Titanium shipments to military aerospace markets reached a peak in the 1980s before falling to historical lows in the early 1990s after the end of the Cold War. In recent years,  titanium has become an accepted use in ground combat vehicles as well as in Naval  applications.  The importance of military markets to the titanium  industry is expected to continue to rise in coming  years as defense  spending  budgets  increase in  reaction to  terrorist activities and global conflicts.       Several of today's  active  U.S.  military  programs,  including  the C-17, F/A-18,  F-16 and F-15 are expected to continue in production through the end of the  current  decade.   However,  a  recent  Quadrennial  Defense  Review  (QDR) recommends  that the US Air  Force  stop  procurement  of the C-17  with the 180 planes it now has on order,  but this  recommendation  still must go through the federal budget process.  Without  further orders,  the C-17 production line will close in 2008.            In addition to the  established  C-17,  F/A-18 and F-16 programs,  new U.S. programs offer growth  opportunities  for increased  titanium  consumption.  The F/A-22 Raptor was given full-rate  production approval in April 2005.  According to The Teal Group, a leading  independent  aerospace  publication,  the U.S. Air Force would like to purchase 381 aircraft,  but the Department of Defense is now planning for only 179.  However,  additional  F/A-22 Raptors may be manufactured for sale to foreign nations.       In October 2001,  Lockheed-Martin  Corporation was awarded the contract for construction  of the F-35 Joint Strike Fighter  ("JSF").  The JSF is expected to enter  low-rate  initial  production  in late 2006,  with  delivery of the first production  aircraft in 2009.  Although no specific  delivery patterns have been established,  procurement is expected to extend over the next 30 to 40 years and to include as many as 3,000 to 4,000 planes, including sales to foreign nations. European  military  programs also have active  aerospace  programs  offering the possibility for increased titanium  consumption.  Production levels for the Saab Gripen,  Eurofighter  Typhoon,  Dassault Rafale and Dassault Mirage 2000 are all forecasted to remain steady through the end of the decade.       Utilization  of titanium  on  military  ground  combat  vehicles  for armor applique  and  integrated  armor  or  structural  components  continues  to gain acceptance within the military market segment. Titanium armor components provide the necessary  ballistic  performance while achieving a mission critical vehicle performance objective of reduced weight. In order to counteract increased threat levels,  titanium is being utilized on vehicle  upgrade  programs in addition to new  builds.  Based on active  programs,  as well as  programs  currently  under evaluation,  the Company  believes there will be additional usage of titanium on ground combat vehicles that will provide continued growth in the military market sector.  In armor and armament,  the Company sells plate and sheet  products for fabrication into applique plate for protection  application of the entire ground combat vehicle as well as the primary vehicle structure.       Since titanium's  initial  applications,  the number of end-use markets for titanium has significantly  expanded.  Established  industrial uses for titanium include chemical plants, power plants, desalination plants and pollution control equipment.  Rapid growth of the Chinese and other  Southeast Asian economies has brought unprecedented demand for  titanium-intensive  industrial  equipment.  In November  2005,  the Company  entered into a joint  venture with XI'AN  BAOTIMET VALINOX TUBES CO. LTD.  ("BAOTIMET")  to produce welded  titanium  tubing in the Peoples Republic of China.  BAOTIMET's  production facilities will be located in Xi'an, China, and production is expected to begin in early 2007.       Titanium continues to gain acceptance in many emerging market applications, including automotive, energy (including oil and gas) and architecture.  Although titanium is generally  higher cost than other  competing  metals,  in many cases customers  find the physical  properties of titanium to be  attractive  from the standpoint of weight, performance,  longevity,  design alternatives,  life cycle value and other factors. The Company continues to explore opportunities in these emerging  market  applications  through  marketing  initiatives,   research  and development  and  proprietary  alloys  designed to provide  more cost  effective alternatives for these markets.            Although  the Company  estimates  that  emerging  market  demand  presently represents  only about 4% of the 2005 total  industry  demand for titanium  mill products,  the Company believes emerging market demand, in the aggregate,  could grow at double-digit rates over the next several years. The Company continues to actively  pursue these  markets and was able to grow its mill product  shipments into  emerging  markets  by more  than  50%  during  2005 as  compared  to 2004. Beginning in 2005,  the Company no longer  includes  armor and armament  related sales as part of its  emerging  markets  sector,  as  titanium  usage has become widely  accepted  for such  applications.  Accordingly,  all such  sales are now included  in the  Company's  military  sector  and all prior  periods  have been restated to conform to this presentation.       The automotive market continues to be an attractive  emerging market due to its potential for sustainable  long-term growth.  TiMET Automotive is focused on developing and marketing  proprietary alloys and processes  specifically  suited for  automotive  applications.  Titanium  is now used in  several  consumer  car applications as well as in numerous  motorcycles.  At the present time, titanium is  primarily  used for exhaust  systems,  suspension  springs,  engine  valves, connecting rods and  turbocharger  compressor  wheels in consumer and commercial vehicles. In exhaust systems,  titanium provides for significant weight savings, while  its  corrosion  resistance  provides   life-of-vehicle   durability.   In suspension spring applications,  titanium's low modulus of elasticity allows the spring's  height to be reduced by 20% to 40% compared to a steel spring,  which, when combined with the titanium's low density, permits 30% to 60% weight savings over  steel  spring  suspension  systems.  Titanium  engine  components  provide mass-reduction  benefits  that directly  improve  vehicle  performance  and fuel economy.  The application of titanium to turbocharger  compressor wheels is part of a solution to meet U.S. and European Union government-regulated diesel engine emissions  requirements.  TIMETAL  proprietary  alloys  provide  cost  effective optimized  performance  for the various  target  applications.  The  decision to select  titanium  components for consumer car,  truck and motorcycle  components remains  highly  cost  sensitive;   however,  the  Company  believes  titanium's acceptance in consumer vehicles will expand as the automotive industry continues to better understand the benefits titanium offers.       The oil and gas market  utilizes  titanium  for  down-hole  logging  tools, critical riser  components,  fire water systems and  saltwater-cooling  systems. Additionally,  as offshore  development of new oil and gas fields moves into the ultra   deep-water   depths,   market   demand  for   titanium's   light-weight, high-strength and corrosion-resistance  properties is creating new opportunities for the material.  The Company has a group dedicated to developing the expansion of titanium use in this market and in other non-aerospace applications.       Products and operations.  The Company is a vertically  integrated  titanium manufacturer whose products include:       (i)  titanium  sponge,  the basic form of  titanium  metal used in titanium           products;       (ii) melted products  (ingot,  electrodes and slab),  the result of melting           sponge and titanium scrap, either alone or with various alloys;       (iii) mill  products  that  are  forged  and  rolled  from  ingot  or slab,           including long products (billet and bar), flat products (plate,  sheet           and strip) and pipe; and       (iv) fabrications (spools, pipefittings, manifolds, vessels, etc.) that are           cut, formed, welded and assembled from titanium mill products            During the past three years, all of TIMET's net sales were generated by the Company's   integrated  titanium  operations  (its  "Titanium  melted  and  mill products" segment), its only business segment. Business and geographic financial information is included in Note 21 to the Consolidated Financial Statements.       Titanium sponge (so called because of its  appearance) is the  commercially pure,  elemental  form of  titanium  metal.  The first  step in  TIMET's  sponge production involves the combination of titanium-containing  rutile ores (derived from  beach  sand)  with  chlorine  and  petroleum  coke  to  produce   titanium tetrachloride.   Titanium  tetrachloride  is  purified  and  then  reacted  with magnesium in a closed system,  producing  titanium sponge and magnesium chloride as co-products.  The Company's titanium sponge production facility in Henderson, Nevada  incorporates  vacuum  distillation  process  ("VDP")  technology,  which removes the magnesium and  magnesium  chloride  residues by applying heat to the sponge mass while  maintaining a vacuum in the chamber.  The combination of heat and  vacuum  boils  the  residues  from the  sponge  mass,  and then the mass is mechanically pushed out of the distillation vessel,  sheared and crushed,  while the residual magnesium chloride is electrolytically separated and recycled.       Titanium ingot is a cylindrical  solid shape that, in TIMET's case,  weighs up to 8 metric tons. Titanium slab is a rectangular solid shape that, in TIMET's case,  weighs  up to 16 metric  tons.  Each  ingot or slab is formed by  melting titanium  sponge,  scrap or both,  usually  with  various  other  alloys such as vanadium, aluminum, molybdenum, tin and zirconium. The melting process for ingot and slab is closely controlled and monitored  utilizing computer control systems to maintain product quality and consistency and to meet customer specifications. In most  cases,  TIMET  uses its ingot  and slab as the  starting  material  for further processing into mill products.  However, it also sells ingot, electrodes and slab to  third  parties.  Titanium  scrap is a  by-product  of the  forging, rolling,  milling and machining operations,  and significant quantities of scrap are  generated  in the  production  process for finished  titanium  products and components.       The Company sends certain products either to the Company's  service centers or to outside vendors for further  processing before being shipped to customers. The Company's customers either process the Company's products for their ultimate end-use or for sale to third parties.       During  the   production   process  and   following   the   completion   of manufacturing,  the Company  performs  extensive  testing on its  products.  The inspection  process is critical to ensuring that the Company's products meet the high quality requirements of its customers,  particularly in aerospace component production.  The Company certifies that its products meet customer specification at the time of shipment for substantially all customer orders.       The Company  currently  is reliant on several  outside  processors  (one of which is owned by a competitor) to perform certain rolling,  finishing and other processing  steps in the U.S., and certain  melting and forging steps in France. In France,  the  processor  is also a joint  venture  partner  in the  Company's 70%-owned  subsidiary,  TIMET Savoie,  S.A.  ("TIMET  Savoie").  During the past several years,  the Company has made  significant  strides  toward  reducing the reliance  on   competitor-owned   sources  for  these  services,   so  that  any interruption in these functions should not have a material adverse effect on the Company's business, results of operations, financial position or liquidity.            Distribution.  The Company  sells its products  through its own sales force based in the U.S.  and Europe and through  independent  agents and  distributors worldwide.  The Company's  distribution system also includes eight Company-owned service centers (five in the U.S. and three in Europe), which sell the Company's products on a just-in-time basis. The service centers primarily sell value-added and customized mill products, including bar, sheet, plate, tubing and strip. The Company believes its service centers provide a competitive  advantage because of their  ability to foster  customer  relationships,  customize  products  to suit specific customer requirements and respond quickly to customer needs.       Raw  materials.  The  principal  raw  materials  used in the  production of titanium ingot,  slab and mill products are titanium sponge,  titanium scrap and alloys.  The following  table  summarizes  the Company's 2005 raw material usage requirements in the production of its melted and mill products:                                                                              Percentage of total raw                                                                            material requirements                                                                         -----------------------------                                Internally produced sponge                                              29%               Purchased sponge                                                        25%               Titanium scrap                                                          40%               Alloys                                                                   6%                                                                         -----------------------------                                                                                       100%                                                                         =============================        The primary raw materials  used in the  production  of titanium  sponge are titanium-containing  rutile ore, chlorine,  magnesium and petroleum coke. Rutile ore is currently  available from a limited number of suppliers around the world, principally  located in  Australia,  South  Africa and Sri  Lanka.  The  Company purchases the majority of its supply of rutile ore from  Australia.  The Company believes the  availability  of rutile ore will be adequate  for the  foreseeable future  and  does not  anticipate  any  interruptions  of its  rutile  supplies. However,  there  can be no  assurance  that  the  Company  will  not  experience interruptions.       Chlorine is currently  obtained  from a single  supplier near the Company's sponge  plant in  Henderson,  Nevada.  While  the  Company  does  not  presently anticipate any chlorine supply problems, there can be no assurances the chlorine supply will not be interrupted.  In the event of supply disruption,  the Company has taken steps to mitigate this risk, including establishing the feasibility of certain   equipment   modifications  to  enable  it  to  utilize  material  from alternative  chlorine  suppliers  or to  purchase  and  utilize an  intermediate product  which will allow the Company to  eliminate  the purchase of chlorine if needed.  Magnesium and petroleum  coke are generally  available from a number of suppliers.            During  2005,  the  Company  was the only major U.S.  producer  of titanium sponge and one of only six major worldwide  producers (the others are located in Russia, Kazakhstan, the Ukraine and two in Japan).  Additionally,  there are two smaller sponge producers  located in China.  However,  the Company cannot supply all of its needs for all grades of titanium sponge  internally and is dependent, therefore,   on  third  parties  for  a   substantial   portion  of  its  sponge requirements. Titanium melted and mill products require varying grades of sponge and/or scrap  depending on the customers'  specifications  and expected end use. Presently,  TIMET  and  certain  companies  in Japan are the only  producers  of premium quality sponge that currently have complete approval for all significant demanding aerospace  applications.  Over the past few years, sponge producers in Russia and Kazakhstan  have  progressed in their efforts to obtain  approval for the use of their  sponge into all  aerospace  applications.  This  qualification process is likely to continue for several more years. Historically,  the Company has purchased  sponge  predominantly  from producers in Kazakhstan and Japan. In September  2002, the Company entered into a sponge supply  agreement,  effective from January 1, 2002 through  December 31, 2007,  which requires  minimum annual purchases  by the  Company.  The Company has no other  long-term  sponge  supply agreements.  Since 2000,  the Company  has also  purchased  sponge from the U.S. Defense Logistics Agency ("DLA")  stockpile;  however,  the DLA stockpile became fully depleted  during 2005. The Company  expects to continue to purchase sponge from a variety of sources during 2006.       The Company utilizes titanium scrap at its melting locations that is either generated  internally,  purchased  from certain of its  customers  under various buyback  arrangements  or purchased  externally  on the open market.  Such scrap consists  of alloyed  and  commercially  pure  solids and  turnings.  Internally produced scrap is generated in the Company's  factories  during both melting and mill product  processing.  Scrap obtained through customer buyback  arrangements provides  a "closed  loop"  arrangement  resulting  in  greater  supply and cost stability.  Externally  purchased  scrap  comes  from a wide  range of  sources, including customers, collectors, processors and brokers. The Company anticipates that 30% to 35% of the scrap it will utilize  during 2006 will be purchased from external  suppliers,  as compared to 35% to 40% for 2005,  due to the  Company's successful  efforts to increase its closed loop  arrangements.  The Company also occasionally  sells  scrap,  usually  in a form or grade it cannot  economically recycle.       Market  forces can  significantly  impact the supply or cost of  externally produced scrap.  The amount of scrap generated in the supply chain varies during the titanium business cycles.  During the middle of the cycle,  scrap generation and consumption are in relative equilibrium, minimizing disruptions in supply or significant  changes  in the  available  supply  and  market  prices  for scrap. Increasing or decreasing  cycles tend to cause  significant  changes in both the supply and market price of scrap.  Early in the titanium cycle,  when the demand for  titanium  melted  and mill  products  begins  to  increase,  the  Company's requirements (and those of other titanium manufacturers) precede the increase in scrap  generation by downstream  customers and the supply chain,  placing upward pressure on the market price of scrap. The opposite situation occurs when demand for titanium  melted and mill products  begins to decline,  resulting in greater availability  of supply and placing  downward  pressure  on the market  price of scrap.  As a net  purchaser  of  scrap,  the  Company  is  susceptible  to price increases during periods of increasing demand.  This phenomenon normally results in higher selling prices for melted and mill products, which tends to offset the increased material costs.            All of the Company's major  competitors  utilize scrap as a raw material in their melt operations.  In addition to use by titanium  manufacturers,  titanium scrap is used in steel-making  operations during production of interstitial-free steels,  stainless  steels and  high-strength-low-alloy  steels.  Recent  strong demand  for  these  steel  products,  especially  from  China,  has  produced  a significant  increase in demand for titanium scrap at a time when titanium scrap generation  rates are at low  levels,  partly due to lower  commercial  aircraft build  rates  over the past few  years.  These  events  created a  significantly tightened supply of titanium scrap during 2004 and 2005, and the Company expects this trend to continue  during  2006.  For TIMET,  this will  translate to lower availability and higher cost for externally purchased scrap in the near-term.       In 2005 the Company was somewhat limited in its ability to raise prices for the portion of its business that is subject to long-term pricing agreements. The Company's  ability to offset these increased  material costs with higher selling prices should  improve in 2006, as many of the  Company's  long-term  agreements ("LTAs")  have  either  expired  or have been  renegotiated  for 2006 with price adjustments that take into account raw material cost fluctuations. Additionally, the expected  increase in commercial  aircraft build rates over the next several years, as previously discussed,  could have the effect of lessening the shortage of titanium scrap.  Further,  several titanium producers,  including TIMET, have recently   announced  plans  to  expand  their   respective   sponge   producing capabilities. Although these expansions should help reduce the current imbalance of global supply and demand for raw materials,  the Company does not believe the raw material  shortage will be fully relieved at any time in the near future and therefore  expects  relatively  high prices for raw materials to continue for at least the near term.       Various  alloys  used in the  production  of  titanium  products  are  also available from a number of suppliers.  However,  the recent high level of global demand for steel  products has also  resulted in a  significant  increase in the costs for several  alloys,  such as vanadium and  molybdenum.  The cost of these alloys during 2005 was significantly higher than at any point during the past 10 years.  Vanadium and Molybdenum  costs peaked in the spring of 2005 and finished the year well below those levels.  Although availability is not expected to be a concern and the Company has negotiated  certain price and cost  protection  with suppliers and  customers,  there is no assurance  that such alloy costs will not continue to fluctuate significantly in the near future.       Customer  agreements.  The Company has LTAs with certain  major  customers, including, among others, The Boeing Company ("Boeing"),  Rolls-Royce plc and its German and U.S.  affiliates  ("Rolls-Royce"),  United  Technologies  Corporation ("UTC," Pratt & Whitney and related companies), Societe Nationale d<180>Etude et de  Construction  de  Moteurs  d'Aviation   ("Snecma"),   Wyman-Gordon   Company ("Wyman-Gordon," a unit of Precision Castparts Corporation ("PCC")) and VALTIMET SAS  ("VALTIMET").  These  agreements  expire at various times from 2007 through 2012, are subject to certain  conditions  and generally  provide for (i) minimum market  shares of the  customers'  titanium  requirements  or firm annual volume commitments,  (ii)  formula-determined  prices  (although some contain  elements based on market  pricing) and (iii) price  adjustments  for certain raw material and energy cost fluctuations.  Generally, the LTAs require the Company's service and product performance to meet specified criteria and contain a number of other terms  and  conditions   customary  in  transactions  of  these  types.  Certain provisions of these LTAs have been amended in the past and may be amended in the future to meet changing business  conditions.  During 2005, 49% of the Company's sales revenues were from customers under LTAs.            In certain  events of  nonperformance  by the Company or the customer,  the LTAs may be terminated  early.  Although it is possible that some portion of the business would continue on a non-LTA  basis,  the  termination of one or more of the LTAs could result in a material effect on the Company's business, results of operations,  financial  position or  liquidity.  The LTAs were designed to limit selling price volatility to the customer, while providing TIMET with a committed base of volume throughout the aerospace business cycles.       During the third quarter of 2003,  the Company and  Wyman-Gordon  agreed to terminate the 1998 purchase and sale agreement  associated with the formation of the titanium  castings joint venture  previously  owned by the two parties.  The Company  paid   Wyman-Gordon  a  total  of  $6.8  million  in  three   quarterly installments in connection with this termination, which included the termination of certain favorable  purchase terms. The Company recorded a one-time charge for the entire $6.8  million as a reduction  to sales in the third  quarter of 2003. Concurrently,   the  Company  entered  into  new  long-term  purchase  and  sale agreements with Wyman-Gordon that expire in 2008.       Prior to July 1, 2005,  under the terms of the previous  LTA between  TIMET and Boeing,  in 2002 through  2007,  Boeing would have been  required to advance TIMET $28.5 million annually less $3.80 per pound of titanium product  purchased by Boeing  subcontractors  under the  Boeing  LTA  during  the  preceding  year. Effectively,  the Company  collected $3.80 less from Boeing than the LTA selling price for each pound of titanium product sold directly to Boeing and reduced the related customer advance recorded by the Company.  For titanium products sold to Boeing  subcontractors,  the Company  collected the full LTA selling price,  but gave Boeing  credit by  reducing  the next  year's  annual  advance by $3.80 per pound.  The Boeing customer  advance was also reduced as the Company  recognized income under the  take-or-pay  provisions of the LTA, as described in Note 10 to the Consolidated  Financial Statements.  Under a separate agreement,  TIMET must establish and hold buffer inventory for Boeing at TIMET's facilities,  for which Boeing will be invoiced by TIMET at LTA pricing when such  material is processed into a mill product by TIMET.       Effective July 1, 2005, the Company entered into a new LTA with Boeing. The new LTA expires on December 31, 2010 and provides for,  among other things,  (i) mutual annual purchase and supply commitments by both parties, (ii) continuation of the existing buffer inventory program currently in place for Boeing and (iii) certain improved product pricing, including certain adjustments for raw material cost fluctuations.  Beginning in 2006, the new LTA also replaces the take-or-pay provisions  of the  previous  LTA with an  annual  makeup  payment  early in the following  year in the  event  Boeing  purchases  less  than its  annual  volume commitment in any year. See Item 7 - MD&A for additional  information  regarding the Boeing LTA.       The Company's LTA with VALTIMET,  a manufacturer of welded  stainless steel and titanium tubing that is principally  sold into the industrial  markets,  was entered into in 1997 and expires in 2007.  VALTIMET is a 44%-owned  affiliate of TIMET.  Under the VALTIMET LTA, TIMET has agreed to provide a certain percentage of  VALTIMET's  titanium  requirements  at  formula-determined  selling  prices, subject to certain  conditions.  Certain  provisions  of this contract have been amended in the past and may be amended in the future to meet  changing  business conditions.            Markets and customer  base.  The following  table  summarizes the Company's sales revenue by geographical location:                                                                                     Year ended December 31,                                                                      -------------------------------------------------                                                                          2005              2004              2003                                                                      --------------    --------------    -------------                                                                            (Percentage of total sales revenue) Sales revenue to customers within:       North America                                                                56%               55%              55%   Europe                                                                       36%               40%              38%   Other                                                                         8%                5%               7%                                                                      --------------    --------------    -------------                                                                                100%              100%             100%                                                                      ==============    ==============    =============        Further  information  regarding the Company's  external sales,  net income, long-lived  assets and total assets can be found in the  Company's  Consolidated Balance Sheets,  Consolidated Statements of Operations and Notes 6 and 21 to the Consolidated Financial Statements.       Substantially  all of the Company's sales and operating  income are derived from operations  based in the U.S., the U.K.,  France and Italy. As shown in the below  table,  the Company  generates  more than half of its sales  revenue from sales to the commercial  aerospace  sector. As previously noted, the Company has LTAs with certain major aerospace customers, including Boeing, Rolls-Royce, UTC, Snecma  and  Wyman-Gordon.  This  concentration  of  customers  may  impact  the Company's  overall  exposure to credit and other  risks,  either  positively  or negatively, in that all of these customers may be similarly affected by the same economic or other conditions.  The following table provides  supplemental  sales revenue  information  regarding  the  Company's  dependence  on  the  commercial aerospace sector and certain customer relationships:                                                                                   Year ended December 31,                                                                   --------------------------------------------------                                                                        2005              2004              2003                                                                   ---------------    --------------    -------------                                                                          (Percentage of total sales revenue) Sales revenue to:        Commercial aerospace sector                                              57%                57%              57%                                                                   ===============    =============    ==============    Customers under LTAs                                                     49%                44%              41%                                                                   ===============    =============    ==============    Significant customers under LTAs: (1)      Rolls-Royce and other Rolls-Royce suppliers (2)                       12%                15%              15%                                                                   ===============    =============    ==============    Ten largest customers                                                    45%                48%              44%                                                                   ===============    =============    ==============    Significant customers: (1)      PCC and related entities                                              13%                13%              13%                                                                   ===============    =============    ==============  - --------------------------------------------------------------------------------------------------------------------  (1)  Greater than 10% of net sales. (2)  Includes  direct  sales to certain of the  PCC-related  entities  under the      terms of the Rolls-Royce LTAs.            The primary market for titanium products in the commercial aerospace sector consists  of two  major  manufacturers  of large  (over  100  seats)  commercial airframes - Boeing Commercial Airplanes Group (a unit of Boeing) and Airbus (80% owned by  European  Aeronautic  Defence  and Space  Company and 20% owned by BAE Systems).  In  addition  to  the  airframe  manufacturers,  the  following  four manufacturers  of large civil  aircraft  engines are also  significant  titanium users - Rolls-Royce,  General  Electric  Aircraft  Engines,  Pratt & Whitney and Snecma. The Company's sales are made both directly to these major  manufacturers and to companies (including forgers such as Wyman-Gordon) that use the Company's titanium to produce parts and other materials for such manufacturers.  If any of the major aerospace  manufacturers were to significantly  reduce aircraft and/or jet engine build rates from those currently expected,  there could be a material adverse effect, both directly and indirectly, on the Company's business, results of operations, financial position and liquidity.       The  backlogs  for Boeing  and Airbus  reflect  orders for  aircraft  to be delivered  over  several  years.  Changes in the  economic  environment  and the financial  condition of airlines can result in  rescheduling  or cancellation of contractual  orders.   Accordingly,   aircraft  manufacturer  backlogs  are  not necessarily  a reliable  indicator of near-term  business  activity,  but may be indicative  of  potential  business  levels  over  a  longer-term  horizon.  The following  table shows the estimated  firm order backlogs for Boeing and Airbus, as reported by The Airline Monitor in January 2006:                                                                                       At December 31,                                                                    -------------------------------------------------                                                                        2005              2004             2003                                                                    --------------    -------------    --------------  Firm order backlog - all planes:       Airbus                                                                2,177             1,500            1,454   Boeing                                                                1,783             1,089            1,101                                                                    --------------    -------------    --------------                                                                          3,960             2,589            2,555                                                                    ==============    =============    ==============  Firm order backlog - wide body planes:   Airbus                                                                  500               466              471   Boeing                                                                  671               287              230                                                                    --------------    -------------    --------------                                                                          1,171               753              701                                                                    ==============    =============    ==============  Wide body planes as % of total firm order backlog                          30%               29%             27%                                                                    ==============    =============    ==============        Wide body planes (e.g.,  Boeing 747, 777 and 787 and Airbus A330, A340, and A380) tend to use a higher  percentage of titanium in their  airframes,  engines and parts than  narrow body planes  (e.g.,  Boeing 737 and 757 and Airbus  A318, A319 and  A320).  Newer  models of  planes  tend to use a higher  percentage  of titanium  than  older  models.  Additionally,  Boeing  generally  uses a  higher percentage of titanium in its airframes  than Airbus.  For example,  the Company estimates that  approximately  59 metric tons, 45 metric tons and 18 metric tons of titanium are purchased for the  manufacture  of each Boeing 777, 747 and 737, respectively,  including both the airframes and engines.  The Company  estimates that approximately 25 metric tons, 18 metric tons and 12 metric tons of titanium are  purchased  for  the  manufacture  of  each  Airbus  A340,  A330  and  A320, respectively, including both the airframes and engines.            At year-end 2005, a total of 159 firm orders had been placed for the Airbus A380, a program officially launched in 2000 with anticipated first deliveries in 2006.  Current  estimates are that  approximately 76 metric tons of titanium (50 metric  tons  for the  airframe  and 26  metric  tons for the  engines)  will be purchased for each A380 manufactured. Additionally, at year-end 2005, a total of 291 firm  orders  have been  placed  for the Boeing  787,  a program  officially launched in April 2004 with anticipated  first deliveries in 2008.  Although the 787 will contain more composite  materials than a typical Boeing  airplane,  the Company estimates that  approximately 91 metric tons of titanium (80 metric tons for the airframe and 11 metric tons for the engines)  will be purchased for each 787 manufactured.  The Company believes significant  additional titanium will be required  in the early  years of 787  manufacturing  until the  program  reaches maturity.       During 2005, Airbus officially launched the A350 program,  which is a major derivative  of the Airbus A330 with first  deliveries  scheduled for 2010. As of December 31, 2005, firm booked orders received by Airbus for the A350 totaled 87 airplanes.  These A350s will use composite  materials and new engines similar to the ones used on the Boeing 787 and are expected to require  significantly  more titanium as compared  with earlier  Airbus  models.  The  Company's  preliminary estimates are that approximately 51 metric tons (40 metric tons for the airframe and  11  metric  tons  for  the  engines)   will  be  purchased  for  each  A350 manufactured.  However,  the final titanium buy weight may change as the A350 is still in the design phase.       Outside  of  commercial   aerospace  and  military  sectors,   the  Company manufactures a wide range of products for customers in the chemical process, oil and  gas,   consumer,   sporting   goods,   automotive  and  power   generation. Approximately  15% of the  Company's  sales  revenue in 2005 and 2004 and 16% in 2003 was  generated by sales into  industrial  and emerging  markets,  including sales to  VALTIMET  for the  production  of welded  tubing.  For the oil and gas industry,  the Company  provides  seamless  pipe for  downhole  casing,  risers, tapered stress joints and other offshore oil and gas production equipment, along with firewater piping systems.       In addition to melted and mill products, which are sold into the commercial aerospace,  military, industrial and emerging markets sectors, the Company sells certain  other  products  such as  titanium  fabrications,  titanium  scrap  and titanium  tetrachloride.  Sales of these other products  represented  15% of the Company's sales revenue in 2005 and 13% in each of 2004 and 2003.       The Company's backlog of unfilled orders was approximately  $870 million at December  31,  2005,  compared  to $450  million at  December  31, 2004 and $205 million at December 31, 2003. Over 90% of the 2005 year-end backlog is scheduled for shipment  during 2006.  The  Company's  order  backlog may not be a reliable indicator of future business activity.       The  Company  has   explored  and  will   continue  to  explore   strategic arrangements in the areas of product  development,  production and distribution. The Company will also continue to work with existing and potential  customers to identify  and  develop  new or  improved  applications  for  titanium  that take advantage of its unique qualities.       Competition.  The  titanium  metals  industry  is highly  competitive  on a worldwide basis.  Producers of melted and mill products are located primarily in the United States, Japan, France,  Germany,  Italy, Russia, China and the United Kingdom.  In  addition,  producers  of other metal  products,  such as steel and aluminum,  maintain forging, rolling and finishing facilities that could be used or  modified  without  substantial  capital  expenditures  to  process  titanium products.            There are currently  six major,  and several  minor,  producers of titanium sponge  in the  world.  Four of the  major  producers  have  announced  plans to increase  sponge  production  capacity.  TIMET is currently  the only major U.S. sponge  producer.  The Company believes that entry as a new producer of titanium sponge would require a significant capital investment and substantial  technical expertise.       The Company's  principal  competitors in the aerospace  titanium market are Allegheny  Technologies  Incorporated ("ATI") and RTI International Metals, Inc. ("RTI"),  both based in the United  States,  and Verkhnaya  Salda  Metallurgical Production  Organization  ("VSMPO"),  based in  Russia.  UNITI (a joint  venture between ATI and VSMPO),  RTI and certain  Japanese  producers  are the Company's principal  competitors  in the  industrial  and  emerging  markets.  The Company competes primarily on the basis of price, quality of products, technical support and the availability of products to meet customers' delivery schedules.       In the U.S. market,  the increasing  presence of non-U.S.  participants has become a significant competitive factor. Until 1993, imports of foreign titanium products into the U.S. had not been significant. This was primarily attributable to  relative  currency  exchange  rates  and,  with  respect  to Japan,  Russia, Kazakhstan and Ukraine,  import duties (including antidumping duties).  However, since 1993,  imports of titanium  sponge,  ingot and mill products,  principally from  Russia  and  Kazakhstan,   have  increased  and  have  had  a  significant competitive impact on the U.S. titanium  industry.  To the extent the Company is able  to take  advantage  of this  situation  by  purchasing  sponge  from  such countries for use in its own operations, the negative effect of these imports on the Company can be somewhat mitigated.       Generally,  imports of titanium products into the U.S. are subject to a 15% "normal trade  relations"  tariff.  For tariff purposes,  titanium  products are broadly  classified as either wrought  (billet,  bar,  sheet,  strip,  plate and tubing) or unwrought (sponge,  ingot and slab). Because a significant portion of end-use  products  made from  titanium  products are  ultimately  exported,  the Company,  along with its  principal  competitors  and many  customers,  actively utilize  the  duty-drawback  mechanism  to recover  most of the  tariff  paid on imports.       From  time-to-time,  the U.S.  government  has granted  preferential  trade status to certain titanium products imported from particular  countries (notably wrought titanium products from Russia,  which carried no U.S. import duties from approximately  1993 until 2004).  It is possible that such  preferential  status could be granted again in the future.       The Japanese  government  has raised the  elimination or  harmonization  of tariffs on titanium  products,  including  titanium sponge, for consideration in multi-lateral  trade  negotiations  through  the World Trade  Organization  (the so-called  "Doha  Round").  As part of the Doha  Round,  the  United  States has proposed the staged  elimination of all industrial  tariffs,  including those on titanium. The Japanese government has specifically asked that titanium in all it forms be included in the tariff elimination  program. The Company has urged that no change be made to these tariffs, either on wrought or unwrought products. The negotiations  are  currently  scheduled  to  conclude  at the  end of  2006  for implementation beginning in 2007.       TIMET has successfully  resisted,  and will continue to resist,  efforts to eliminate  duties  on  sponge  and  unwrought  titanium  products,  although  no assurances  can be made that the Company will continue to be successful in these activities. Further reductions in, or the complete elimination of, any or all of these tariffs could lead to increased imports of foreign sponge,  ingot and mill products  into the U.S.  and an increase  in the amount of such  products on the market  generally,  which could  adversely  affect pricing for titanium  sponge, ingot and mill products and thus the Company's business,  results of operations, financial position or liquidity.       Research and development. The Company's research and development activities are directed  toward  expanding  the use of titanium and titanium  alloys in all market sectors.  Key research  activities include the development of new alloys, development  of  technology  required  to  enhance  the  performance  of TIMET's products in the traditional  industrial and aerospace  markets and  applications development for automotive and other emerging markets.  The Company conducts the majority of its research and development  activities at its Henderson  Technical Laboratory  in  Henderson,  Nevada,  with  additional  activities at its Witton, England  facility.  The Company incurred  research and development costs of $3.2 million in 2005, $2.9 million in 2004 and $2.8 million in 2003.       In April  2003,  the  Company was  selected  by the United  States  Defense Advanced  Research  Projects  Agency  ("DARPA")  to  explore  low cost  titanium extraction  processes.  Since  2003,  the main  effort  has  focused  on the FFC Cambridge  process.  As of December 31, 2005,  work to develop and scale up that process at TIMET has been  discontinued  due to low overall process  efficiency. TIMET  continues to work in partnership  with DARPA and others to meet the goals of the DARPA titanium  initiative.  The work with DARPA complements  TIMET's own programs  exploring new  technologies  and  improvements  to the existing Vacuum Distilled sponge process.       Patents  and  trademarks.  The  Company  holds U.S.  and  non-U.S.  patents applicable to certain of its titanium alloys and manufacturing technology, which expire at various times from 2007 through 2025.  The Company  continually  seeks patent  protection  with  respect  to its  technical  base and has  occasionally entered  into  cross-licensing  arrangements  with third  parties.  The  Company believes  the  trademarks  TIMET(R)  and  TIMETAL(R),  which  are  protected  by registration in the U.S. and other countries, are important to its business. The Company  believes  that  proprietary   alloys  targeting   automotive   exhaust, turbocharger,  engine valve,  and  suspension  spring  applications  provide the company competitive  advantages in the automotive market.  Further,  the Company was recently  granted  patent  protection for an improved  machinability  alloy, TIMETAL  54M,  for use in forged  and  machined  components  applicable  to both aerospace and non-aerospace market sectors.  Additionally,  the Company has been granted  certain  patents  and has certain  other  patent  applications  pending relating  to  various  aspects of its  manufacturing  technology.  However,  the majority of the Company's titanium alloys and manufacturing  technologies do not benefit from patent or other intellectual property protection.       Employees.  The cyclical nature of the aerospace industry and its impact on the Company's  business is the principal  reason for significant  changes in the Company's employment. The increases during 2004 and 2005 reflect the increase in demand for titanium products during those periods. The Company currently expects employment to increase  throughout 2006 as production  continues to increase and its sponge plant expansion project in Henderson,  Nevada nears  completion.  The following table shows the number of employees at the end of the past 3 years:                                                     Employees at December 31,                                    -------------------------------------------------------                                         2005                2004                2003                                    ----------------    ----------------    ---------------        U.S.                                     1,476               1,376               1,266  Europe                                     893                 851                 789                                    ----------------    ----------------    ---------------                                            2,369               2,227               2,055                                    ================    ================    ===============        The Company's  production,  maintenance,  clerical and technical workers in Toronto,  Ohio, and its production and maintenance workers in Henderson,  Nevada (approximately 50% of the Company's total U.S. employees) are represented by the United Steelworkers of America under contracts expiring in July 2008 and January 2008,  respectively.  Employees at the Company's  other U.S.  facilities are not covered by collective bargaining  agreements.  Approximately 64% of the salaried and hourly  employees at the Company's  European  facilities are  represented by various European labor unions. The Company recently extended its labor agreement with its  U.K.  production  and  maintenance  employees  through  2008,  and the Company's  labor  agreements  with its French and Italian  employees are renewed annually.       The Company currently  considers its employee relations to be satisfactory. However, it is possible that there could be future work stoppages or other labor disruptions that could  materially and adversely affect the Company's  business, results of operations, financial position or liquidity.       Regulatory and environmental matters. The Company's operations are governed by various Federal,  state,  local and foreign  environmental  and worker safety laws and regulations.  In the U.S., such laws include the  Occupational,  Safety and  Health  Act,  the Clean  Air Act,  the  Clean  Water  Act and the  Resource Conservation  and Recovery  Act. The Company uses and  manufactures  substantial quantities of substances that are considered  hazardous,  extremely hazardous or toxic under environmental and worker safety and health laws and regulations. The Company has used and manufactured such substances  throughout the history of its operations.  Although  the  Company  has  substantial  controls  and  procedures designed to reduce continuing risk of  environmental,  health and safety issues, the Company could incur substantial  cleanup costs,  fines and civil or criminal sanctions,  third party property damage or personal injury claims as a result of violations or liabilities under these laws or non-compliance  with environmental permits  required  at our  facilities.  In  addition,  government  environmental requirements or the enforcement thereof may become more stringent in the future. There can be no assurance that some, or all, of the risks  discussed  under this heading will not result in  liabilities  that would be material to the Company's business, results of operations, financial position or liquidity.       The Company  believes that its operations are in compliance in all material respects with  applicable  requirements of  environmental  and worker health and safety  laws.  The  Company's  policy  is  to  continually   strive  to  improve environmental,  health and safety  performance.  The  Company  incurred  capital expenditures  related  to  health,  safety  and  environmental   compliance  and improvement  of  approximately  $25.1 million in 2005,  $5.1 million in 2004 and $1.9 million in 2003.  Such capital  expenditures  include $24.2 million in 2005 and $3.9 million in 2004  related to the  construction  of a water  conservation facility at the Company's  Henderson,  Nevada  location.  The Company's  capital budget provides for  approximately  $4.6 million for  environmental,  health and safety capital expenditures during 2006.       From  time to time,  the  Company  may be  subject  to  health,  safety  or environmental regulatory enforcement under various statutes, resolution of which typically  involves the  establishment  of  compliance  programs.  Occasionally, resolution of these matters may result in the payment of penalties. However, the imposition of more strict standards or requirements under environmental,  health or safety laws and regulations could result in expenditures in excess of amounts currently  estimated  to be  required  for  such  matters.  See  Note  19 to the Consolidated Financial Statements.       Related  parties.  At December 31, 2005,  Valhi,  Inc.  ("Valhi") and other entities or persons  related to Harold C.  Simmons held  approximately  52.6% of TIMET's  outstanding  common stock and 54.1% of the Company's Series A Preferred Stock. See Notes 1 and 18 to the Consolidated Financial Statements.       Available  information.  The  Company  maintains  an  Internet  website  at www.timet.com.  The Company's Annual Reports on Form 10-K,  Quarterly Reports on Form 10-Q and Current  Reports on Form 8-K, and any amendments  thereto,  are or will  be  available  free  of  charge  at such  website  as  soon as  reasonably practicable  after they are filed or  furnished,  as  applicable,  with the SEC. Additionally,  the Company's (i) Corporate Governance  Guidelines,  (ii) Code of Business Conduct and Ethics and (iii) Audit Committee and Management Development and Compensation Committee charters are also available on the Company's website. Such documents will also be provided to shareholders upon request. Such requests should be directed to the attention of TIMET's Investor Relations  Department at TIMET's corporate offices located at 5430 LBJ Freeway,  Suite 1700, Dallas Texas 75240.       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,  NW, Washington, DC 20549,  and 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 at www.sec.gov that contains  reports, proxy and information  statements,  and other information regarding issuers that file electronically with the SEC.
Listed below are certain  risk factors  associated  with our  business.  In addition to the potential effect of these risk factors discussed below, any risk factor that could result in reduced  earnings,  liquidity  or operating  losses, could in turn adversely  affect our ability to meet our liabilities or adversely affect the quoted market prices for our securities.       The cyclical nature of the industries in which our customers operate causes such  customers'  demand for our products to be cyclical,  creating  uncertainty regarding our future profitability.  The titanium industry in general, and TIMET specifically,  has  historically  derived a substantial  portion of its business from the commercial aerospace sector.  Consequently,  the cyclical nature of the commercial  aerospace  sector has been the  principal  driver of the  historical fluctuations in our performance.  Over the past 25 years, the titanium  industry had cyclical peaks in mill product shipments in 1989, 1997 and 2001 and cyclical lows in 1983,  1991, 1999 and 2002.  Prior to 2004,  demand for titanium reached its  highest  level  in 1997,  when  industry  mill  product  shipments  reached approximately  60,700  metric  tons.  However,  since that peak,  industry  mill product  shipments have fluctuated  significantly,  primarily due to a continued change in demand for titanium from the commercial aerospace sector, but also due to geopolitical  instability  and the economic  impact of terrorist  threats and attacks.  Sales of our products to the commercial aerospace sector accounted for 57% of our total  sales  revenue in each of the last three  years.  Events  that could adversely affect the commercial aerospace sector, such as future terrorist attacks,  world  health  crises  or  reduced  orders  from  commercial  airlines resulting from continued  operating losses at the airlines,  could significantly decrease our results of  operations,  and our business and  financial  condition could significantly decline.            Adverse changes to, or interruptions in, our  relationships  with our major commercial aerospace customers could reduce our revenues. In 2005, approximately 57% of our revenues were derived from sales to the commercial  aerospace sector. Sales under LTAs with  certain  customers  in the  commercial  aerospace  sector account for a  significant  percentage  of our annual sales  revenue.  If we are unable  to  maintain  our  relationships  with our  major  commercial  aerospace customers,  including Boeing, Rolls-Royce,  Snecma, UTC and Wyman-Gordon,  under the LTAs we have with these customers, our sales could decrease substantially.       Our failure to develop new markets would result in our continued dependence on the cyclical  commercial  aerospace sector,  and our operating results would, accordingly,  remain  cyclical.  In  an  effort  to  reduce  dependence  on  the commercial  aerospace market and to increase  participation in other markets, we have been devoting  resources to developing new markets and applications for our products,  principally in automotive, oil and gas and other emerging markets for titanium.  Developing these emerging market  applications  involves  substantial risk and  uncertainties  due to the fact that  titanium  must  compete with less expensive alternative  materials in these potential markets or applications.  We may  not be  successful  in  developing  new  markets  or  applications  for our products,  significant time may be required for such development and uncertainty exists as to the extent to which we will face competition in this regard.       Our  dependence  upon certain  critical raw  materials  that are subject to price and availability  fluctuations  could lead to increased costs or delays in the  manufacture  and  sale of our  products.  We rely on a  limited  number  of suppliers around the world,  and principally on those located in Australia,  for our supply of  titanium-containing  rutile ore, one of the primary raw materials used in the  production  of  titanium  sponge.  While  chlorine,  another of the primary raw materials  used in the production of titanium  sponge,  is generally widely  available,  we currently obtain our chlorine from a single supplier near our sponge plant in Henderson,  Nevada. Also, we cannot supply all our needs for all grades of titanium sponge and scrap  internally and are therefore  dependent on third parties for a substantial portion of our raw material requirements. All of our major competitors utilize sponge and scrap as raw materials in their melt operations. In addition to use by titanium manufacturers, titanium scrap is used in certain  steel-making  operations.  Current demand for these steel  products, especially  from  China,  have  produced a  significant  increase  in demand for titanium scrap at a time when titanium scrap  generation rates are at low levels because of the lower commercial  aircraft build rates in recent years.  Purchase prices and  availability of these critical  materials are subject to volatility. At any given  time,  we may be unable  to  obtain  an  adequate  supply of these critical materials on a timely basis, on price and other terms acceptable to us, or at all.       We have  experienced  operating  and net  losses in the past and may not be profitable in the future. We have incurred operating losses during each of 2003, 2002, 2000 and 1999 and incurred net losses in each year from 1999 through 2003. Our ability to achieve profitability in the future is dependent upon a number of factors, including the following:       o    market demand and prices for titanium  products,  particularly  demand           and pricing in the commercial aerospace sector;       o    our ability to increase  prices for titanium  products to a level that           exceeds any increases in materials or production costs;       o    the  avoidance  of any  material  adverse  developments  either in the           capacity  utilization  for the  production  of titanium  sponge or the           availability of titanium scrap; and       o    favorable general economic conditions throughout the world.       Reductions  in, or the  complete  elimination  of,  any or all  tariffs  on imported  titanium  products  into the United  States  could  lead to  increased imports of foreign sponge, ingot and mill products into the U.S. and an increase in the amount of such  products on the market  generally,  which could  decrease pricing for our products.  In the U.S. titanium market, the increasing  presence of non-U.S.  participants  has become a significant  competitive  factor.  Until 1993,  imports  of  foreign  titanium  products  into  the  U.S.  had  not  been significant. This was primarily attributable to relative currency exchange rates and,  with  respect to Japan,  Russia,  Kazakhstan  and Ukraine,  import  duties (including antidumping duties). However, since 1993, imports of titanium sponge, ingot and mill products,  principally from Russia and Kazakhstan, have increased and have had a significant competitive impact on the U.S. titanium industry.       Generally,  imports of titanium products into the U.S. are subject to a 15% "normal trade  relations"  tariff.  For tariff purposes,  titanium  products are broadly  classified as either wrought  (billet,  bar,  sheet,  strip,  plate and tubing) or  unwrought  (sponge,  ingot and slab).  From  time-to-time,  the U.S. government has granted  preferential  trade status to certain titanium  products imported from  particular  countries  (notably  wrought  titanium  products from Russia, which carried no U.S. import duties from approximately 1993 until 2004). It is  possible  that such  preferential  status  could be granted  again in the future, and we may not be successful in resisting efforts to eliminate duties or tariffs on  titanium  products.  See  discussion  of Doha Round in  "Business  - Competition."       We may be unable to reach or maintain  satisfactory  collective  bargaining agreements with unions representing a significant portion of our employees.  Our production,  maintenance,  clerical and technical workers in Toronto,  Ohio, and our production and maintenance workers in Henderson,  Nevada, are represented by the United  Steelworkers  of America under  contracts  expiring in July 2008 and January 2008, for the respective  locations.  Approximately  64% of the salaried and hourly  employees  at our European  facilities  are  represented  by various European labor unions.  Our labor agreement with our U.K.  employees  expires in 2008,  and the  agreements  with our French and  Italian  employees  are renewed annually.  A labor  dispute  or work  stoppage  could  materially  decrease  our operating  results.  We may not  succeed  in  concluding  collective  bargaining agreements  with the  unions  to  replace  expiring  agreements  or to  maintain satisfactory relations under existing collective bargaining  agreements.  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.       Because  we are  subject  to  environmental  and  worker  safety  laws  and regulations,  we may be required to remediate the  environmental  effects of our operations or take steps to modify our  operations to comply with these laws and regulations, which could reduce our profitability. Various federal, state, local and foreign  environmental  and worker  safety laws and  regulations  govern our operations.  Throughout  the  history  of  our  operations,  we  have  used  and manufactured,  and  currently  use and  manufacture,  substantial  quantities of substances  that are considered  hazardous,  extremely  hazardous or toxic under environmental  and worker  safety and health laws and  regulations.  Although we have substantial  controls and procedures  designed to reduce continuing risk of environmental,  health and safety  issues,  we could incur  substantial  cleanup costs,  fines and civil or criminal  sanctions,  third party property  damage or personal injury claims as a result of violations or liabilities under these laws or  non-compliance  with  environmental  permits required at our facilities.  In addition,  government environmental  requirements or the enforcement thereof may become more  stringent  in the future.  Some or all of these risks may result in liabilities that could reduce our profitability.       The titanium metals industry is highly competitive,  and we may not be able to  compete  successfully.  The global  markets  in which we operate  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 in any of the industries in which we compete may result in reduced demand for our products.  In addition, producers  of metal  products,  such as steel and  aluminum,  maintain  forging, rolling and  finishing  facilities.  Such  facilities  could be used or modified without substantial  expenditures to process titanium mill products, which could lead to increased  competition and decreased pricing for our titanium  products. In addition, many factors,  including the historical presence of excess capacity in the titanium industry,  work to intensify the price competition for available business at low points in the business cycle.
Not applicable.
Set forth below is a listing of the Company's major production  facilities. In addition to its U.S. sponge capacity discussed below, the Company's worldwide melting  capacity  presently   aggregates   approximately   44,650  metric  tons (estimated  22% of world  capacity),  and its mill product  capacity  aggregates approximately  22,600  metric tons  (estimated  18% of world  capacity).  Of the Company's  worldwide melting capacity,  35% is represented by electron beam cold hearth melting ("EB") furnaces, 63% by vacuum arc remelting ("VAR") furnaces and 2% by a vacuum induction melting ("VIM") furnace.                                                                                                 Annual Practical                                                                                               Capacities (3)                                                                                       --------------------------------                                                                                          Melted              Mill          Manufacturing Location                      Products Manufactured              Products           Products - ------------------------------------------    ------------------------------------    --------------     -------------                                                                                                (metric tons)      Henderson, Nevada (1)                         Sponge, Ingot                                 12,250                  - Morgantown, Pennsylvania (1)                  Slab, Ingot, Raw materials                                                  Processing                                 20,000                  - Toronto, Ohio (1)                             Billet, Bar, Plate, Sheet, Strip                   -             11,000 Vallejo, California (2)                       Ingot (including non-titanium                                                  superalloys)                                1,600                  - Ugine, France (2) (4)                         Ingot, Billet                                  2,100              1,500 Waunarlwydd (Swansea), Wales(1)               Bar, Plate, Sheet                                  -              3,100 Witton, England (2)                           Ingot, Billet, Bar                             8,700              7,000   (1)  Owned facility. (2)  Leased facility. (3)  Practical  capacities  are  variable  based  on  product  mix  and  are not      additive. (4)  Practical  capacities  are  based  on the  approximate  maximum  equivalent      product that CEZUS is contractually obligated to provide.       The Company has operated its major production  facilities at varying levels of practical  capacity during the past three years.  Overall in 2005, the plants operated at approximately 80% of practical capacity,  as compared to 73% in 2004 and 56% in 2003.  In 2006,  the  Company's  plants  are  expected  to operate at approximately  88%  of  practical  capacity.  However,  practical  capacity  and utilization  measures  can vary  significantly  based  upon the mix of  products produced.       United States production.  The Company's VDP sponge facility is expected to operate at its full annual practical  capacity of 8,600 metric tons during 2006, which is comparable to 2005.  VDP sponge is used  principally  as a raw material for the Company's  melting  facilities in the U.S. and Europe.  In May 2005, the Company  announced  its plans to expand its VDP sponge  facility  in  Henderson, Nevada.  The Company  currently  expects to complete this expansion by the first quarter of 2007,  which will provide the capacity to produce an additional 4,000 metric tons of sponge annually,  an increase of  approximately  47% over current Henderson sponge production capacity levels. The Company currently estimates the capital cost for the project will  approximate  $38 million.  The raw  materials processing facility in Morgantown,  Pennsylvania  primarily processes scrap used as melting feedstock, either in combination with sponge or separately.            The Company's U.S.  melting  facilities in Henderson,  Nevada,  Morgantown, Pennsylvania  and Vallejo,  California  produce ingot and slab, which are either used as feedstock  for the Company's  mill products  operations or sold to third parties.  These melting facilities are expected to operate at approximately 82%, 92% and 55%, respectively,  of annual practical capacity in 2006, as compared to 70%, 91% and 59%, respectively, in 2005.       Titanium mill products are produced by TIMET in the U.S. at its forging and rolling facility in Toronto, Ohio, which receives ingot or slab principally from the Company's U.S.  melting  facilities.  The Company's U.S. forging and rolling facility  is  expected  to  operate  at  approximately  82% of annual  practical capacity in 2006, up from 68% in 2005. Capacity utilization across the Company's individual mill product lines varies.       European  production.   The  Company  conducts  its  operations  in  Europe primarily through its wholly owned  subsidiaries TIMET UK, Ltd. ("TIMET UK") and Loterios S.p.A.  ("Loterios") and its 70% owned  subsidiary TIMET Savoie.  TIMET UK's Witton, England laboratory and manufacturing facilities are leased pursuant to long-term  operating  leases expiring in 2014 and 2024,  respectively.  TIMET Savoie has the right to utilize portions of the Ugine, France plant of Compagnie Europeenne du Zirconium-CEZUS, S.A. ("CEZUS"), the 30% minority partner in TIMET Savoie, pursuant to an agreement scheduled to expire in 2006. TIMET is currently finalizing  negotiations  with CEZUS to extend its  agreement  through  2011 and expand its available capacity in 2006 and beyond.       TIMET UK's  melting  facility in Witton,  England  produces  VAR ingot used primarily as feedstock for its Witton forging operations. The forging operations process  the ingot  into  billet  product  for sale to third  parties or into an intermediate product for further processing into bar or plate at its facility in Waunarlwydd,  Wales. TIMET UK's melting and mill products  production in 2006 is expected  to  operate  at  approximately  91% and 85%,  respectively,  of annual practical capacity, compared to 73% and 69%, respectively, in 2005.       The  capacity  of TIMET  Savoie  in Ugine,  France  is to a certain  extent dependent  upon the level of activity in CEZUS'  zirconium  business,  which may from time to time  provide  TIMET  Savoie with  capacity in excess of that which CEZUS is contractually  required to provide.  During 2005, TIMET Savoie utilized 119% of the maximum annual capacity CEZUS was contractually  required to provide in 2005, and the Company  expects to utilize  approximately  102% of the maximum annual capacity CEZUS will be expected to provide in 2006 based on the agreement currently being finalized.
From time to time, the Company is involved in litigation relating to claims arising out of its  operations in the normal course of business.  See Note 19 to the Consolidated Financial Statements.
No matters were  submitted to a vote of TIMET  security  holders during the quarter ended December 31, 2005.  However, in February 2006, the Company's Board of Directors and the Company's  stockholders holding more than a majority of the outstanding  shares of common  stock  approved  an  amendment  to the  Company's Amended and  Restated  Certificate  of  Incorporation  to increase the number of authorized  shares  of the  Company's  capital  stock  from  100,000,000  shares (90,000,000  shares of common stock,  $.01 par value,  and 10,000,000  shares of preferred stock, $.01 par value) to 210,000,000  shares  (200,000,000  shares of common stock, $.01 par value, and 10,000,000 shares of preferred stock, $.01 par value).                                           PART II
TIMET's  common  stock is traded on the New York  Stock  Exchange  (symbol: "TIE"). The high and low sales prices for the Company's common stock during 2005 and  2004  are set  forth  below.  All  prices  (as  well as all  share  numbers referenced herein) have been adjusted to reflect (i) the two-for-one stock split which became effective after the close of trading on February 16, 2006, (ii) the two-for-one  stock split which  became  effective  after the close of trading on September 6, 2005 and (iii) the five-for-one  stock split which became effective after the close of trading on August 27, 2004.    Year ended December 31, 2005:                                                         High                 Low                                                                                 -----------------    -----------------       First quarter                                                                $       10.13        $        5.83    Second quarter                                                               $       14.38        $        7.76    Third quarter                                                                $       21.20        $       12.32    Fourth quarter                                                               $       39.72        $       17.13  Year ended December 31, 2004:    First quarter                                                                $        5.18        $        2.12    Second quarter                                                               $        5.40        $        3.59    Third quarter                                                                $        6.23        $        4.60    Fourth quarter                                                               $        6.65        $        4.63        On March 10, 2006,  the closing  price of TIMET common stock was $41.74 per share.  As of March 10,  2006,  there were 204  shareholders  of record of TIMET common stock, which the Company estimates represent  approximately 31,365 actual shareholders.       In October 2002, the Company  exercised its right to defer future  interest payments on TIMET's 6.625% Convertible Junior  Subordinated  Debentures due 2026 ("Subordinated  Debentures")  held by the TIMET  Capital  Trust I (the  "Capital Trust"), effective for the December 1, 2002 scheduled interest payment. Interest continued  to accrue at the  6.625%  coupon  rate on the  principal  and  unpaid interest until the Company's Board of Directors approved resumption of scheduled quarterly  interest payments on the Subordinated  Debentures  beginning with the payment on June 1,  2004.  The  Company's  Board  also  approved  payment of all previously deferred interest on the Subordinated Debentures.  On April 15, 2004, the Company paid the  deferred  interest in the amount of $21.7  million,  $21.0 million  of which  related  to the  6.625%  mandatorily  redeemable  convertible preferred  securities,  beneficial  unsecured  convertible  securities  ("BUCS") issued by the Capital Trust.            In August 2004,  the Company  completed an exchange offer pursuant to which the Company had offered to exchange all of the 4,024,820 outstanding BUCS issued by the Capital  Trust for shares of the  Company's  6.75%  Series A  Convertible Preferred  Stock (the "Series A Preferred  Stock") at the  exchange  rate of one share of Series A Preferred  Stock for each BUCS.  Based upon the 3,909,103 BUCS tendered  and  accepted  for exchange as of the close of the offer on August 31, 2004,  the  Company  issued  3,909,103  shares  of Series A  Preferred  Stock in exchange for such BUCS.  Holders of the Series A Preferred Stock are entitled to receive  cumulative  cash  dividends  at the rate of 6.75% of the $50 per  share liquidation  preference per annum per share  (equivalent to $3.375 per annum per share), when, as and if declared by the Company's board of directors. During the third  quarter  of  2004,  the  Company  recognized  a $15.5  million  non-cash, non-operating  gain  related to the BUCS  exchange.  During the third and fourth quarters of 2005,  an  aggregate of 926,490  shares of Series A Preferred  Stock were converted into 6,176,600  shares of TIMET common stock.  As of December 31, 2005, there were 2,982,613  shares of the Series A Preferred Stock  outstanding. Subsequent  to December  31,  2005 and through  March 10,  2006,  an  additional 346,016 shares of Series A Preferred Stock were converted into 2,306,765  shares of  TIMET  common  stock.  See  Notes  12 and 14 to the  Consolidated  Financial Statements.       The  Company's  new  U.S.  credit  agreement   contains  certain  financial covenants that may restrict the Company's  ability to make dividend  payments on both  the  Company's   common  stock  and  Series  A  Preferred  Stock  or  make distributions  on the  BUCS.  Such  covenants  do  not  currently  restrict  the Company's ability to pay dividends or make distributions.  See Item 7 - MD&A and Note 11 to the Consolidated Financial Statements.       On August 12, 2005, the Company  retired all 180,000 shares of its treasury stock.  The  retirement of such treasury  stock,  which had a cost basis of $1.2 million, resulted in a $1,800 reduction of common stock, a $990,000 reduction of additional paid-in capital and a $216,000 decrease in accumulated earnings.
The selected  financial  data set forth below should be read in conjunction with the Company's Consolidated Financial Statements and Item 7 - MD&A.                                                                          Year ended December 31,                                               -------------------------------------------------------------------------                                                  2005           2004           2003           2002            2001                                               -----------    -----------    -----------    ------------    ------------                                                              (restated)     (restated)      (restated)      (restated)                                                                ($ in millions, except per share and product data) STATEMENT OF OPERATIONS DATA:          Net sales                                  $    749.8     $    501.8     $    385.3     $    366.5      $    486.9    Gross margin (1)                           $    199.4     $     63.7     $      5.6     $      6.2      $     34.9    Operating income (loss) (1)(2)             $    171.1     $     43.0     $     (6.0)    $    (11.5)     $     59.5    Interest expense                           $      4.0     $     12.5     $     16.4     $     17.1      $     18.3    Net income (loss) attributable to     common stockholders (1)(2)                $    143.7     $     43.3     $    (24.4)    $   (102.2)     $    (46.7)    Earnings (loss) per share:      Basic (1)(2)(3)                          $    2.20      $    0.68      $   (0.39)     $   (1.62)      $   (0.74)      Diluted (1)(2)(3)                        $    1.72      $    0.66      $   (0.39)     $   (1.62)      $   (0.74)  BALANCE SHEET DATA:    Cash and cash equivalents (4)              $     17.8     $      7.9     $     37.3     $      6.4      $     24.5    Total assets (2)                           $    907.3     $    700.6     $    594.8     $    605.0      $    726.7    Bank indebtedness (5)                      $     51.4     $     43.2     $      -       $     19.4      $     12.4    Capital lease obligations                  $      0.2     $      0.2     $     10.3     $     10.2      $      8.9    Debt payable to Capital Trust              $      5.9     $     12.0     $    207.5     $    207.5      $    207.5    Stockholders' equity                       $    562.2     $    406.4     $    177.7     $    189.7      $    319.2  OTHER OPERATING DATA:    Cash flows provided (used) by:      Operating activities                     $     72.9     $    (22.4)    $     65.8     $    (13.6)     $     62.6      Investing activities                          (61.5)         (44.5)         (14.5)          (7.5)          (16.1)      Financing activities                            -             38.7          (22.1)           3.6           (31.4)                                               -----------    -----------    -----------    ------------    ------------        Net cash provided (used)               $     11.4     $    (28.2)    $     29.2     $    (17.5)     $     15.1     Melted product shipments (6)                   5,655           5,360          4,725          2,400           4,415    Average melted product prices (6)          $   19.85      $    13.45      $   12.15      $   14.50       $   14.50    Mill product shipments (6)                    12,660          11,365          8,875          8,860          12,180    Average mill product prices (6)            $   41.75      $    32.05      $   31.50      $   31.40       $   29.80    Active employees at December 31                2,369           2,227          2,055          1,956           2,410    Order backlog at December 31(7)            $   870.0      $    450.0      $   205.0     $    185.0      $    240.0    Capital expenditures                       $    61.1      $     23.6      $    12.5     $      7.8      $     16.1   (1)  Effective  January 1, 2005,  the Company  changed its method for  inventory      determination from the LIFO cost method to the specific identification cost      method for the  approximate 40% of the Company's  consolidated  inventories      previously  accounted for under the LIFO cost method.  In  accordance  with      accounting  principles  generally  accepted in the United States of America      ("GAAP"),  net income (loss) attributable to common  stockholders,  and the      related per share  amounts,  for the years ended  December 31, 2004,  2003,      2002 and 2001, and total assets and stockholders' equity as of December 31,      2004, 2003, 2002 and 2001, have been retroactively restated for this change      in  accounting  principle.   See  Note  2  to  the  Consolidated  Financial      Statements. Net income (loss) attributable to common stockholders,  and the      related  per  share  amounts,  as  presented  above,  is  higher  than  the      previously  reported  amount by $9.3  million  ($0.15 per basic and diluted      share) in 2002 and is lower  than the  previously  reported  amount by $5.0      million ($0.08 per basic and diluted share) in 2001. Total assets and total      stockholders'  equity,  as presented  above, are higher than the previously      reported  amounts by $19.0  million at December 31, 2003,  $30.4 million at      December 31, 2002 and $21.1 million at December 31, 2001. (2)  See the notes to the  Consolidated  Financial  Statements and Item 7 - MD&A      for items that materially affect the 2005, 2004 and 2003 periods.  In 2002,      the Company  recorded a $27.5 million  pre-tax  impairment  charge to other      non-operating expense related to the Company's investment in Special Metals      Corporation  preferred  securities.  In 2001, the Company  recorded (i) net      other  operating  income  of  $73  million  related  to the  settlement  of      litigation between TIMET and Boeing, (ii) a $10.8 million pre-tax equipment      impairment charge to cost of sales,  (iii) a $3.3 million charge to cost of      sales for costs  related  to a tungsten  inclusion  matter and (iv) a $61.5      million pre-tax impairment charge to other non-operating expense related to      the  Company's   investment  in  Special   Metals   Corporation   preferred      securities. (3)  Amounts have been adjusted to reflect (i) the Company's  two-for-one  stock      split which  became  effective  after the close of trading on February  16,      2006,  (ii) the Company's  two-for-one  stock split which became  effective      after the close of  trading  on  September  6,  2005,  (iii) the  Company's      five-for-one  stock split which became effective after the close of trading      on August 27, 2004 and (iv) the Company's  one-for-ten  reverse stock split      which became effective after the close of trading on February 14, 2003. (4)  Includes restricted cash and cash equivalents of $0.1 million in 2005, $0.7      million in 2004,  $2.2 million in 2003 and $0.1 million in each of 2002 and      2001. (5)  Bank indebtedness represents notes payable and current and noncurrent debt. (6)  Shipments in metric tons. Average selling prices stated per kilogram. (7)  Order backlog is defined as unfilled purchase orders (including those under      consignment  arrangements), which are  generally  subject  to  deferral  or      cancellation by the customer under certain conditions.
RESULTS OF OPERATIONS       Overview. Aggregate shipment volumes for titanium mill products in 2005 was derived from the following sectors:                                                          TIMET                             Titanium Industry (1)                                         ----------------------------------        ----------------------------------                                          Mill product                              Mill product                                           shipments          % of total             shipments          % of total                                         ---------------     --------------        ---------------    ---------------                                          (Metric tons)                             (Metric tons)       Commercial aerospace                           7,492               59%                   24,000              35% Military                                       1,981               16%                    6,200               9% Industrial                                     2,677               21%                   35,600              52% Emerging markets                                 510                4%                    2,700               4%                                         ---------------     --------------        ---------------    ---------------                                                12,660              100%                   68,500             100%                                         ===============     ==============        ===============    ===============  - --------------------------------------------------------------------------------------------------------------------  (1)  Estimates  based  on the  Company's  industry  experience  and  information      obtained from  publicly-available  external resources (e.g.,  United States      Geological Survey,  International  Titanium  Association and Japan Titanium      Society).       The titanium industry derives a substantial  portion of its demand from the highly  cyclical  commercial  aerospace  sector.  As  shown  in the  table,  the Company's business is more dependent on commercial  aerospace demand than is the overall  titanium  industry,  and the  Company's  sales  growth  during 2005 has benefited  from growth in this sector.  The Company's 2005 revenue from sales of melted and mill products to the  commercial  aerospace  sector  increased by 51% compared to 2004.            Effective July 1, 2005, the Company  entered into a new LTA with Boeing for the purchase and sale of titanium products.  The new LTA expires on December 31, 2010 and provides for, among other things, (i) mutual annual purchase and supply commitments by both parties,  (ii) continuation of the existing buffer inventory program  currently  in place for  Boeing  and  (iii)  certain  improved  product pricing,  including  certain  adjustments  for raw material  cost  fluctuations. Beginning in 2006, the new LTA also replaces the  take-or-pay  provisions of the previous LTA with an annual makeup  payment  early in the following  year in the event Boeing purchases less than its annual volume commitment in any year.       Effective  January 1, 2005,  the Company  changed its method for  inventory determination  from the last-in,  first-out ("LIFO") cost method to the specific identification cost method for the approximate 40% of the Company's consolidated inventories  previously  accounted for under the LIFO cost method. In accordance with GAAP, the Company's  consolidated  financial  statements as of December 31, 2004,  and  for  the  years  ended  December  31,  2004  and  2003,   have  been retroactively restated for this change in accounting principle.  See Notes 2 and 3 to the Consolidated Financial Statements.       In November 2004, pursuant to an agreement with Basic Management,  Inc. and certain of its affiliates  ("BMI"),  the Company sold certain  property  located adjacent  to its  Henderson,  Nevada  plant  site to BMI, a  32%-owned  indirect subsidiary of Valhi,  and recorded a $12.0 million  deferred gain related to the cash proceeds  received in November 2004. During the second quarter of 2005, the Company ceased using the property and,  accordingly,  recognized a $13.9 million non-operating  gain related to the sale of such property,  which is comprised of (i) the  previously  reported  $12.0 million cash proceeds  received in November 2004,  (ii) the reversal of $0.6 million  previously  accrued by the Company for potential  environmental  issues related to the property and (iii) an additional $1.2 million cash payment received from BMI in June 2005.       During 2005, the Company reversed $36.9 million of the valuation  allowance attributable  to its U.S.  deferred  income  tax asset and $13.2  million of the valuation  allowance  attributable to its U.K.  deferred  income tax asset.  See "Results of Operations - Income taxes" and Note 16 to the Consolidated Financial Statements for more information on the Company's income taxes.       In August 2004, the Company completed an exchange offer,  pursuant to which the Company had offered to exchange all of the 4,024,820 outstanding BUCS issued by the Capital Trust for shares of the Company's Series A Preferred Stock at the exchange rate of one share of Series A Preferred Stock for each BUCS. Based upon the  3,909,103  BUCS  tendered  and accepted for exchange as of the close of the offer on August  31,  2004,  the  Company  issued  3,909,103  shares of Series A Preferred Stock in exchange for such BUCS. During the third quarter of 2004, the Company  recognized a $15.5 million non-cash,  non-operating gain related to the BUCS  exchange.  During the third and fourth  quarters of 2005,  an aggregate of 926,490 shares of Series A Preferred Stock were converted into 6,176,600  shares of TIMET common  stock.  As of December 31, 2005,  there were  2,982,613  shares outstanding of the Series A Preferred Stock. Subsequent to December 31, 2005 and through March 10, 2006, an additional 346,016 shares of Series A Preferred Stock were converted into 2,306,765  shares of TIMET common stock.  See Note 12 to the Consolidated Financial Statements.            Summarized  financial  information.  The following table summarizes certain information  regarding  the Company's  results of operations  for the past three years.  Average selling prices, as reported by the Company, are a reflection not just of actual  selling prices  received by the Company,  but also include other related factors such as currency  exchange rates and customer and product mix in a given period.  Consequently,  changes in average selling prices from period to period will be impacted by changes  occurring not just in actual prices,  but by these other factors as well. The percentage change  information  presented below represents  changes from the respective prior year. See "Results of Operations - Outlook" for further discussion of the Company's business expectations for 2006.                                                                                    Year ended December 31,                                                               ------------------------------------------------------                                                                    2005                2004               2003                                                               ---------------     ---------------    ---------------                                                                  ($ in thousands, except product shipment data) Net sales:        Melted products                                            $    112,252        $     72,092       $    57,409    Mill products                                                   528,555             364,248           279,563    Other products                                                  108,970              65,488            55,132    Other (1)                                                             -                   -            (6,800)                                                               ---------------     ---------------    ---------------  Net sales                                                     $    749,777        $    501,828       $   385,304  Gross margin                                                       199,362              63,677             5,644  Gross margin percent of net sales                                       27%                 13%                1%  Melted products shipments:    Volume (metric tons)                                              5,655               5,360             4,725    Average selling prices ($ per kilogram)                    $     19.85         $      13.45       $     12.15  Mill products shipments:    Volume (metric tons)                                             12,660              11,365             8,875    Average selling prices ($ per kilogram)                    $     41.75         $      32.05       $     31.50  Percentage change in:    Sales volume:      Melted products                                                   +6                 +13                +97      Mill products                                                    +11                 +28                  -     Average selling prices:        Melted products                                                +48                 +11                -16        Mill products                                                  +30                  +2                  -     Selling prices - excludes changes in product mix:        Melted products                                                +35                  +7                -12        Mill products in U.S. dollars                                  +27                  +6                 -3        Mill products in billing currencies (2)                        +27                  +2                 -7  - ------------------------------------------------------------------------------------------------------------------  (1)  Represents  the effect of a $6.8 million  reduction to sales related to the      termination  of a  purchase  and  sale  agreement  with  Wyman-Gordon.  See      "Results of Operations -- 2004 operations." (2)  Excludes the effect of changes in foreign currencies.            Based upon the terms of the Company's previous LTA with Boeing, the Company received an annual $28.5 million (less $3.80 per pound of titanium  product sold to Boeing  subcontractors in the preceding year) customer advance from Boeing in January of each year  related to  Boeing's  purchases  from TIMET for that year. Effective July 1, 2005, the Company  entered into a new LTA with Boeing pursuant to which,  beginning in 2006, these take-or-pay provisions were replaced with an annual makeup payment early in the following year in the event Boeing  purchases less than its annual  commitment in any year. The previous LTA was structured as a  take-or-pay  agreement  such  that  Boeing  forfeited  $3.80 per pound of its advance  payment in the event that its  orders for  delivery  were less than 7.5 million pounds in any given calendar year. The Company  recognized income to the extent Boeing's  year-to-date orders for delivery plus TIMET's maximum quarterly volume  obligations  for the remainder of the year totaled less than 7.5 million pounds.  This  income  was  recognized  as other  operating  income  and was not included  in sales  revenue,  sales  volume  or gross  margin.  Based on  actual purchases  of  approximately   3.0  million  pounds  during  2005,  the  Company recognized  $17.1 million of take-or-pay  income for the year ended December 31, 2005.  The Company  recognized  $22.1  million and $23.1  million of such income during 2004 and 2003,  respectively.  Had the Company  not  benefited  from such provisions, the Company's results would have been as follows:                                                                                Year ended December 31,                                                             --------------------------------------------------------                                                                  2005                2004                2003                                                             ----------------    ----------------    ----------------                                                                                 (In thousands)      Operating income (loss), as reported                        $     171,075       $     43,036        $     (5,954)      Less take-or-pay income                                       17,134             22,093              23,083                                                             ----------------    ----------------    ----------------  Operating income (loss), excluding take-or-pay              $     153,941       $     20,943        $    (29,037)                                                             ================    ================    ================        2005 operations.  Melted product sales increased 56% and mill product sales increased 45% during 2005 as compared to 2004, principally as a result of higher average  selling prices and increased  sales volume due to greater market demand across all markets,  especially commercial aerospace.  Large commercial aircraft deliveries  increased from 600 in 2004 to 650 in 2005,  and 2006  deliveries are expected to be 840 aircraft. As previously  discussed,  a substantial portion of the Company's business is tied to the commercial  aerospace industry,  and sales of titanium generally precede aircraft deliveries by about one year.  Therefore, the Company's 2005 net sales have  significantly  benefited from the increase in production of large commercial aircraft scheduled for delivery in 2006.       Average  selling  prices use actual  customer  and  product mix and foreign currency exchange rates prevailing during the respective periods.  The Company's melted products are generally sold only in U.S. dollars.  Melted product average selling  prices during 2005, as compared to 2004,  were  positively  affected by current market  conditions and changes in customer and product mix. Mill product average  selling  prices  during  2005,  as  compared to 2004,  were  positively affected by changes in customer and product mix and by the weakening of the U.S. dollar compared to both the British pound sterling and the euro.            Gross  margin  (net  sales  less cost of sales)  increased  during  2005 as compared to 2004  primarily as a result of the improved  average  selling prices for both  melted and mill  products as  compared  to 2004,  partially  offset by increased raw material  costs and higher energy costs.  Gross margin during 2005 includes an additional  $21.1 million from the sale of titanium scrap (which the Company cannot economically  recycle) and other non-mill products as compared to 2004.  Additionally,  gross  margin was  positively  impacted by improved  plant operating rates during 2005 (80%) as compared to 2004 (73%). Gross margin during 2004 was favorably impacted by a $1.6 million reduction in cost of sales related to the modification of the Company's  vacation  policy.  On January 1, 2004, the Company modified its vacation policy for its U.S.  salaried  employees,  whereby such  employees no longer accrue their entire  year's  vacation  entitlement  on January 1, but rather accrue the current year's  vacation  entitlement  over the course of the year.  Gross  margin  during 2005 was  adversely  impacted by $6.0 million of  additional  costs as  compared  to 2004  related  to the  accrual of certain  performance-based  employee incentive  compensation payments and a $1.2 million  noncash  impairment  charge  related to the  Company's  abandonment  of certain manufacturing equipment.       Selling,  general,  administrative and development  expenses increased 19%, from $44.9 million  during 2004 to $53.6 million  during 2005,  principally as a result of (i) $3.7 million of increased  personnel costs (including $1.4 million of additional  employee incentive  compensation  costs) partially as a result of headcount  increases  during 2005, (ii) $1.2 million of additional  auditing and consulting  costs  partially  related  to  the  Company's  compliance  with  the Sarbanes-Oxley  Act's internal  control  requirements and (iii) increases during 2005 for legal, travel, insurance and other such costs.       Equity in earnings of joint  ventures  increased  296%,  from $1.3  million during 2004 to $5.1  million  during 2005,  due to an increase in the  operating results of VALTIMET,  the Company's  minority  owned welded tube joint  venture. During 2005,  VALTIMET benefited from both stronger demand and increased pricing in the industrial tubing market.       Net other  operating  income  (expense)  decreased 12% from income of $23.0 million during 2004 to income of $20.3 million during 2005, principally due to a decrease in the amount of previously discussed  take-or-pay income recognized by the Company during 2005. See Note 15 to the Consolidated Financial Statements.       2004 operations.  Melted product sales increased 26% and mill product sales increased  30%  during  2004 as  compared  to 2003,  principally  as a result of increased  sales volume due to greater  market  demand and/or share gains across all markets.  More specifically,  large commercial aircraft deliveries increased from 575 in 2003 to 602 in 2004 and the Company's  2004 net sales  significantly benefited from the increase in production of large commercial aircraft scheduled for delivery in 2005.       Melted  product  average  selling  prices during 2004, as compared to 2003, were  positively  affected by current market  conditions and changes in customer and product mix. Mill product average selling prices during 2004, as compared to 2003, were  positively  affected by the weakening of the U.S. dollar compared to both the British pound sterling and the euro and negatively  affected by changes in customer and product mix.            Gross  margin  increased  during 2004 as compared  to 2003  primarily  as a result of  improved  plant  operating  rates (from 56% during 2003 to 73% during 2004), partially offset by increased raw material costs and higher energy costs. The  Company's  gross  margin  during  2004 was also  favorably  impacted by the previously discussed modification of the Company's vacation policy and adversely impacted by an additional  $10.5 million  charge to cost of sales related to the accrual of certain  employee  incentive  compensation  payments,  as compared to 2003. Comparatively, gross margin during 2003 was impacted by (i) a $1.7 million reduction in cost of sales  related to a revision of the  Company's  estimate of probable loss associated with a previously  reported  tungsten  inclusion matter and (ii) a $6.8 million  reduction in sales related to the previously  discussed termination of a purchase and sale agreement with Wyman-Gordon.       Selling,  general,  administrative and development  expenses increased 23%, from $36.4 million  during 2003 to $44.9 million  during 2004,  principally as a result of (i) a $2.8  million  accrual  related  to certain  employee  incentive compensation  payments  expected  to be made  in  2005,  (ii)  $2.0  million  of additional  auditing and consulting  costs relative to the Company's  compliance with the  Sarbanes-Oxley  Act's  internal  control  requirements  and (iii) $1.0 million of  increased  costs  related  to the  Company's  intercompany  services agreement with Contran Corporation ("Contran").       Equity in earnings of joint  ventures  increased  183%,  from $0.5  million during 2003 to $1.3  million  during 2004,  due to an increase in the  operating results of VALTIMET.       Net other  operating  income  (expense)  decreased  6% from income of $24.4 million during 2003 to income of $23.0 million during 2004, principally due to a decrease in the amount of previously discussed  take-or-pay income recognized by the Company during 2004. See Note 15 to the Consolidated Financial Statements.       Non-operating income (expense).                                                                                   Year ended December 31,                                                                 ------------------------------------------------------                                                                      2005               2004                2003                                                                 ---------------    ----------------    ---------------                                                                                     (In thousands)      Interest expense on bank debt                                   $      (3,302)     $      (2,649)      $      (2,017) Interest expense on debt payable to the Capital Trust                    (661)            (9,802)            (14,402)                                                                 ---------------    ----------------    ---------------                                                                  $      (3,963)     $     (12,451)      $     (16,419)                                                                 ===============    ================    ===============  Dividends and interest income                                   $       2,025      $         687       $         383 Equity in earnings of common    securities of the Capital Trust                                        279                424                 432 Gain on BUCS exchange, net                                                  -             15,465                   - Gain on sale of property                                               13,881                  -                   - Foreign exchange gain (loss), net                                       2,288               (477)               (189) Other, net                                                               (245)               101                (920)                                                                 ---------------    ----------------    ---------------                                                                  $      18,228      $      16,200       $        (294)                                                                 ===============    ================    ===============          Interest  expense  on bank debt in 2005  increased  25%  compared  to 2004, primarily due to higher average  outstanding  borrowings during 2005 compared to 2004,  which the Company used primarily to support its accumulation of inventory to meet expected  customer demand during 2006 as well as for the construction of the water  conservation  facility at the Company's  Henderson,  Nevada location. Interest expense on bank debt in 2004 increased 31% compared to 2003,  primarily due to higher average outstanding borrowings during 2004 compared to 2003, which the Company  used  primarily to support  higher  inventory  levels.  The Company currently  expects  interest  expense on bank debt in 2006 will approximate 2005 levels.       Prior to 2004, annual interest expense on the Company's debt payable to the Capital Trust approximated  $13.7 million,  exclusive of any accrued interest on deferred interest payments. On September 1, 2004, the Company exchanged 97.1% of its  outstanding  BUCS for its Series A Preferred  Stock,  resulting  in a $15.5 million non-cash,  non-operating gain. On September 1, 2005, the Company and the Capital  Trust  agreed to the  cancellation  of 120,907 of the  Capital  Trust's common  securities  and a  corresponding  cancellation  of $6.0  million  of the Company's Subordinated Debentures (see "Liquidity and Capital Resources - Other" and Note 12 to the Consolidated Financial Statements).  Interest expense related to the remaining debt payable to the Capital Trust ($5.9 million at December 31, 2005) continues to accrue at 6.625% per year.       During 2002, the Company  exercised its right to defer interest payments on the  Subordinated  Debentures,  effective  for the  December  1, 2002  scheduled interest payment.  Interest continued to accrue at the 6.625% coupon rate on the principal and unpaid  interest until the Company's  Board of Directors  approved resumption  of  scheduled   quarterly  interest  payments  on  the  Subordinated Debentures  beginning with the payment on June 1, 2004. The Company's Board also approved  payment  of all  previously  deferred  interest  on  the  Subordinated Debentures.  On April 15, 2004,  the Company  paid the deferred  interest in the amount of $21.7 million, $21.0 million of which related to the BUCS.       Dividends and interest  income during 2005 and 2004  consisted of dividends received on the  Company's  investments  in marketable  securities  and interest income earned on cash and cash equivalents. Dividends and interest income during 2003 consisted solely of interest income earned on cash and cash equivalents.       During the second quarter of 2005,  the Company  recognized a $13.9 million non-operating  gain related to the sale of property.  See further  discussion in "Results of Operations - Overview."       Income  taxes.  The Company  operates in several tax  jurisdictions  and is subject to varying income tax rates.  As a result,  the geographic mix of pretax income or loss can impact the  Company's  overall  effective  tax rate.  For the years ended  December 31, 2005,  2004 and 2003,  the  Company's  income tax rate varied from the U.S.  statutory  rate  primarily  due to changes in the deferred income tax valuation  allowance  related to the Company's  tax  attributes  with respect to the "more-likely-than-not" recognition criteria during those periods.            The  Company  periodically  reviews  its  deferred  income  tax  assets  to determine  if future  realization  is more  likely  than not.  During  the first quarter of 2005, based on the Company's recent history of U.S. income,  its near term outlook and the effect of its change in method of  inventory  determination from the LIFO cost method to the  specific  identification  cost method for U.S. federal  income tax purposes  (see Note 2), the Company  changed its estimate of its ability to utilize the tax benefits of its U.S. net  operating  loss ("NOL") carryforwards,  alternative  minimum tax ("AMT") credit  carryforwards and other net deductible  temporary  differences (other than the majority of the Company's capital loss carryforwards).  Consequently,  the Company determined that its net deferred  income tax asset  related to such U.S.  tax  attributes  and other net deductible temporary differences now meet the "more-likely-than-not" recognition criteria.  Accordingly,  the Company  reversed  $36.9  million of the  valuation allowance  attributable to such U.S. deferred income tax asset during 2005 ($8.6 million in the fourth quarter).       During the first quarter of 2005,  based on the Company's recent history of U.K.  income,  its near term outlook and its historic  U.K.  profitability,  the Company also  changed its estimate of its ability to utilize its net  deductible temporary  differences and other tax attributes  related to the U.K.,  primarily comprised of (i) the future  benefits  associated  with the reversal of its U.K. minimum pension liability deferred income tax asset and (ii) the benefits of its U.K.  NOL  carryforward.  Consequently,  the  Company  determined  that  its net deferred  income  tax asset in the U.K.  now  meets  the  "more-likely-than-not" recognition  criteria.  Accordingly,  the Company  reversed $13.2 million of the valuation  allowance  attributable to such deferred income tax asset during 2005 ($0.1 million in the fourth quarter).       During  2004,  due to a change in  estimate  of the  Company's  ability  to utilize the benefits of its NOL carryforwards in Germany, the Company determined that its  deferred  income tax asset in Germany  met the  "more-likely-than-not" recognition  criteria.  Accordingly,  the  Company  reversed  the  $0.7  million valuation allowance attributable to such deferred income tax asset. In addition, the Company's  deferred income tax asset valuation  allowance  related to income from continuing operations decreased by $16.4 million during 2004, primarily due to the utilization of the U.S. and U.K. NOL carryforwards,  the benefit of which had previously not met the "more-likely-than-not" recognition criteria.       During the  second  quarter  of 2005 and the  fourth  quarter of 2004,  the Company  recognized a deferred  income tax benefit related to a $0.5 million and $4.2 million,  respectively,  decrease in the Company's U.S. deferred income tax asset valuation allowance  attributable to the Company's  recognition,  for U.S. income  tax  purposes  only,  of a capital  gain on the fourth  quarter  sale of certain property located at the Company's  Henderson,  Nevada facility (see Note 6). The Company recognized a corresponding  deferred income tax expense in 2005, when the gain was recognized under accounting  principles  generally accepted in the United States of America. The Company utilized a portion of its U.S. capital loss  carryforward  to offset the income taxes  generated  from the sale of such property.            In October  2004,  the American  Jobs Creation Act of 2004 was enacted into law.  The new law  provides for a special 85%  deduction  for certain  dividends received from controlled foreign  corporations in 2005. In the second quarter of 2005, the Company  completed its evaluation of this new provision and determined that it would  benefit from the special  dividend  received  deduction,  but the Company did not  distribute  dividends  under the Act until the third quarter of 2005. In the third quarter of 2005, the Company executed a reinvestment plan and distributed  $19  million of  earnings  from its  European  subsidiaries,  which qualified for the special  dividend  received  deduction and, in accordance with the  requirements of FASB Staff Position No. 109-2,  recognized the $1.0 million income tax related to such repatriation.  Additionally, in the fourth quarter of 2005, the Company  determined  that an additional  $10 million of  repatriations would  qualify  for the special  dividend  received  deduction,  and the Company recognized an additional  $0.5 million  income tax related to the fourth quarter repatriation.  The Company has not  provided for U.S.  deferred  income taxes or foreign  withholding  taxes on basis  differences  in its non-U.S.  consolidated subsidiaries  that result  primarily  from  undistributed  earnings  the Company intends  to  reinvest  indefinitely.  The new law also  provides  for a  special deduction  from U.S.  taxable  income equal to a specified  percentage of a U.S. company's qualified income from domestic manufacturing  activities (as defined). The Company  believes that the majority of its operations meet the definition of qualified domestic manufacturing activities. However, the Company did not derive any  benefit  from the  special  manufacturing  deduction  in 2005,  because the Company's  existing U.S. NOL  carryforwards  fully offset its 2005 U.S.  taxable income.       In June 2005,  the State of Ohio  enacted a new tax law,  which  phases out Ohio's  existing income tax system over the next five years and replaces it with a tax based on gross  receipts.  In the second  quarter of 2005,  as a result of this phase out,  the  Company  reduced  its  deferred  income tax asset  related primarily to its Ohio NOL  carryforwards by $0.6 million.  In the fourth quarter of  2005,  due  primarily  to  updated  income   forecasts  and  revised  timing information on the  recognition of certain  temporary  differences,  the Company increased  its  deferred  income  tax asset  related  primarily  to its Ohio NOL carryforwards by $0.3 million.  The net impact of these adjustments for 2005 was a decrease of $0.3 million.       The  provision  for income taxes in 2005  includes $4.4 million of deferred income taxes  resulting from the  elimination of the Company's  minimum  pension liability equity adjustment  component of accumulated other comprehensive income related to the Company's U.S.  defined  benefit pension plan. In accordance with GAAP, the Company did not recognize a deferred  income tax benefit  related to a portion of the minimum pension equity adjustment previously  recognized,  as the Company had also  recognized  a deferred  income tax asset  valuation  allowance related  to its  U.S.  net  operating  loss  carryforward  and  other  U.S.  net deductible  temporary  differences  during a portion of the periods in which the minimum pension equity  adjustment had previously been recognized.  A portion of such valuation  allowance  recognized ($4.4 million) was recognized  through the pension liability component of other comprehensive income. As discussed,  during 2005 the  Company  concluded  recognition  of such  deferred  income  tax  asset valuation  allowance  was no longer  required,  and the  reversal of all of such valuation  allowance  was  recognized  through the  provision  for income  taxes included in the determination of net income,  including the $4.4 million portion of the  valuation  allowance  which  was  previously  recognized  through  other comprehensive  income.  As of  December  31,  2005,  the  Company  was no longer required to recognize a minimum pension  liability related to its U.S. plan, and the Company  reversed the minimum  pension  liability  previously  recognized in other  comprehensive   income.  After  the  reversal  of  such  minimum  pension liability,  which was recognized on a net-of-tax  basis, the $4.4 million amount remained in accumulated other  comprehensive  income related to the U.S. minimum pension  liability,  which is required to be  recognized  in the  provision  for income  taxes  during the period in which the minimum  pension  liability  is no longer required to be recognized.       See also Note 16 to the Consolidated Financial Statements.       Dividends on Series A Preferred  Stock.  Shares of the  Company's  Series A Preferred  Stock are  convertible,  at any  time,  at the  option of the  holder thereof,  into six and two-thirds shares of the Company's common stock,  subject to adjustment in certain events. The Series A Preferred Stock is not mandatorily redeemable,  but is  redeemable  at the option of the  Company at any time after September 1, 2007. When, as and if declared by the Company's board of directors, holders of the Series A Preferred Stock are entitled to receive  cumulative cash dividends at the rate of 6.75% of the $50 per share  liquidation  preference per annum per share  (equivalent  to $3.375 per annum per share).  The Company  paid dividends of $12.5 million  during 2005 and $3.3 million  during 2004 to holders of the Series A Preferred Stock.  Subsequent to December 31, 2005, the Company's board of directors  declared a dividend of $0.84375 per share,  payable on March 15,  2006 to  holders of record of Series A  Preferred  Stock as of the close of trading on March 1, 2006.  Based on the  2,636,597  shares of Series A Preferred Stock  outstanding as of March 10, 2006, TIMET would expect to pay approximately $8.9 million of dividends on these shares during 2006.       Cumulative  effect of change in accounting  principle.  On January 1, 2003, the Company adopted  Statement of Financial  Accounting  Standards  ("SFAS") No. 143,  Accounting for Asset Retirement  Obligations,  and recognized (i) an asset retirement  cost  capitalized  as an  increase  to  the  carrying  value  of its property,  plant and equipment of approximately  $0.2 million,  (ii) accumulated depreciation on such capitalized cost of approximately  $0.1 million and (iii) a liability for the asset retirement obligation of approximately $0.3 million. The asset retirement obligation recognized relates primarily to landfill closure and leasehold   restoration  costs.  See  Note  2  to  the  Consolidated   Financial Statements.       European  operations.  The Company has  substantial  operations  located in Europe,  principally in the United Kingdom, France and Italy.  Approximately 39% of  the  Company's  sales  revenue  originated  in  Europe  in  2005,  of  which approximately  58% was  denominated  in the British pound  sterling or the euro. Certain purchases of raw materials,  principally titanium sponge and alloys, for the Company's European  operations are denominated in U.S. dollars,  while labor and other production costs are primarily  denominated in local  currencies.  The functional  currencies of the Company's European subsidiaries are those of their respective countries, and the European subsidiaries are subject to exchange rate fluctuations  that may impact reported earnings and may affect the comparability of  period-to-period  operating  results.  Borrowings of the Company's  European operations  may be in U.S.  dollars or in functional  currencies.  The Company's export sales from the U.S. are  denominated in U.S.  dollars and as such are not subject to currency exchange rate fluctuations.       The  Company  does  not  use  currency  contracts  to  hedge  its  currency exposures.  Net  currency  transaction  gains or losses  included  in results of operations  were a $2.3  million gain in 2005 and losses of $0.5 million in 2004 and $0.2  million  in 2003.  At  December  31,  2005,  consolidated  assets  and liabilities  denominated in currencies  other than  functional  currencies  were approximately  $51.2  million  and  $46.4  million,   respectively,   consisting primarily of U.S. dollar cash, accounts receivable and accounts payable.       VALTIMET has entered into certain  derivative  financial  instruments  that qualify as cash flow hedges under accounting  principles  generally  accepted in the  United  States  of  America  ("GAAP").  The  Company's  pro-rata  share  of VALTIMET's  unrealized  net gains on such  derivative  financial  instruments is included as a component of other comprehensive income.       Related party transactions.  The Company is a party to certain transactions with related parties. See Note 18 to the Consolidated Financial Statements.       Outlook.   The  Outlook  section  contains  a  number  of   forward-looking statements,  all of which are based on  current  expectations  and  exclude  the effect of potential future charges related to restructurings, asset impairments, valuation allowances, changes in accounting principles and similar items, unless otherwise  noted.  Undue reliance should not be placed on these  statements,  as more fully  discussed  in the  "Forward-Looking  Information"  statement of this Annual  Report.  Actual  results  may differ  materially.  See also Notes to the Consolidated  Financial Statements regarding commitments,  contingencies,  legal matters,  environmental  matters and other  matters,  including  new  accounting principles, which could materially affect the Company's future business, results of operations, financial position and liquidity.       In 2005,  TIMET  achieved all time record  levels for net sales,  operating income and net income.  These levels were largely driven by increased  demand in the commercial  aerospace  sector that,  when coupled with the relatively  short supply of raw materials,  resulted in average selling prices for both melted and mill products reaching their highest  historical levels at $19.85 and $41.75 per kilogram,  respectively.  The Company  expects  that the current  up-cycle  will continue beyond 2006.       The Company  continues  to see the  availability  of certain raw  materials tighten,  and,  consequently,  the prices for such raw materials  increase.  The Company  currently  expects that the shortage in certain raw materials is likely to continue  throughout 2006, which could limit the Company's ability to produce enough titanium products to fully meet customer demand.  In addition,  TIMET has certain  long-term  customer  agreements  that will somewhat limit the Company's ability to pass on all of its increased raw material costs. However, the Company expects  that the impact of higher  average  selling  prices for melted and mill products in 2006 will more than offset such increased raw materials costs.       As  compared  to 2005,  the  Company  currently  expects its 2006 net sales revenue to increase by 35% to 50% to between $1.0 billion and $1.1 billion. Mill product sales volume, which was 12,660 metric tons in 2005, is expected to range from 14,500 and 15,000  metric tons in 2006,  an increase of 15% to 18%.  Melted product sales volume, which was 5,655 metric tons in 2005, is expected to remain relatively unchanged in 2006. Melted product average selling prices are expected to increase by 75% to 80% and mill product  average  selling prices are expected increase by 25% to 30%, as compared to 2005.       The  Company's  cost of sales is affected by a number of factors  including customer and product mix,  material yields,  plant operating rates, raw material costs,  labor costs and energy costs. Raw material costs,  which include sponge, scrap and alloys,  represent the largest portion of the Company's  manufacturing cost  structure,  and, as previously  discussed,  continued  cost  increases are expected during 2006. Scrap and certain alloy prices have continued their upward rise,  and  increased  energy costs also  continue to have a negative  impact on gross margin.  The Company currently expects  production  volumes to continue to increase in 2006, with overall capacity  utilization expected to approximate 88% in 2006 (as compared to 80% in 2005).  However,  practical capacity  utilization measures can vary significantly based on product mix.       Selling,  general,  administrative and development expenses are expected to increase slightly but decrease as a percentage of sales.  Under the terms of the new Boeing LTA, as previously  discussed,  the Company does not currently expect Boeing to incur a makeup  payment  for 2006 as Boeing is expected to purchase at least the minimum specified volumes from the Company.           The Company  expects its 2006 operating  income to increase 50% to 65% over 2005, to between $257 million and $282 million.       Capital  expenditures during 2006 are expected to range from $90 million to $100 million.  The increased  spending over 2005 primarily  reflects $23 million related to the expansion of the sponge plant in Henderson, Nevada and additional capacity  improvements  as the  Company  continues  to respond to the  increased demand by its customers.  Depreciation and amortization  should  approximate $36 million in 2006.       Non-GAAP  financial  measures.  In an  effort  to  provide  investors  with information in addition to the Company's results as determined GAAP, the Company has provided the following non-GAAP  financial  disclosures that it believes may provide useful information to investors:       o    The  Company  discloses  percentage  changes  in its mill  and  melted           product  selling prices in U.S.  dollars,  which have been adjusted to           exclude the effects of changes in product  mix.  The Company  believes           such disclosure  provides useful  information to investors by allowing           them to analyze such changes  without the impact of changes in product           mix, thereby facilitating period-to-period comparisons of the relative           changes in average  selling  prices.  Depending on the  composition of           changes in  product  mix,  the  percentage  change in  selling  prices           excluding  the effect of changes in product mix can be higher or lower           than such  percentage  change  would be using the actual  product  mix           prevailing during the respective periods;       o    In  addition  to  disclosing  percentage  changes in its mill  product           selling  prices  adjusted to exclude the effects of changes in product           mix, the Company also  discloses  such  percentage  changes in billing           currencies,  which  also  excludes  the  effects of changes in foreign           currency exchange rates. The Company believes such disclosure provides           useful  information  to  investors  by allowing  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  various  actual           billing  currencies.  Generally,  when  the  U.S.  dollar  strengthens           (weakens) against other  currencies,  the percentage change in selling           prices  in  billing  currencies  will  be  higher  (lower)  than  such           percentage  changes would be using actual  exchange  rates  prevailing           during the respective periods; and       o    The Company has disclosed operating income excluding the impact of the           Boeing   take-or-pay   income.  The  Company  believes  this  provides           investors  with useful  information  to better  analyze the  Company's           business and possible  future  earnings.  Effective  July 1, 2005, the           Company entered into a new LTA with Boeing,  replacing the take-or-pay           provisions  with an annual makeup  payment early in the following year           in the event Boeing  purchases less than its annual volume  commitment           in any year. See  "Summarized  Financial  Information"  for additional           information regarding the Boeing LTA.       LIQUIDITY AND CAPITAL RESOURCES       The Company's  consolidated cash flows for each of the past three years are presented  below. The following should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto.                                                                                   Year ended December 31,                                                                 ------------------------------------------------------                                                                      2005               2004                2003                                                                 ---------------    ----------------    ---------------                                                                                    (In thousands) Cash provided (used) by:        Operating activities                                         $      72,896      $     (22,433)      $      65,821    Investing activities                                               (61,486)           (44,528)            (14,534)    Financing activities                                                   (28)            38,742             (22,068)                                                                 ---------------    ----------------    ---------------       Net cash provided (used) by operating,        investing and financing activities                       $      11,382      $     (28,219)      $      29,219                                                                 ===============    ================    ===============        Operating  activities.  The titanium  industry  historically  has derived a substantial portion of its business from the aerospace  industry.  The aerospace industry is cyclical,  and changes in economic  conditions  within the aerospace industry  significantly  impact the Company's earnings and operating cash flows. Cash flow from operations has been a primary source of the Company's  liquidity. Changes in titanium pricing,  production volume and customer demand, among other things, could significantly affect the Company's liquidity.       Certain items included in the  determination  of net loss have an impact on cash flows from operating  activities,  but the impact of such items on cash may differ  from  their  impact  on net  loss.  For  example,  pension  expense  and postretirement  healthcare  and life insurance  ("OPEB")  expense will generally differ  from the  outflows of cash for payment of such  benefits.  In  addition, relative  changes in assets and liabilities  generally result from the timing of production,  sales and purchases. 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 than that in which the underlying cash transaction occurs. For example,  raw materials may be purchased  in one period,  but the cash  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.       The  Company's net income  increased  from $47.7 million for the year ended December 31, 2004 to $155.9 million for the year ended December 31, 2005.       Accounts receivable increased during 2005 primarily due to increased sales, as fourth  quarter 2005 net sales,  the primary  source of the year end accounts receivable balance, increased 61% over the year ago period. Similarly,  accounts receivable  increased  during  2004  primarily  due to a 36%  increase in fourth quarter  2004 net sales over the fourth  quarter  of 2003.  Accounts  receivable decreased  during 2003  primarily  due to improved  collection  efforts with the Company's  customers,  partially  offset  by the  weakening  of the U.S.  dollar compared to the British pound sterling and the euro.       Inventories increased during each of 2005 and 2004 as a result of increased capacity  utilization  and  related  inventory  build in order to meet  expected customer demand during the respective  following year, as well as the effects of increased raw material costs. Inventories decreased during 2003 primarily due to the Company's concentrated focus on inventory reduction during 2003.       Changes in accounts payable and accrued  liabilities  reflect,  among other things,  the timing of payments to suppliers of titanium sponge,  titanium scrap and other raw material  purchases.  Accrued  liabilities  increased  during 2005 primarily due to a $7.5 million  increase in the Company's  accrual for employee profit sharing payments to be made in 2006. Accrued liabilities increased during 2004 primarily due to (i) a $12.0 million net increase in the Company's  accrual for incentive  compensation for potential employee profit sharing payments to be made in 2005 and (ii) a $1.1 million increase to the Company's accrual for costs expected  to  be  incurred  for  environmental   remediation  at  the  Company's Henderson, Nevada facility. These increases were partially offset by (i) payment of the $2.8  million  final  installment  related  to  termination  of the prior Wyman-Gordon agreement,  (ii) a $1.9 million reduction of the Company's vacation accrual related to the Company's modification of its vacation policy for its U.S salaried  employees and (iii) a $3.5 million  reclassification  of the Company's U.S.  defined  benefit  pension  liability  from current to  noncurrent,  as the Company's short-term cash contribution requirements decreased significantly.       Pursuant to the Company's previous  agreement with Boeing,  Boeing advanced TIMET $28.5 million annually less $3.80 per pound of titanium product  purchased by Boeing subcontractors during the preceding year. The Company received a $27.9 million  advance for 2005 in January 2005, a $27.9  million  advance for 2004 in January 2004 and a $27.7  million  advance for 2003 in January  2003.  Effective July 1, 2005,  the Company  entered  into a new Boeing LTA,  which  replaced the previous LTA's take-or-pay provisions with an annual makeup payment early in the following  year in the  event  Boeing  purchases  less  than its  annual  volume commitment in any year. See Note 10 to the Consolidated Financial Statements.       See "Results of Operations - Income taxes" for  discussion of the Company's income taxes.       In October 2002, the Company  exercised its right to defer future  interest payments on its  Subordinated  Debentures  held by the Capital Trust,  effective beginning  with the  Company's  December  1, 2002  scheduled  interest  payment, although  interest  continued to accrue at the coupon rate on the  principal and unpaid interest. On April 15, 2004, the Company paid all previously deferred and accrued  interest in the amount of $21.7 million ($21.0 million of which related to the BUCS) and on June 1, 2004,  the Company  resumed its  quarterly  interest payments on the  Subordinated  Debentures.  Changes in accrued  interest on debt payable to the Capital Trust reflect this activity.       Investing  activities.  During 2005 and 2004, the Company purchased 146,900 and  2,549,520  shares of CompX  International,  Inc.  ("CompX")  Class A common stock, respectively,  for $2.2 million and $32.0 million,  respectively.  During 2004, the Company purchased 222,100 shares of NL Industries,  Inc. ("NL") common stock for $2.5 million.  See further  discussion  in Note 4 to the  Consolidated Financial Statements.       The  Company's  capital  expenditures  were $61.1  million  in 2005,  $23.6 million  in 2004 and $12.5  million in 2003,  principally  for  replacement  and expansion of machinery  and  equipment  and for capacity  maintenance.  The 2005 amount  includes  $24.2  million  related  to  the  construction  of  the  water conservation  facility and $11.8 million  related to the Company's  sponge plant expansion in Henderson, Nevada. The 2004 amount includes $3.9 million related to construction of the water conservation facility.        During  the  fourth  quarter  of 2003,  the  Company  deposited  funds into certificates  of deposit and other interest  bearing  accounts as collateral for certain  Company  obligations in lieu of entering into letters of credit.  These deposits, which are restricted as to the Company's use, provide the Company with interest  income as opposed to  interest  expense  incurred  through  the use of letters of credit.  During each of 2005 and 2004, certain of these deposits were liquidated in favor of entering  into letters of credit  because the Company was primarily a net borrower  during these  periods and the use of this cash reduced overall borrowing costs.       Financing activities.  Cash used during 2005 was primarily related to $12.5 million of  dividends  paid on the Series A Preferred  Stock and $2.2 million of dividends  paid to CEZUS,  partially  offset by the Company's net  borrowings of $8.3 million and $6.4 million of proceeds from the issuance of common stock upon exercise  of  options.  Cash  provided  during  2004  related  primarily  to the Company's net borrowings of $43.2 million,  which the Company  primarily used to support the accumulation of inventory in order to meet expected  customer demand for 2005 and also support capital expenditures and the acquisition of marketable securities.  In addition,  the Company paid  dividends on its Series A Preferred Stock of $3.3 million and TIMET Savoie made a $0.7 million  dividend  payment to CEZUS during  2004.  Cash used during 2003  related  primarily to the  Company's $19.3 million of net repayments on its outstanding borrowings upon the Company's receipt of a $27.7 million customer advance in January 2003. Additionally, TIMET Savoie made a $1.9 million  dividend  payment to CEZUS during 2003.  See further discussion below in "Liquidity and Capital Resources - Borrowing arrangements."       Borrowing arrangements.  As of December 31, 2005, the Company's outstanding borrowings  under its U.S.  credit  agreement  were  $40.3  million  and  excess availability was  approximately  $79 million.  On February 17, 2006, the Company entered  into a new $175  million  long-term  credit  agreement  (the  "New U.S. Facility"), replacing its previous U.S credit agreement, which was terminated on that date.  The New U.S.  Facility is secured  primarily by the  Company's  U.S. accounts receivable,  inventory,  personal property, intangible assets, a pledge of 65% of TIMET UK's common stock and a negative  pledge on U.S.  fixed  assets, and matures in February  2011.  Borrowings  under the New U.S.  Facility  accrue interest  at the  U.S.  prime  rate or  varying  LIBOR-based  rates  based  on a quarterly ratio of outstanding  debt to EBITDA as defined by the agreement.  The New U.S. Facility also provides for the issuance of up to $10 million of letters of credit.       The New U.S.  Facility contains certain  restrictive  covenants that, among other things,  limit or restrict the ability of the Company to incur debt, incur liens, make  investments,  make capital  expenditures or pay dividends.  The New U.S.  Facility  also  requires  compliance  with  certain  financial  covenants, including a minimum  tangible net worth covenant,  a fixed charge coverage ratio and a  leverage  ratio,  and  contains  other  covenants  customary  in  lending transactions  of this type including  cross-default  provisions  with respect to other  debt  and  obligations  of the  Company.  Borrowings  under  the New U.S. Facility  are  limited  to the lesser of $175  million  or a  formula-determined amount based upon U.S. accounts receivable,  inventory and fixed assets (subject to pledging  fixed  assets).  Such  formula-determined  amount  only  applies if borrowings  exceed 60% of the commitment  amount or the leverage ratio exceeds a certain  limitation.  At  February  17,  2006,  approximately  $21  million  was outstanding  under the New U.S.  Facility  and $4.4 million of letters of credit were issued and  outstanding.  The  Company's  previous  U.S.  credit  agreement contained  similar  covenant  compliance  requirements,  and the  Company was in compliance  with all such  covenants  for all  periods  during  the years  ended December 31, 2005 and 2004.           Under the  previous  U.S.  credit  agreement,  the Company was  required to maintain a lock box  arrangement  whereby  daily net cash  receipts were used to reduce outstanding borrowings.  Accordingly,  any outstanding balances under the previous  U.S.  credit  agreement  were  classified  as  a  current   liability, regardless of the maturity date of the  agreement.  As a result of the Company's entrance  into  the  New  U.S.  Facility,  which  does  not  contain  a  similar requirement  regarding the  application of daily net cash  receipts,  borrowings under the Company's  previous U.S. credit  agreement have been  re-classified to long-term on the  Company's  balance  sheet as of December  31, 2005.  Under the Company's  previous U.S. credit  agreement,  interest  accrued at rates based on LIBOR plus 2% and bank prime rate plus 0.5%. The weighted  average interest rate on  borrowings  outstanding  was  6.4% as of  December  31,  2005 and 4.3% as of December 31, 2004.  Borrowings were  collateralized  by substantially all of the Company's U.S. assets.       During the second  quarter of 2005,  the  Company's  subsidiary,  TIMET UK, terminated its previous credit facility (the "U.K. Facilities") and entered into a new working capital credit facility (the "New U.K.  Facility") that expires on April  30,  2008.  Under  the New  U.K.  facility,  TIMET  UK may  borrow  up to (pound)22.5 million, subject to a formula-determined borrowing base derived from the value of accounts receivable,  inventory and property,  plant and equipment. Borrowings under the New U.K. facility can be in various  currencies,  including U.S.  dollars,  British  pounds  sterling  and euros and are  collateralized  by substantially  all of TIMET UK's  assets.  Interest  on  outstanding  borrowings generally  accrues at rates that vary from 1.125% to 1.375%  above the  lender's published base rate. The New U.K.  facility also contains  financial  ratios and covenants  customary in lending  transactions of this type,  including a minimum net  worth  covenant.  TIMET UK was in  compliance  with all  covenants  for all periods  during the year ended  December 31, 2005. As of December 31, 2005,  the Company had outstanding borrowings under the New U.K. Facility of $11.1 million, and excess  availability  was  approximately  $28 million.  The weighted average interest rate on borrowings  outstanding under the New U.K. facility was 5.6% as of December 31, 2005.       The U.K.  Facilities  included  revolving and term loan  facilities  and an overdraft  facility and required the maintenance of certain financial ratios and amounts, including a minimum net worth covenant and other covenants customary in lending transactions of this type. TIMET UK was in compliance with all covenants for all  periods  during the year ended  December  31,  2004.  During the second quarter of 2003, TIMET UK received an interest-bearing  intercompany loan from a U.S.  subsidiary  of the  Company  enabling  TIMET UK to  reduce  its  long-term borrowings  under the U.K.  Facilities  to zero.  This  loan was  repaid in full during the third  quarter of 2004.  As of December 31, 2004,  the Company had no borrowings under the U.K. Facilities.       The Company also has  overdraft  and other credit  facilities at certain of its other European  subsidiaries that aggregate the equivalent of $19 million at December 31, 2005.  These  facilities  accrue  interest at various rates and are payable on demand. At December 31, 2005,  approximately $2 million of letters of credit had been issued under these facilities. As of December 31, 2005 and 2004, there were no outstanding  borrowings under these other  facilities,  and unused borrowing availability at December 31, 2005 was approximately $17 million.       No dividends  were paid by TIMET on its common  stock during 2005,  2004 or 2003. The Company paid  dividends on its Series A Preferred  Stock in the amount of $12.5  million in 2005 and $3.3 million in 2004.  Subsequent  to December 31, 2005,  the  Company's  board of  directors  declared a dividend of $0.84375  per share,  payable on March 15,  2006 to  holders  of record of Series A  Preferred Stock as of the close of trading on March 1, 2006.            Contractual commitments. As more fully described in Notes 11, 12, 18 and 19 to the  Consolidated  Financial  Statements,  the Company was a party to various debt, lease and other agreements at December 31, 2005 that contractually commits the Company to pay certain amounts in the future. The following table summarizes such  contractual  commitments  that are  enforceable and legally binding on the Company and that specify all significant terms, including pricing,  quantity and date of payment:                                                                             Payment Due Date                                             ---------------------------------------------------------------------------                                                               2007/           2009/          2011 & Contractual Commitment                         2006           2008            2010            After           Total - ----------------------                      -----------    ------------    ------------    ------------    ------------                                                                           (In thousands)        Capital leases (1)                          $       28     $       56      $      56       $        50      $      190  Operating leases                                 3,103          6,003          4,479            18,512          32,097  Long-term debt (2)                                   -         11,104              -            40,255          51,359  Debt payable to Capital Trust (and   accrued interest thereon at   December 31, 2005)                                33              -              -             5,852           5,885  Purchase obligations:    Raw materials (3)                           108,643         36,715          2,800             2,800         150,958    Other (4)                                    30,048         18,515         12,990            24,204          85,757  Other contractual obligations (5)               14,026              -              -                 -          14,026                                             -----------    ------------    ------------    ------------    ------------                                              $  155,881      $  72,393      $  20,325        $   91,673      $  340,272                                             ===========    ============    ============    ============    ============ - -----------------------------------------------------------------------------------------------------------------------  (1)  Includes interest payments due under the capital lease agreements. (2)  Subsequent to December 31, 2005, the Company entered into a new U.S. credit      agreement, which matures in 2011. See Note 11 to the Consolidated Financial      Statements. (3)  These  obligations  generally  relate to the  purchase of  titanium  sponge      pursuant to an LTA that expires on December 31, 2007 (as  described in Item      1: Business) and various other open orders or  commitments  for purchase of      raw  materials.  The LTA does not  contain  automatic  renewal  provisions;      however,  the Company may enter into a new agreement to replace the current      LTA in the future. (4)  These  obligations  generally relate to contractual  operating fees paid to      CEZUS  for use of a portion  of its  Ugine,  France  plant  pursuant  to an      agreement  expiring in 2006 (as  described in Item 2:  Properties),  energy      purchase obligations with BMI which expire in 2010 (as described in Note 18      to the Consolidated Financial  Statements),  an obligation to Contran under      an intercorporate services agreement ("ISA") for 2006 (as described in Note      18 to  the  Consolidated  Financial  Statements),  a  capital  contribution      obligation  to  BAOTIMET  and  various  other open  orders for  purchase of      energy,  utilities  and  property  and  equipment.  These  obligations  are      generally based on an average price and an assumed constant mix of products      purchased,  as  appropriate.  The  Company  expects  to  enter  into an ISA      annually with Contran  subsequent to 2006. All open orders are for delivery      in 2006. (5)  These other  obligations are recorded on the Company's  balance sheet as of      December 31, 2005 and consist of current income taxes  payable,  a contract      for  removal  of  environmental  waste and  obligations  related to workers      compensation   bonds  discussed  in  "Liquidity  and  Capital  Resources  -      Off-balance sheet arrangements."       The Company has excluded any potential commitment for funding of retirement and postretirement benefit plans from this table. However, such potential future contributions  are discussed  below, as  appropriate,  in "Liquidity and Capital Resources - Defined benefit pension plans" and "Liquidity and Capital  Resources - - Postretirement benefit plans other than pensions."            Off-balance  sheet  arrangements.  As more fully  discussed  in "Results of Operations - Non-operating income (expense)," the Company is the primary obligor on two $1.5  million  workers'  compensation  bonds  issued on behalf of Freedom Forge.  The Company has fully expensed the  obligation  under the first of these bonds.  Based upon current claims  analysis,  the Company has expensed only $0.2 million on the second bond and  although  it is  potentially  obligated  for the remaining  $1.3 million,  the Company does not currently  expect any  additional claims to be filed on this second  bond.  Additionally,  the Company has entered into letters of credit to  collateralize  (i)  potential  workers'  compensation claims in Ohio and Nevada and (ii) future usage of  electricity  in Nevada.  The Company's excess  availability  under its U.S. credit agreement has been reduced by $2.3  million  and $2.1  million,  respectively,  related to such  letters of credit.       The  Company  has  entered  into  letters  of credit to  collateralize  (i) potential workers'  compensation  claims in Ohio and Nevada and (i) future usage of  electricity  in Nevada.  The Company's  excess  availability  under its U.S. credit   agreement   has  been  reduced  by  $2.3  million  and  $2.1   million, respectively,  related to such letters of credit. Additionally,  the Company has entered into a letter of credit to collateralize  various business  obligations, wich has reduced the  Company's  excess  availability  under its other  European credit facilities by approximately $2 million.       Defined  benefit  pension  plans.  As of  December  31,  2005,  the Company maintains  three defined  benefit pension plans - one each in the U.S., the U.K. and France.  Prior to December 31, 2003, the U.S.  maintained  two plans,  which were merged as of that date. The majority of the discussion below relates to the U.S.  and U.K.  plans,  as the  French  plan is not  material  to the  Company's Consolidated  Balance  Sheets,  Statements  of  Operations or Statements of Cash Flows.       The Company recorded  consolidated pension expense of $7.9 million in 2005, $7.7  million  in 2004 and $8.9  million  in 2003.  Pension  expense  for  these periods,  the majority of which related to the U.K. plan,  was calculated  based upon a number  of  actuarial  assumptions,  most  significant  of which  are the discount rate and the expected long-term rate of return.       The discount rate the Company utilizes for determining  pension expense and pension  obligations  is based on a review  of  long-term  bonds  (10 to 15 year maturities)  that  receive one of the two highest  ratings  given by  recognized rating agencies (generally Merrill Lynch, Moody's,  Solomon Smith Barney and UBS Warburg)  as well as  composite  indices  provided by the  Company's  actuaries. Changes in the  Company's  discount  rate over the past three years  reflect the decline in such bond rates during that period.  The Company  establishes  a rate that is used to determine  obligations  as of the year-end  date and expense for the subsequent  year. The Company used the following  discount rate  assumptions for its pension plans:                                                              Discount rates used for:                       ------------------------------------------------------------------------------------------------                               Obligation at                     Obligation at                    Obligation at                             December 31, 2005                 December 31, 2004                December 31, 2003                            and expense in 2006               and expense in 2005              and expense in 2004                       ------------------------------    ------------------------------     ---------------------------     U.S. Plan                          5.50%                             5.65%                            6.00% U.K. Plan                          4.75%                             5.30%                            5.50%        In developing the Company's expected long-term rate of return  assumptions, the  Company  evaluates  historical  market  rates of return  and input from its actuaries,  including a review of asset  class  return  expectations  as well as long-term  inflation  assumptions.  Projected  returns are based on broad equity (large cap, small cap and  international)  and bond  (corporate and  government) indices as well as anticipation that the plans' active investment  managers will generate  premiums above the standard market  projections.  The Company used the following long-term rate of return assumptions for its pension plans:                                                          Long-term rates of return used for:                       ------------------------------------------------------------------------------------------------                               Obligation at                     Obligation at                    Obligation at                             December 31, 2005                 December 31, 2004                December 31, 2003                            and expense in 2006               and expense in 2005              and expense in 2004                       ------------------------------    ------------------------------     ---------------------------     U.S. Plan                         10.00%                            10.00%                            10.00% U.K. Plan                          6.70%                             7.10%                            7.10%        Lowering the expected long-term rate of return on the Company's U.S. plan's assets by 0.5% (from 10.00% to 9.50%) would have increased 2005 pension  expense by  approximately  $0.3 million,  and lowering the discount  rate  assumption by 0.25% (from 5.65% to 5.40%) would have increased the Company's U.S.  plan's 2005 pension expense by approximately  $0.1 million.  Lowering the expected long-term rate of return on the Company's U.K. plan's assets by 0.5% (from 7.10% to 6.60%) would have increased 2005 pension  expense by  approximately  $0.6 million,  and lowering the discount rate  assumption by 0.25% (from 5.30% to 5.05%) would have increased the Company's U.K. plan's 2005 pension expense by  approximately  $0.7 million.       During the second quarter of 2003, the Company  transferred all of its U.S. plan's assets into the Combined Master Retirement Trust ("CMRT").  The CMRT is a collective  investment  trust  established  by Valhi to  permit  the  collective investment by certain master trusts which fund certain  employee  benefits plans sponsored by Valhi and certain related companies. A sub account of the CMRT held 10.8% of TIMET common stock at December 31, 2005;  however,  the Company's  plan assets  are  invested  only in the  portion of the CMRT that does not hold TIMET common  stock.  At December  31,  2005,  Valhi and  related  entities or persons (excluding  the CMRT) held  approximately  41.8% of TIMET's  outstanding  common stock and approximately  54.1% of the Company's Series A Preferred Stock. Harold C. Simmons,  Chairman of the Board of Directors of Valhi and TIMET,  is the sole trustee of the CMRT and a member of the trust investment committee for the CMRT.       The CMRT's  long-term  investment  objective is to provide a rate of return exceeding a composite of broad market equity and fixed income indices (including the S&P 500 and certain Russell indices)  utilizing both third-party  investment managers  as well as  investments  directed by Mr.  Simmons.  During the 18-year history of the CMRT through December 31, 2005, the average annual rate of return earned by the CMRT, as calculated based on the average  percentage change in the CMRT's  net asset  value per CMRT unit for each  applicable  year,  has been 14% (with a 36% return for 2005).       At December  31, 2005,  the CMRT's  asset mix (based on an aggregate  asset value of $691  million)  was 86%  U.S.  equity  securities,  7%  foreign  equity securities,  3% debt  securities  and 4% cash and other.  The CMRT`s trustee and investment  committee  actively  manage the  investments  within the CMRT.  Such parties have in the past, and may again in the future,  periodically  change the relative  asset mix based upon,  among other  things,  advice they  receive from third-party  advisors and their  expectation  as to what asset mix will generate the greatest  overall return.  Based on the above, the Company set its long-term rate of  return  assumption  at 10.0% for  December  31,  2005 and 2004  pension obligations and 2006, 2005 and 2004 pension expense for its U.S. plan.            Because of market fluctuations and prior funding  strategies,  actual asset allocation as of December 31, 2005 was 84.6% equity  securities  and 15.4% fixed income securities for the U.K. plan. During 2003, the trustees for the U.K. plan selected a new  investment  advisor  (effective  in 2004) for the U.K.  plan and modified its asset allocation  goals.  The Company's  future expected  long-term rate of return on plan assets for its U.K. plan is based on an asset  allocation assumption  of 60% equity  securities  and 40% fixed income  securities  and all current contributions to the plan are invested wholly in fixed income securities in order to  gradually  effect the shift.  Based on various  factors,  including improved  economic and market  conditions,  gains on the plan assets during 2003 and projected  asset mix, the Company  increased its assumed  long-term  rate of return for December 31, 2003 pension obligations and for 2004 pension expense to 7.10% for its U.K.  plan and  maintained  the  assumption  for December 31, 2004 pension  obligations  and for 2005 pension  expense.  Because all  contributions continue to be put into fixed income securities,  the Company expects the plan's asset mix to continue  moving  closer to the  projected  mix,  which  reflects a higher percentage of fixed income securities. As such, the Company decreased its assumed  long-term rate of return for December 31, 2005 pension  obligations and for 2006 pension expense to 6.70% for its U.K. plan.       Although the expected  rate of return is a long-term  measure,  the Company will continue to evaluate its expected rate of return,  at least  annually,  and will adjust it as considered necessary. The expected return on the fair value of the plan assets, determined based on the expected long-term rate of return, is a component  of  pension  expense.  This  methodology  further  recognizes  actual investment gains or losses (i.e., the difference between the expected and actual returns  based on the  market  value  of  assets)  in  pension  expense  through amortization in future periods based upon the expected average remaining service life of the plan  participants.  Unrealized  gains or losses may  impact  future periods to the extent the accumulated gains or losses are outside the "corridor" as defined by SFAS No. 87.       Based on an expected  rate of return on plan  assets of 10.00%,  a discount rate of 5.50% and various other assumptions, the Company estimates that its U.S. plan  will  have  pension  income  of   approximately   $2.8  million  in  2006, approximately  $3.2  million in 2007 and  approximately  $3.7 million in 2008. A 0.25%  increase  (decrease)  in the  discount  rate  would  increase  (decrease) projected pension income by approximately $0.1 million in each of 2006, 2007 and 2008. A 0.5% increase  (decrease) in the long-term rate of return would increase (decrease)  projected  pension income by approximately  $0.4 million in 2006 and $0.5 million in each of 2007 and 2008.       Based on an  expected  rate of return on plan  assets of 6.70%,  a discount rate of 4.75% and various  other  assumptions  (including  an  exchange  rate of $1.75/(pound)1.00), the Company estimates that pension expense for its U.K. plan will  approximate $6.4 million in 2006, $6.0 million in 2007 and $5.3 million in 2008. A 0.25% increase (decrease) in the discount rate would decrease (increase) projected pension expense by approximately  $0.8 million in 2006 and 2007 and by $0.7 million in 2008. A 0.5% increase (decrease) in the long-term rate of return would  decrease  (increase)  projected  pension  expense by  approximately  $0.7 million in 2006, $0.8 million in 2007 and $1.0 million in 2008.       Actual  future  pension  expense  will depend on actual  future  investment performance,  changes in future discount rates and various other factors related to the participants in the Company's pension plans.            The Company made cash  contributions of approximately  $1.8 million in 2004 and  $4.4  million  in  2003  to  the  U.S.  plans  and  cash  contributions  of approximately  $9.1  million in 2005,  $8.2  million in 2004 and $7.3 million in 2003 to the U.K. plan. Based upon the current funded status of the plans and the actuarial  assumptions being used for 2006, the Company believes that it will be required to make the  following  cash  contributions  (exclusive of any required employee contributions) over the next five years:                                                                              Projected cash contributions                                                            -----------------------------------------------------------                                                               U.S. Plan             U.K.Plan               Total                                                            ----------------     -----------------    -----------------                                                                        (In millions, and using an exchange                                                                        rate of $1.75/(pound)1.00 for U.K. plan ) Year ending December 31,               2006                                                    $      0.4           $       8.1          $       8.5      2007                                                    $      0.1           $       8.3          $       8.4      2008                                                    $      -             $       8.6          $       8.6      2009                                                    $      -             $       8.9          $       8.9      2010                                                    $      -             $       9.2          $       9.2        The U.S. plan(s) paid benefits of approximately  $5.6 million in 2005, $5.7 million in 2004 and $5.6  million in 2003,  and the U.K.  plan paid  benefits of approximately  $4.3  million in 2005,  $4.7  million in 2004 and $4.3 million in 2003.  Based upon current  projections,  the Company  believes the plans will be required to pay the following benefits over the next ten years:                                                                             Projected retirement benefits                                                            -----------------------------------------------------------                                                               U.S. Plan             U.K.Plan               Total                                                            ----------------     -----------------    -----------------                                                                        (In millions, and using an exchange                                                                        rate of $1.75/(pound)1.00 for U.K. plan ) Year ending December 31,           2006                                                    $      5.9           $       4.3          $      10.2      2007                                                    $      5.9           $       4.4          $      10.3      2008                                                    $      5.9           $       4.5          $      10.4      2009                                                    $      5.9           $       4.6          $      10.5      2010                                                    $      5.9           $       4.8          $      10.7      2011 through 2015                                       $     29.4           $      25.8          $      55.2        The value of the plans'  assets has increased  significantly  over the past three years based mainly on  performance  of the plans' equity  securities.  The U.S.  plan's  assets were $84.7  million,  $67.2  million  and $60.7  million at December 31, 2005, 2004 and 2003, respectively,  and the U.K. plan's assets were $138.1 million,  $121.0 million and $97.8 million at December 31, 2005, 2004 and 2003, respectively.            The combination of actual investment  returns,  changing discount rates and changes in other  assumptions has a significant  effect on the Company's  funded plan status (plan assets compared to projected  benefit  obligations).  In 2005, the effect of  positive  investment  returns  more than  offset the effects of a decline in the discount  rate,  thereby moving the U.S. plan into a $5.3 million over-funded  status at  December  31,  2005.  Whereas,  in 2004,  the  effect of positive  investment  returns and cash contributions was more than offset by the effect of a decline in the discount  rate and certain  changes in mortality  and other retirement assumptions, thereby increasing in the U.S. plan's under-funded status by $1.3 million to $11.4 million at December 31, 2004. In 2005 the effect of positive  investment  returns in the U.K.  plan, as well as the effect of the strengthening  dollar compared to the British pound  sterling,  more than offset the decline in the discount rate, thereby reducing the U.K. plan's  under-funded status by $7.2 million to $54.8 million at December 31, 2005.  Whereas, in 2004, the effect of positive  investment returns was more than offset by the effect of a decline in the discount rate and certain  changes in mortality and  retirement assumptions,  as well as the  effect of the  weakening  dollar  compared  to the British pound sterling,  thereby increasing the under-funded  status of the U.K. plan by $8.4  million to $62.0  million at  December  31,  2004.  Based upon the change in the funded  status of the plans during  2005,  the Company was able to reduce its net  additional  minimum  pension  liability  charge  (net of tax) to equity by $17.2 million,  reflecting  additional  comprehensive  income of $16.6 million  for the U.S.  plan  (based on  elimination  of the  additional  minimum pension  liability for this plan) and  additional  comprehensive  income of $0.6 million for the U.K. plan.       Postretirement  benefit  plans other than  pensions.  The Company  provides limited OPEB benefits to a portion of its U.S.  employees upon  retirement.  The Company  funds  such OPEB  benefits  as they are  incurred,  net of any  retiree contributions.  The Company paid OPEB benefits, net of retiree contributions, of $2.3 million in 2005, $2.5 million in 2004 and $3.1 million in 2003.       The Company  recorded  consolidated  OPEB  expense of $2.8 million in 2005, $3.0  million in 2004 and $2.7 million in 2003.  OPEB expense for these  periods was calculated based upon a number of actuarial assumptions, most significant of which are the discount rate and the expected long-term health care trend rate.       The discount  rate the Company  utilizes for  determining  OPEB expense and OPEB  obligations is the same as that used for the Company's U.S. pension plans. Lowering the discount  rate  assumption by 0.25% (from 5.65% to 5.4%) would have increased the Company's 2005 OPEB expense by less than $0.1 million.       The Company  estimates the expected  long-term health care trend rate based upon  input  from  specialists  in  this  area,  as  provided  by the  Company's actuaries.  In  estimating  the health  care trend rate,  the Company  considers industry  trends,  the  Company's  actual  healthcare  cost  experience  and the Company's  future  benefit  structure.  For 2005,  the Company  used a beginning health  care trend rate of 9.29%,  which is  projected  to reduce to an ultimate rate of 4.0% in 2010.  If the health  care trend rate  changed by 1.00% for each year, OPEB expense would have  increased/decreased by approximately $0.2 million in 2005.  For 2006,  the Company is using a beginning  health care trend rate of 8.23%, which is projected to reduce to an ultimate rate of 4.0% in 2010.            Based on a discount  rate of 5.5%,  a health  care trend rate as  discussed above and various other  assumptions,  the Company  estimates  that OPEB expense will  approximate $2.8 million in 2006, $2.7 million in 2007 and $2.8 million in 2008. A 0.25% increase (decrease) in the discount rate would decrease (increase) projected OPEB expense by less than $0.1 million in each of 2006, 2007 and 2008. A 1.0%  increase  (decrease)  in the health  care trend rate for each year would increase  (decrease) the projected  service and interest cost components of OPEB expense by  approximately  $0.2  million in 2006 and by $0.3  million in each of 2007 and 2008.       Based upon  current  projections,  the Company  will be required to pay the following OPEB benefits over the next ten years:                                            Projected            Projected            Projected         Projected net                                      gross payments           retiree              Part D              payments                                                            contributions           subsidy                                      ---------------- -- ------------------    ----------------    -----------------                                                                      (In millions) Year ended December 31,                   2006                            $        3.8                 (1.4)              (0.2)         $          2.2       2007                            $        4.0                 (1.5)              (0.4)         $          2.1       2008                            $        4.3                 (1.6)              (0.4)         $          2.3       2009                            $        4.6                 (1.7)              (0.5)         $          2.4       2010                            $        4.8                 (1.8)              (0.5)         $          2.5       2011 through 2015               $       29.0                (10.8)              (3.0)         $         15.2        Environmental   matters.  See  "Business  -  Regulatory  and  environmental matters" in Item 1 and Note 19 to the  Consolidated  Financial  Statements for a discussion of environmental matters.       Other.  The Company  periodically  evaluates  its  liquidity  requirements, capital needs and availability of resources in view of, among other things,  its alternative  uses of capital,  debt service  requirements,  the cost of debt and equity capital and estimated  future  operating cash flows.  As a result of this process, the Company has in the past, or in light of its current outlook, may in the future,  seek to raise additional  capital,  modify its common and preferred dividend  policies,   restructure  ownership  interests,   incur,  refinance  or restructure indebtedness,  repurchase shares of common stock, purchase or redeem BUCS or Series A Preferred  Stock,  sell assets,  or take a combination  of such steps or other steps to increase or manage its liquidity and capital  resources. In the normal course of business, the Company investigates, evaluates, discusses and engages in  acquisition,  joint venture,  strategic  relationship  and other business  combination  opportunities in the titanium,  specialty metal and other industries.   In  the  event  of  any  future   acquisition   or  joint  venture opportunities,  the Company may consider using then-available liquidity, issuing equity securities or incurring additional indebtedness.            Corporations  that may be deemed to be controlled by or affiliated with Mr. Simmons sometimes engage in (i) 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 (ii)  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.  The Company continuously considers, reviews and evaluates such transactions, and understands that  Contran,  Valhi 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.       During the first  nine  months of 2004,  the  Company  purchased  2,212,820 shares of CompX International, Inc ("CompX") Class A common shares, representing approximately 14.6% of the total number of shares of all classes of CompX common stock  outstanding at that date. As of September 30, 2004, NL  Industries,  Inc. ("NL"), a subsidiary of Valhi,  held an additional 68.4% of CompX.  Effective on October  1,  2004,  the  Company  and NL  contributed  100% of their  respective holdings on that date of all classes of CompX common stock to CompX Group,  Inc. ("CGI") in return for a 17.6% and 82.4% ownership interest in CGI, respectively, and CGI  became  the owner of the  83.0% of CompX  that the  Company  and NL had previously  held in the aggregate.  The CompX shares are the sole assets of CGI. The  Company's  shares of CGI are  redeemable at the option of the Company based upon the market value of the underlying  CompX stock held by CGI. The fair value of the  Company's  investment  in CGI  is  based  on  the  market  value  of the underlying CompX shares.       As of December  31, 2005 and 2004,  the Company  directly  held 483,600 and 336,700,  respectively,  shares of CompX,  which were  purchased  subsequent  to October 1, 2004.  The Company has not  contributed  any of the shares  purchased subsequent to October 1, 2004 to CGI. Depending upon the Company's evaluation of the business and prospects of CompX,  and upon future  developments  (including, but  not  limited  to,  performance  of  the  Class  A  Shares  in  the  market, availability of funds,  alternative uses of funds,  and money,  stock market and general  economic  conditions),  the  Company  may from  time to time  purchase, dispose of, or cease buying or selling Class A Shares.  CRITICAL ACCOUNTING POLICIES AND ESTIMATES       The  Company's  Consolidated  Financial  Statements  have been  prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial  statements requires the Company to make estimates and judgments,  and select from a range of possible 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 reported period.            On an on-going basis, the Company evaluates its estimates,  including those related  to  allowances  for  uncollectible   accounts   receivable,   inventory allowances, asset lives, impairments of investments in marketable securities and investments  accounted for by the equity  method,  the  recoverability  of other long-lived  assets,  including  property  and  equipment,   goodwill  and  other intangible assets, pension and other post-retirement benefit obligations and the related underlying actuarial assumptions, the realization of deferred income tax assets,   and  accruals   for  asset   retirement   obligations,   environmental remediation,  litigation, income tax and other contingencies.  The Company bases its estimates  and  judgments,  to varying  degrees,  on historical  experience, advice of  external  specialists  and  various  other  factors it believes to be prudent  under the  circumstances.  Actual  results may differ  from  previously estimated  amounts and such  estimates,  assumptions and judgments are regularly subject to revision.       The policies and estimates  discussed below are considered by management to be critical to an understanding of the Company's  financial  statements  because their  application  requires the most  significant  judgments from management in estimating matters for financial  reporting that are inherently  uncertain.  See Notes to the  Consolidated  Financial  Statements for additional  information on these  policies and  estimates,  as well as discussion of additional  accounting policies and estimates.       Inventory  allowances.  Prior to January 1, 2005,  approximately 40% of the Company's  inventories were determined  using the LIFO method,  with the balance determined  primarily using an average cost method.  Effective  January 1, 2005, the Company changed its method for inventory costing from the LIFO method to the specific identification cost method for the inventories previously accounted for under the LIFO cost method. With the significant volatility seen recently in raw material prices,  the Company believes this change in accounting method provides a better matching of revenues and expenses. As required by GAAP, the Company has restated  its  financial  statements  for  prior  periods.  See  Note  2 to  the Consolidated   Financial  Statements.   The  Company  periodically  reviews  its inventory for estimated  obsolescence or unmarketable  inventory and records any write-down  equal  to the  difference  between  the  cost of  inventory  and its estimated net realizable value based upon assumptions  about  alternative  uses, market conditions and other factors.       Impairment  of  long-lived  assets.  Generally,  when  events or changes in circumstances indicate that the carrying amount of long-lived assets,  including property and  equipment  and  intangible  assets,  may not be  recoverable,  the Company  undertakes  an  evaluation  of the  assets  or  asset  group.  If  this evaluation indicates that the carrying amount of the asset or asset group is not recoverable,  the amount of the impairment  would typically be calculated  using discounted  expected future cash flows or appraised values. All relevant factors are considered in  determining  whether an impairment  exists.  During 2005, the Company  determined that certain of its manufacturing  equipment would no longer be utilized in its  operations,  and,  accordingly,  recognized  a $1.2  million noncash  abandonment  charge  to cost of  sales.  In  2004,  no such  events  or circumstances indicated the need to perform such evaluation.            Valuation and  impairment of securities.  In accordance  with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,  the Company's marketable securities,  including the shares of CompX contributed by the Company and held by CGI (based upon the Company's  redemption option), are classified as available-for-sale  securities  and are  carried at fair value based upon quoted market prices,  with unrealized  gains and/or losses  included in  stockholders' equity as a component of other  comprehensive  income. The Company evaluates its investments  in marketable  securities  whenever  events or conditions  occur to indicate  that the fair  value of such  investments  has  declined  below  their carrying  amounts.  If the  decline  in fair  value is judged  to be other  than temporary, the carrying amount of the security is written down to fair value. In 2005,  no such  events  or  circumstances  indicated  the need to  perform  such evaluation.  See Note 4 to the  Consolidated  Financial  Statements  for further discussion.       Deferred income tax valuation  allowances.  Under SFAS No. 109,  Accounting for Income  Taxes,  and  related  guidance,  the Company is required to record a valuation   allowance   if   realization   of   deferred   tax   assets  is  not "more-likely-than-not."  Substantial  weight must be given to recent  historical results and near-term  projections,  and management must assess the availability of tax planning  strategies that might impact either the need for, or amount of, any  valuation  allowance.  See  "Results  of  Operations  - Income  taxes"  for discussion  of the  Company's  analysis  of its  deferred  income tax  valuation allowances.       Pension and OPEB expenses and obligations.  The Company's  pension and OPEB expenses and obligations are calculated  based on several  estimates,  including discount  rates,  expected  rates of returns on plan assets and expected  health care trend rates.  The Company  reviews these rates annually with the assistance of its actuaries. See further discussion of the factors considered and potential effect of these estimates in "Liquidity and Capital  Resources - Defined benefit pension  plans" and "Liquidity and Capital  Resources -  Postretirement  benefit plans other than pensions."       Revenue recognition. Sales revenue is generally recognized when the Company has certified that its product meets the related  customer  specifications,  the product has been shipped,  and title and substantially all the risks and rewards of ownership  have passed to the customer.  Payments  received from customers in advance of these  criteria  being met are  recorded as customer  advances  until earned. For inventory  consigned to customers,  sales revenue is recognized when (i) the terms of the consignment end, (ii) the Company has completed performance of all  significant  obligations  and (iii) title and  substantially  all of the risks and rewards of ownership have passed to the customer.  Amounts  charged to customers for shipping and handling are included in net sales.  Sales revenue is stated net of price and early payment discounts.       Other  loss  contingencies.  Accruals  for  estimated  loss  contingencies, including,  but  not  limited  to,  product-related  liabilities,  environmental remediation  and  litigation,  are recorded when it is probable that a liability has been  incurred  and the  amount  of the loss  can be  reasonably  estimated. Disclosure is made when there is a reasonable  possibility  that a loss may have been incurred. Contingent liabilities are often resolved over long time periods. Estimating  probable losses often requires analysis of various  projections that are dependent upon the future outcome of multiple factors,  including costs, the findings of investigations and actions by the Company and third parties.
Interest  rates.  The  Company is exposed  to market  risk from  changes in interest  rates related to  indebtedness.  The Company  typically does not enter into  interest  rate swaps or other  types of  contracts  in order to manage its interest  rate market  risk.  At December 31, 2005,  all of the  Company's  bank indebtedness  was  denominated in U.S.  dollars or British pounds  sterling.  At December 31, 2004, all of the Company's  bank  indebtedness  was  denominated in U.S.  dollars.  The  Company's  borrowings  accrue  interest at variable  rates, generally  related to  spreads  over bank prime  rates and  LIBOR.  Because  the Company's bank indebtedness  reprices with changes in market interest rates, the carrying  amount  of such  debt is  believed  to  approximate  fair  value.  The following  table  summarizes the Company's bank variable rate  indebtedness  and related maturities as of December 31, 2005:                                                             Contractual maturity date                                   ---------------------------------------------------------------------                                                                                             There-after    Interest                                      2006          2007           2008          2009                        rate (1)                                   -----------    ----------    -----------    ----------    -----------    -----------                                                                (In millions)         U. S. dollars (2)                 $     -        $     -       $     -        $     -       $    40.3         6.4% British pounds sterling           $     -        $     -       $    11.1      $     -       $     -           5.6%   (1)  Weighted average. (2)  Subsequent to December 31, 2005, the Company entered into a new U.S. credit      facility, which matures in 2010.       The  following   table   summarizes   the  Company's   bank  variable  rate indebtedness and related maturities as of December 31, 2004:                                                                Contractual maturity date                                   ---------------------------------------------------------------------                                                                                               There-        Interest                                      2005          2006           2007          2008          after         rate (1)                                   -----------    ----------    -----------    ----------    -----------    -----------                                                                (In millions)         U. S. dollars (1)                 $    43.2      $     -       $     -        $     -       $     -           4.3%   (1)  Weighted average.       The  Subordinated  Debentures  held by the  Capital  Trust  provide a fixed 6.625%  coupon and are  exposed to market  risk from  changing  interest  rates. During  2005,  the trading  volume of the BUCS was minimal and,  therefore,  the Company does not believe the last traded value of the BUCS necessarily  provides a fair value of the underlying Subordinated  Debentures.  The BUCS issued by the Capital  Trust are  publicly  traded and are  convertible,  at the option of the holder,  into TIMET common stock at the rate of 2.678 shares of common stock per BUCS. Based on the last traded value of TIMET common stock ($31.63 per share) on or before  December  31,  2005,  the "as  converted"  value of the 113,467  BUCS outstanding  at  December  31,  2005  (which  the  Company  believes  provides a reasonable  estimate  of fair  value of the  Subordinated  Debentures)  was $9.6 million. Based on the last traded value of the BUCS on December 31, 2004 ($16.00 per BUCS), the fair value of the outstanding  Subordinated Debentures related to the 115,717 outstanding BUCS approximated $1.9 million at December 31, 2004.       On March 3,  2005,  the  Company  called  all of the  outstanding  BUCS for redemption.  The  redemption  price equals  100.6625% of the $50.00  liquidation amount per BUCS, or $50.3313,  plus accrued  distributions to the March 24, 2006 redemption date on the BUCS of $0.2116 per BUCS.           Foreign  currency  exchange  rates.  The  Company is exposed to market risk arising  from  changes in  foreign  currency  exchange  rates as a result of its international  operations.  The  Company  does not enter into  currency  forward contracts  to  manage  its  foreign   exchange   market  risk   associated  with receivables,  payables or indebtedness  denominated in a currency other than the functional  currency of the  particular  entity.  See  "Results of  Operations - European operations" in Item 7 - MD&A for further discussion.       Commodity  prices.  The  Company  is exposed to market  risk  arising  from changes in  commodity  prices as a result of its  long-term  purchase and supply agreements with certain suppliers and customers.  These agreements,  which offer various fixed or formula-determined  pricing arrangements,  effectively obligate the Company to bear (i) the risk of  increased  raw  material and other costs to the  Company  that  cannot  be  passed  on to the  Company's  customers  through increased  titanium  product  prices  (in  whole or in part) or (ii) the risk of decreasing raw material costs to the Company's  suppliers that are not passed on to the Company in the form of lower raw material prices.  However, the Company's ability to offset  increased  material  costs with higher  selling prices should increase in 2006, as many of the Company's LTAs have either expired or have been renegotiated for 2006 with price adjustments that take into account raw material cost fluctuations.       Securities  prices.  As of December 31,  2005,  the Company  holds  certain publicly traded equity securities that are exposed to market risk due to changes in prices of the  securities  as  reported on the New York Stock  Exchange.  The aggregate market value of these equity securities at December 31, 2005 was $46.5 million,  as compared to a cost basis of $36.9 million.  The potential change in the aggregate market value of these securities, assuming a 10% change in prices, would be $4.6 million at December 31, 2005. See also Note 4 to the  Consolidated Financial Statements.
The information required by this Item is contained in a separate section of this Annual Report. See Index of Financial Statements and Schedules on page F.  ITEM  9:  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND           FINANCIAL DISCLOSURE       Not applicable.
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 Rule  13a-15(e)  of the  Securities  Exchange Act of 1934, as amended (the "Exchange Act"),  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 Exchange 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 Exchange 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 Steven L. Watson,  the Company's  Chief  Executive  Officer,  and Bruce P. Inglis,  the Company's Vice President - Finance and Corporate Controller,  have evaluated the Company's disclosure controls and procedures as of December 31, 2005. Based upon their evaluation,  and as a result of the material  weaknesses  discussed below, these executive officers have concluded that the Company's  disclosure  controls and procedures are not effective as of December 31, 2005.       Scope of management's report on internal control over financial  reporting. The Company also maintains internal control over financial  reporting.  The term "internal control over financial reporting," as defined by Rule 13a-15(f) of the Exchange  Act,  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.       Section  404  of the  Sarbanes-Oxley  Act of  2002  ("Sarbanes-Oxley  Act") requires the Company to include annually a management report on internal control over  financial  reporting  and such report is  included  below.  The  Company's independent  registered  public  accounting  firm is also  required  to annually attest to the Company's internal control over financial reporting.             Management's  report on internal  control  over  financial  reporting.  The Company's  management is responsible for establishing  and maintaining  adequate internal control over financial  reporting,  as such term is defined in Exchange Act  Rule  13a-15(f).  The  Company's  evaluation  of the  effectiveness  of its internal control over financial reporting is based upon the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").       A material  weakness is a control  deficiency,  or a combination of control deficiencies,  that  results  in more than a remote  likelihood  that a material misstatement of the annual or interim financial statements will not be prevented or  detected.  In  connection  with  management's  assessment  of the  Company's internal  control over financial  reporting,  management has determined that the following control  deficiencies  constitute material weaknesses in the Company's internal control over financial reporting as of December 31, 2005:       (1)  The Company did not maintain a sufficient complement of personnel with           an appropriate level of accounting knowledge,  experience and training           commensurate  with the  Company's  financial  reporting  requirements.           Specifically,   the  Company  did  not  have  accounting  and  finance           personnel  with  sufficient  depth and  skill to allow  the  Company's           global   accounting   and  financial   reporting   group  to  function           effectively.  This control  deficiency  contributed  to the second and           third control deficiencies discussed below.       (2)  The Company did not maintain  effective  controls  over the  accuracy,           authorization and review of recurring and non-recurring manual journal           entries recorded in the general ledger. Specifically,  the Company did           not have consistent and comprehensive procedures designed and in place           to ensure that manual  journal  entries  were  properly  reviewed  and           approved to ensure the entries recorded were accurate and valid.  This           control  deficiency  affects  substantially  all  financial  statement           accounts.  However, this deficiency did not result in an adjustment to           the Company's 2005 consolidated financial statements.       (3)  The   Company   did  not   maintain   effective   controls   over  the           establishment, review and evaluation of the adequacy of its accounting           policies and  procedures.  Specifically,  the Company did not (a) have           sufficient  written policies and procedures  insofar as they relate to           the  appropriate  application of GAAP relating to revenue  recognition           and inventory,  (b)  consistently  apply existing written policies and           procedures  throughout the Company or (c) update and  communicate  its           accounting  policies  and  procedures  in a timely  manner to  reflect           changes in the Company's business.  This control deficiency  primarily           affected the Company's  accounting for revenue recognition and several           components of inventory, including accounting for production variances           and obsolescence reserves. This control deficiency resulted in certain           adjustments,  including  audit  adjustments  that were recorded in the           2005 third  quarter  consolidated  financial  statements  and the 2005           annual consolidated financial statements.       Each of the control  deficiencies  described in (1) through (3) above could result in a misstatement of the Company's  account  balances or disclosures that would  result in a  material  misstatement  to the  Company's  annual or interim consolidated financial statements that would not be prevented or detected.       Management determined that each of these control deficiencies  discussed in (1) through (3) above constitutes a material weakness.            As a result of the material weaknesses  described above,  management of the Company  has  concluded  that the Company did not  maintain  effective  internal control over financial  reporting as of December 31, 2005, based on the criteria in the COSO framework.       Management's  assessment of the  effectiveness  of the  Company's  internal control  over  financial  reporting  as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in this Annual Report on Form 10-K.       Remediation of material weaknesses.  In response to the identified material weaknesses,  management  of the Company  intends to take the  following  actions during 2006:       (1)  The Company  intends to  increase  its global  accounting  and finance           staff in  order to have  sufficient  resources  to meet the  Company's           rapidly  growing  needs.  The  Company  currently  expects to hire the           additional  personnel  in  2006.  This  remediation  will  also  be  a           significant  component  of the  remediation  of the  second  and third           material weaknesses described above.       (2)  The  Company  intends to modify and  expand the  functionality  of its           computer system (an "IT solution"), where possible, to ensure evidence           is available to verify that  personnel with the  appropriate  level of           authority have reviewed and approved  manual journal  entries prior to           the  entries  being   recorded  in  the  Company's   general   ledger.           Additionally,   the  Company  will   continue  to  maintain   evidence           supporting  the   sufficiency   of  the  manual  journal   entries  in           conjunction  with  the IT  solution.  For  any  location  where  an IT           solution is not readily available, additional reviews will be required           by  personnel  independent  of those  personnel  recording  the manual           journal  entries.  The  Company  currently  expects  to  complete  the           modification and expansion of the functionality of its computer system           in 2006, to implement  alternate  controls until such functionality is           in place and  otherwise  to complete the  remediation  of this control           deficiency in 2006.       (3)  The Company intends to (a) prepare and distribute written policies and           procedures  covering all  significant  accounting  processes for which           such  procedures  do  not  already  exist,  (b)  implement  additional           training and review processes to ensure all accounting  procedures are           implemented  and applied  properly  and timely on a  consistent  basis           throughout the Company and (c) implement  guidelines  surrounding  the           contemporaneous  review and  updating  of all  significant  accounting           procedures when business conditions so indicate.  Although the control           deficiency  as of December 31, 2005 only related to certain  financial           statement   accounts,   this   remediation  plan  will  apply  to  all           significant  financial  statement  accounts.  The  Company has already           updated  certain  of  its  key  accounting  procedures,  and  it  will           prioritize the preparation and  distribution of additional  procedures           and related  training  based on the Company's  risk  assessment of the           areas that are the most important.       Changes in internal  control over financial  reporting.  There have been no changes 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.             Certifications.  The  Company's  chief  executive  officer is  required  to annually  file a  certification  with  the New  York  Stock  Exchange  ("NYSE"), certifying  the  Company's  compliance  with the  corporate  governance  listing standards of the NYSE.  During 2005, the Company's chief executive officer filed such annual certification with the NYSE, which was not qualified in any respect, indicating  that he was not aware of any  violations  by the Company of the NYSE corporate  governance  listing  standards.  The  Company's  principal  executive officer and  principal  financial  officer  are also  required  to,  among other things, file quarterly  certifications with the SEC regarding the quality of the Company's public  disclosures,  as required by Section 302 of the Sarbanes-Oxley Act. Such certifications for the year ended December 31, 2005 have been filed as exhibits 31.1 and 31.2 to this Annual Report on Form 10-K.
Not  applicable.                                          PART III
The  information  required by this Item is  incorporated  by  reference  to TIMET's  definitive  proxy  statement  to be  filed  with  the SEC  pursuant  to Regulation  14A within 120 days after the end of the fiscal year covered by this Annual Report (the "TIMET Proxy Statement").
The  information  required by this Item is incorporated by reference to the TIMET Proxy Statement.
The  information  required by this Item is incorporated by reference to the TIMET Proxy Statement.
The  information  required by this Item is incorporated by reference to the TIMET  Proxy  Statement.   See  also  Note  18  to  the  Consolidated  Financial Statements.
The  information  required by this Item is incorporated by reference to the TIMET Proxy Statement.                                           PART IV
(a) and (c) Financial Statements and Schedules       The  Consolidated   Financial   Statements  and  schedules  listed  by  the Registrant on the accompanying Index of Financial  Statements and Schedules (see page F) are filed as part of this Annual Report.  (b)      Exhibits       The  Exhibit  Index  lists all items  included  as  exhibits to this Annual Report.  TIMET  will  furnish a copy of any of the  exhibits  listed  below upon payment  of $4.00 per  exhibit  to cover the  costs to TIMET of  furnishing  the exhibits.  Instruments  defining the rights of holders of long-term  debt issues which do not exceed 10% of  consolidated  total  assets will be furnished to the SEC upon request.    Item No.                              Exhibit Index - --------------    ------------------------------------------------------------  3.1            Amended and Restated  Certificate  of  Incorporation  of Titanium                Metals  Corporation,  as amended  effective  February  14,  2003,                incorporated  by  reference  to Exhibit  3.1 to the  Registrant's                Annual Report on Form 10-K for the year ended December 31, 2003.  3.2            Certificate  of Amendment of Amended and Restated  Certificate of                Incorporation of Titanium Metals Corporation, effective August 5,                2004,   incorporated   by   reference   to  Exhibit  3.1  to  the                Registrant's  Quarterly Report on Form 10-Q for the quarter ended                June 30, 2004.  3.3            Certificate  of Amendment of Amended and Restated  Certificate of                Incorporation of Titanium Metals Corporation,  effective February                15,  2006,   incorporated   by  reference  to  Exhibit  99.1  the                Registrant's  Current  Report on Form 8-K  filed  with the SEC on                February 15, 2006.  3.4            Bylaws of Titanium  Metals  Corporation  as Amended and Restated,                dated  December  21, 2005,  incorporated  by reference to Exhibit                3(c) to the  Registrant's  Current  Report on Form 8-K filed with                the SEC on December 21, 2006.  4.1            Certificate of Trust of TIMET Capital Trust I, dated November 13,                1996,   incorporated   by   reference   to  Exhibit  4.1  to  the                Registrant's  Current  Report on Form 8-K  filed  with the SEC on                December 5, 1996.  4.2            Amended and Restated  Declaration of Trust of TIMET Capital Trust                I,  dated  as  of  November  20,  1996,   among  Titanium  Metals                Corporation,  as Sponsor,  the Chase  Manhattan Bank, as Property                Trustee, Chase Manhattan Bank (Delaware), as Delaware Trustee and                Joseph S.  Compofelice,  Robert E. Musgraves and Mark A. Wallace,                as Regular Trustees,  incorporated by reference to Exhibit 4.2 to                the Registrant's Current Report on Form 8-K filed with the SEC on                December 5, 1996.         Item No.                               Exhibit Index - --------------    -------------------------------------------------------------  4.3            Indenture  for  the  6  5/8%  Convertible   Junior   Subordinated                Debentures,  dated as of November 20, 1996, among Titanium Metals                Corporation   and  The  Chase   Manhattan   Bank,   as   Trustee,                incorporated  by  reference  to Exhibit  4.3 to the  Registrant's                Current  Report on Form 8-K  filed  with the SEC on  December  5,                1996.  4.4            Form of 6 5/8%  Convertible  Preferred  Securities  (included  in                Exhibit 4.2 above),  incorporated  by reference to Exhibit 4.4 to                the Registrant's Current Report on Form 8-K filed with the SEC on                December 5, 1996.  4.5            Form  of  6  5/8%  Convertible  Junior  Subordinated   Debentures                (included  in Exhibit 4.3 above),  incorporated  by  reference to                Exhibit 4.6 to the Registrant's  Current Report on Form 8-K filed                with the SEC on December 5, 1996.  4.6            Form of 6 5/8% Trust Common  Securities  (included in Exhibit 4.2                above),   incorporated   by  reference  to  Exhibit  4.5  to  the                Registrant's  Current  Report on Form 8-K  filed  with the SEC on                December 5, 1996.  4.7            Convertible Preferred Securities Guarantee,  dated as of November                20, 1996, between Titanium Metals Corporation,  as Guarantor, and                The Chase Manhattan Bank, as Guarantee  Trustee,  incorporated by                reference to Exhibit 4.7 to the  Registrant's  Current  Report on                Form 8-K filed with the SEC on December 5, 1996.  4.8            Purchase  Agreement,  dated November 20, 1996,  between  Titanium                Metals Corporation,  TIMET Capital Trust I, Salomon Brothers Inc,                Merrill Lynch,  Pierce,  Fenner & Smith  Incorporated  and Morgan                Stanley & Co. Incorporated,  as Initial Purchasers,  incorporated                by reference to Exhibit 99.1 to the  Registrant's  Current Report                on Form 8-K filed with the SEC on December 5, 1996.  4.9            Registration  Agreement,  dated November 20, 1996,  between TIMET                Capital Trust I and Salomon  Brothers Inc, as  Representative  of                the Initial Purchasers, incorporated by reference to Exhibit 99.2                to the Registrant's Current Report on Form 8-K filed with the SEC                on December 5, 1996.  4.10           Form of Certificate of Designations,  Rights and Preferences of 6                3/4 % Series  A  Convertible  Preferred  Stock,  incorporated  by                reference  to  Exhibit  4.1  to  the  Registrant's  Pre-effective                Amendment No. 1 to  Registration  Statement on Form S-4 (File No.                333-114218).  9.1            Shareholders' Agreement,  dated February 15, 1996, among Titanium                Metals  Corporation,  Tremont  Corporation,  IMI plc,  IMI Kynoch                Ltd.,  and IMI  Americas,  Inc.,  incorporated  by  reference  to                Exhibit 2.2 to Tremont  Corporation's  Current Report on Form 8-K                filed with the SEC on March 1, 1996.  9.2            Amendment to Shareholders' Agreement, dated March 29, 1996, among                Titanium Metals Corporation,  Tremont  Corporation,  IMI plc, IMI                Kynoch Ltd., and IMI Americas, Inc., incorporated by reference to                Exhibit 10.30 to Tremont Corporation's Annual Report on Form 10-K                for the year ended December 31, 1995.         Item No.                             Exhibit Index - --------------   --------------------------------------------------------------  9.3            Voting  Agreement  executed  October 5, 2004 but  effective as of                October  1,  2004  among  NL  Industries,   Inc.,  TIMET  Finance                Management  Company  and  CompX  Group,  Inc.,   incorporated  by                reference to Exhibit 99.2 to the Current Report on Form 8-K of NL                Industries, Inc. filed with the SEC on October 8, 2004.  10.1           Form of Lease  Agreement,  dated  November 12, 2004,  between The                Prudential  Assurance Company Limited.  and TIMET UK Ltd. related                to  the  premises  known  as  TIMET  Number  2  Plant,  The  Hub,                Birmingham, England, incorporated by reference to Exhibit 10.1 to                the Registrant's Current Report on Form 8-K filed with the SEC on                November 17, 2004  10.2           Loan and  Security  Agreement  by and  among  Congress  Financial                Corporation (Southwest) as Lender and Titanium Metals Corporation                and  Titanium  Hearth  Technologies,  Inc.  as  borrowers,  dated                February 25, 2000,  incorporated by reference to Exhibit 10.12 to                the  Registrant's  Annual  Report on Form 10-K for the year ended                December 31, 1999.  10.3           Amendment  No.  1 to Loan and  Security  Agreement  by and  among                Congress Financial Corporation (Southwest) as Lender and Titanium                Metals  Corporation  and Titanium  Hearth  Technologies,  Inc. as                borrowers,  dated September 7, 2001, incorporated by reference to                Exhibit 10.3 to the  Registrant's  Quarterly  Report on Form 10-Q                for the quarter ended September 30, 2001.  10.4           Amendment  No.  2 to Loan and  Security  Agreement  by and  among                Congress Financial Corporation (Southwest) as Lender and Titanium                Metals  Corporation  and Titanium  Hearth  Technologies,  Inc. as                borrowers,  dated October 23, 2002,  incorporated by reference to                Exhibit 10.1 to the  Registrant's  Quarterly  Report on Form 10-Q                for the quarter ended September 30, 2002.  10.5           Amendment  No.  3 to Loan and  Security  Agreement  by and  among                Congress Financial Corporation (Southwest) as Lender and Titanium                Metals  Corporation  and Titanium  Hearth  Technologies,  Inc. as                borrowers, dated March 18, 2004, and effective February 12, 2004,                incorporated  by reference to Exhibit 6 to Amendment No. 4 to the                statement on Schedule 13D for CompX International,  Inc. filed by                Valhi,  Inc.  (along with other  reporting  persons) on March 23,                2004 (File No. 005-54653).  10.6           Amendment  No.  4 to Loan and  Security  Agreement  by and  among                Congress Financial Corporation (Southwest) as Lender and Titanium                Metals  Corporation  and Titanium  Hearth  Technologies,  Inc. as                borrowers,  dated  June 2, 2004,  incorporated  by  reference  to                Exhibit 10.1 to the Registrant's  Pre-effective Amendment No.1 to                Registration Statement on Form S-4 (File No. 333-114218).  10.7           Amendment  No.  5 to Loan and  Security  Agreement  by and  among                Wachovia  Bank,  National  Association,  successor  by  merger to                Congress Financial Corporation (Southwest) as Lender and Titanium                Metals  Corporation  and Titanium  Hearth  Technologies,  Inc. as                borrowers,  dated June 30,  2005,  incorporated  by  reference to                Exhibit 10.1 to the  Registrant's  Quarterly  Report on Form 10-Q                for the quarter ended June 30, 2005.          Item No.                             Exhibit Index - --------------   --------------------------------------------------------------  10.8           Credit Agreement among U.S. Bank National  Association,  Comerica                Bank,   Harris  N.A.,  JP  Morgan  Chase  Bank,   N.A.,  The  CIT                Group/Business   Credit,   Inc.,  and  Wachovia  Bank,   National                Association  as  lenders  and  Titanium  Metals   Corporation  as                Borrower and U.S.  Bank  National  Association,  as Agent,  dated                February 17, 2006,  incorporated  by reference to Exhibit 10.1 to                the Registrant's Current Report on Form 8-K filed with the SEC on                February 23, 2006.  10.9           Loan and  Overdraft  Facilities  between  Lloyds TSB Bank plc and                TIMET  UK  Limited  dated  December  20,  2002,  incorporated  by                reference to Exhibit 10.23 to the  Registrant's  Annual Report on                Form 10-K for the year ended December 31, 2002.  10.10          Letter  dated  December  19,  2003 to extend  Loan and  Overdraft                Facilities between Lloyds TSB Bank plc and TIMET UK Limited dated                December 20, 2002,  incorporated  by reference to Exhibit 10.8 to                the  Registrant's  Annual  Report on Form 10-K for the year ended                December 31, 2004.  10.11          Letter  dated  November  22,  2004 to extend  Loan and  Overdraft                Facilities between Lloyds TSB Bank plc and TIMET UK Limited dated                December 20, 2002,  incorporated  by reference to Exhibit 10.9 to                the  Registrant's  Annual  Report on Form 10-K for the year ended                December 31, 2004.  10.12          January  19,  2005   Variation   Letter  to  Loan  and  Overdraft                Facilities between Lloyds TSB Bank plc and TIMET UK Limited dated                December 20, 2002,  incorporated by reference to Exhibit 10.10 to                the  Registrant's  Annual  Report on Form 10-K for the year ended                December 31, 2004.  10.13          Letter dated March 2, 2005 to amend Loan and Overdraft Facilities                between  Lloyds TSB Bank plc and TIMET UK Limited dated  December                20,  2002,  incorporated  by  reference  to  Exhibit  10.1 to the                Registrant's  quarterly Report on Form 10-Q for the quarter ended                March 31, 2005.  10.14          Bank  of   Scotland   Working   Capital   Facility   of   (pound)                22,500,000/Payment Systems,  incorporated by reference to exhibit                10.1 to the  Registrant's  Current  Report on Form 8-K filed with                the SEC on May 27, 2005.  10.15*         1996 Long Term  Performance  Incentive  Plan of  Titanium  Metals                Corporation,  incorporated  by reference to Exhibit  10.19 to the                Registrant's  Amendment No. 1 to  Registration  Statement on Form                S-1 (File No. 333-18829).  10.16*         2005 Titanium Metals Corporation Profit Sharing Plan (Amended and                Restated  as of April 6,  2005),  incorporated  by  reference  to                Appendix A to the  Registrant's  Proxy  Statement  dated April 8,                2005 filed with the SEC on April 11, 2005.  10.17*         Executive Severance Policy, as amended and restated effective May                17,  2000,  incorporated  by  reference  to  Exhibit  10.3 to the                Registrant's  Quarterly Report on Form 10-Q for the quarter ended                June 30, 2000.              Item No.                             Exhibit Index - --------------  ---------------------------------------------------------------  10.18*         Titanium   Metals   Corporation   Amended   and   Restated   1996                Non-Employee  Director Compensation Plan, as amended and restated                effective November 15, 2005, incorporated by reference to Exhibit                10.1 to the Registrant's  Current Report on Form 8-K/A filed with                the SEC on March 2, 2006.  10.19*         Amendment to Employment  Contract  between  TIMET  Savoie,  S.A.,                Christian Leonhard and Titanium Metals  Corporation,  executed as                of November 25, 2003,  incorporated by reference to Exhibit 10.12                to the Registrant's Annual Report on Form 10-K for the year ended                December 31, 2003.  10.20*         2005 Amendment to Employment Contract between TIMET Savoie, S.A.,                Christian J.M. Leonhard and Titanium Metals Corporation, executed                as of November 25, 2003.  10.21          Settlement  Agreement  and Release of Claims dated April 19, 2001                between  Titanium  Metals  Corporation  and The  Boeing  Company,                incorporated  by reference  to Exhibit  10.1 to the  Registrant's                Quarterly  Report on Form 10-Q for the  quarter  ended  March 31,                2001.  10.22          Intercorporate  Services  Agreement  among  Contran  Corporation,                Tremont LLC and  Titanium  Metals  Corporation,  effective  as of                January 1, 2004,  incorporated  by reference to Exhibit  10.17 to                the  Registrant's  Annual  Report on Form 10-K for the year ended                December 31, 2003.  10.23**        Purchase and Sale Agreement (For Titanium  Products)  between The                Boeing Company,  acting through its division,  Boeing  Commercial                Airplanes,  and  Titanium  Metals  Corporation  (as  amended  and                restated effective April 19, 2001),  incorporated by reference to                Exhibit 10.2 to the  Registrant's  Quarterly  Report on Form 10-Q                for the quarter ended June 30, 2002.  10.24**        General Terms  Agreement  between The Boeing Company and Titanium                Metals Corporation,  incorporated by reference to Exhibit 10.2 to                the Registrant's  Current Report on Form 8-K/A filed with the SEC                on November 16, 2005.  10.25**        Special  Business  Provisions  between  The  Boeing  Company  and                Titanium Metals Corporation, incorporated by reference to Exhibit                10.3 to the Registrant's  Current Report on Form 8-K/A filed with                the SEC on November 16, 2005.  10.26**        Purchase and Sale Agreement between  Rolls-Royce plc and Titanium                Metals  Corporation  dated  December  22, 1998,  incorporated  by                reference to Exhibit 10.3 to the Registrant's Quarterly Report on                Form 10-Q for the quarter ended June 30, 2002.  10.27**        First   Amendment   to  Purchase  and  Sale   Agreement   between                Rolls-Royce plc and Titanium Metals Corporation,  incorporated by                reference to Exhibit 10.1 to the Registrant's Quarterly Report on                Form 10-Q for the quarter ended June 30, 2004.  10.28**        Second   Amendment  to  Purchase  and  Sale   Agreement   between                Rolls-Royce plc and Titanium Metals Corporation,  incorporated by                reference to Exhibit 10.2 to the Registrant's Quarterly Report on                Form 10-Q for the quarter ended June 30, 2004.       Item No.                              Exhibit Index - --------------    -------------------------------------------------------------  10.29          Agreement   Regarding  Shared  Insurance  by  and  between  CompX                International Inc., Contran  Corporation,  Keystone  Consolidated                Industries,  Inc., Kronos Worldwide,  Inc., NL Industries,  Inc.,                Titanium  Metals  Corporation  and Valhi,  Inc. dated October 30,                2003,   incorporated   by  reference  to  Exhibit  10.20  to  the                Registrant's  Annual  Report  on Form  10-K  for the  year  ended                December 31, 2003.  10.30          Subscription  Agreement executed October 5, 2004 but effective as                of October  1, 2004  among NL  Industries,  Inc.,  TIMET  Finance                Management  Company  and  CompX  Group,  Inc.,   incorporated  by                reference to Exhibit 99.1 to the Current Report on Form 8-K of NL                Industries, Inc. filed with the SEC on October 8, 2004.  10.31          Certificate of Incorporation of CompX Group,  Inc.,  incorporated                by reference to Exhibit 99.3 to the Current Report on Form 8-K of                NL Industries, Inc. filed with the SEC on October 8, 2004.  21.1           Subsidiaries of the Registrant.  23.1           Consent of PricewaterhouseCoopers LLP.  31.1           Certification  pursuant to Section 302 of the  Sarbanes-Oxley Act                of 2002.  31.2           Certification  pursuant to Section 302 of the  Sarbanes-Oxley Act                of 2002.  32.1           Certification  pursuant to Section 906 of the  Sarbanes-Oxley Act                of 2002.  *    Management contract, compensatory plan or arrangement. **   Portions  of the  exhibit  have been  omitted  pursuant  to a  request  for      confidential treatment.                                         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.                             TITANIUM METALS CORPORATION                                   (Registrant)                                            By /s/ Steven L. Watson                                             ----------------------------------                                             Steven L. Watson, March 24, 2006                                             Vice Chairman of the Board and                                              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/ Harold C. Simmons                                           /s/ Glenn R. Simmons - -----------------------------------------------------           ------------------------------------------ Harold C. Simmons, March 24, 2006                               Glenn R. Simmons, March 24, 2006 Chairman of the Board                                           Director   /s/ Steven L. Watson                                            /s/ Thomas P. Stafford - -----------------------------------------------------           ------------------------------------------ Steven L. Watson, March 24, 2006                                Thomas P. Stafford, March 24, 2006 Vice Chairman of the Board and                                  Director   Chief Executive Officer   /s/ Norman N. Green                                             /s/ Paul J. Zucconi - -----------------------------------------------------           ------------------------------------------- Norman N. Green, March 24, 2006                                 Paul J. Zucconi, March 24, 2006 Director                                                        Director   /s/ Gary C. Hutchison                                           /s/ Bruce P. Inglis - -----------------------------------------------------           ------------------------------------------- Gary C. Hutchison, March 24, 2006                               Bruce P. Inglis, March 24, 2006 Director                                                        Vice President - Finance and Corporate                                                                    Controller                                                                 Principal Financial Officer /s/ Albert W. Niemi, Jr.                                        Principal Accounting Officer - ----------------------------------------------------- Albert W. Niemi, Jr., March 24, 2006 Director                               TITANIUM METALS CORPORATION                             ANNUAL REPORT ON FORM 10-K                             ITEMS 8, 15(a) and 15(c)                     INDEX OF FINANCIAL STATEMENTS AND SCHEDULES                                                                          Page Financial Statements     Report of Independent Registered Public Accounting Firm              F-1     Consolidated Balance Sheets - December 31, 2005;      December 31, 2004 (Restated)                                       F-4     Consolidated Statements of Operations -       Years ended December 31, 2005; Years ended      December 31, 2004 and 2003 (Restated)                              F-6     Consolidated Statements of Comprehensive Income (Loss) -       Years ended December 31, 2005; Years ended      December 31, 2004 and 2003 (Restated)                              F-8     Consolidated Statements of Cash Flows -       Years ended December 31, 2005; Years ended      December 31, 2004 and 2003 (Restated)                              F-9     Consolidated Statements of Changes in Stockholders' Equity -       Years ended December 31, 2005; Years ended      December, 2004 and 2003 (Restated)                                 F-11     Notes to Consolidated Financial Statements                           F-12   Financial Statement Schedules     Report of Independent Registered Public Accounting Firm      on Financial Statement Schedule                                    S-1     Schedule II - Valuation and Qualifying Accounts                      S-2     Schedules I, III and IV are omitted because they are not applicable.                     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  To the Stockholders and Board of Directors of Titanium Metals Corporation:       We have completed  integrated audits of Titanium Metals  Corporation's 2005 and 2004  consolidated  financial  statements  and of its internal  control over financial  reporting  as  of  December  31,  2005  and  an  audit  of  its  2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Our opinions,  based on our audits, are presented below.  Consolidated financial statements       In our  opinion,  the  accompanying  consolidated  balance  sheets  and the related consolidated  statements of operations,  of comprehensive income (loss), of changes in  stockholders'  equity and of cash flows  present  fairly,  in all material respects, the financial position of Titanium Metals Corporation and its subsidiaries at December 31, 2005 and 2004, 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 of financial statements 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.       Effective January 1, 2005, the Company changed its method of accounting for part of its inventory from the LIFO method to the specific identification method and  has  restated  prior  period  financial  statements.  See  Note  2  to  the consolidated  financial  statements.  Effective  January  1, 2003,  the  Company changed its method of accounting for asset retirement obligations. See Note 2 to the consolidated financial statements.  Internal control over financial reporting       Also, we have audited  management's  assessment,  included in  Management's Report on Internal  Control over Financial  Reporting  appearing  under Item 9A, that the Company did not maintain  effective  internal  control  over  financial reporting  as of December  31, 2005  because the Company did not  maintain (i) a sufficient  complement  of personnel  with an  appropriate  level of  accounting knowledge,  experience and training  commensurate  with the Company's  financial reporting requirements, (ii) effective controls over the accuracy, authorization and review of recurring and non-recurring manual journal entries recorded in the general ledger and (iii) effective controls over the  establishment,  review and evaluation of the adequacy of its accounting  policies and procedures,  based on criteria  established  in Internal  Control-Integrated  Framework  issued by the Committee of Sponsoring  Organizations of the Treadway  Commission  (COSO).  The Company's  management is responsible for maintaining  effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial  reporting.  Our responsibility is to express opinions on management's  assessment  and on the  effectiveness  of the  Company's  internal control over financial reporting based on our audit.            We  conducted  our audit of internal  control over  financial  reporting 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  effective  internal  control over financial  reporting  was  maintained  in all  material  respects.  An  audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting,  evaluating management's  assessment, testing  and  evaluating  the design and  operating  effectiveness  of  internal control,  and performing such other  procedures as we consider  necessary in the circumstances.  We believe that our audit  provides a  reasonable  basis for our opinions.       A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial  statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial  reporting  includes those policies and procedures that (i) pertain to the  maintenance  of records that, in reasonable  detail,  accurately and fairly reflect the  transactions  and  dispositions of the assets of the company;  (ii) provide  reasonable  assurance  that  transactions  are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting  principles,  and that receipts and  expenditures  of the company are being made only in accordance with authorizations of management and directors of the company;  and (iii) 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 financial statements.       Because  of its  inherent  limitations,  internal  control  over  financial reporting  may not prevent or detect  misstatements.  Also,  projections  of any evaluation  of  effectiveness  to future  periods  are  subject to the risk that controls may become  inadequate  because of changes in  conditions,  or that the degree of compliance with the policies or procedures may deteriorate.       A material  weakness is a control  deficiency,  or a combination of control deficiencies,  that  results  in more than a remote  likelihood  that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management's assessment as of December 31, 2005:       (1)  The Company did not maintain a sufficient complement of personnel with           an appropriate level of accounting knowledge,  experience and training           commensurate  with the  Company's  financial  reporting  requirements.           Specifically,   the  Company  did  not  have  accounting  and  finance           personnel  with  sufficient  depth and  skill to allow  the  Company's           global   accounting   and  financial   reporting   group  to  function           effectively.  This control  deficiency  contributed  to the second and           third control deficiencies discussed below.       (2)  The Company did not maintain  effective  controls  over the  accuracy,           authorization and review of recurring and non-recurring manual journal           entries recorded in the general ledger. Specifically,  the Company did           not have consistent and comprehensive procedures designed and in place           to ensure that manual  journal  entries  were  properly  reviewed  and           approved to ensure the entries recorded were accurate and valid.  This           control  deficiency  affects  substantially  all  financial  statement           accounts.  However, this deficiency did not result in an adjustment to           the Company's 2005 consolidated financial statements.       (3)  The   Company   did  not   maintain   effective   controls   over  the           establishment, review and evaluation of the adequacy of its accounting           policies and  procedures.  Specifically,  the Company did not (a) have           sufficient  written policies and procedures  insofar as they relate to           the   appropriate   application  of  generally   accepted   accounting           principles  relating  to  revenue   recognition  and  inventory,   (b)           consistently apply existing written policies and procedures throughout           the Company or (c) update and communicate its accounting  policies and           procedures  in a timely  manner to reflect  changes  in the  Company's           business.  This control  deficiency  primarily  affected the Company's           accounting  for  revenue   recognition   and  several   components  of           inventory,   including   accounting  for   production   variances  and           obsolescence  reserves.  This control  deficiency  resulted in certain           adjustments,  including  audit  adjustments  that were recorded in the           2005 third  quarter  consolidated  financial  statements  and the 2005           annual consolidated financial statements.       Each of these control deficiencies described in (1) through (3) above could result in a misstatement of the Company's  account  balances or disclosures that would  result in a  material  misstatement  to the  Company's  annual or interim consolidated financial statements that would not be prevented or detected.       The Company determined that each of these control deficiencies discussed in (1) through (3) above constitute material weaknesses.       These material weaknesses were considered in determining the nature, timing and  extent  of audit  tests  applied  in our  audit  of the  2005  consolidated financial  statements,  and  our  opinion  regarding  the  effectiveness  of the Company's internal control over financial  reporting does not affect our opinion on those consolidated financial statements.       In our opinion,  management's  assessment that Titanium Metals  Corporation did not  maintain  effective  internal  control over  financial  reporting as of December 31, 2005 is fairly stated, in all material respects,  based on criteria established in Internal Control - Integrated Framework issued by the COSO. Also, in our opinion, because of the effect of the material weaknesses described above on the  achievement of the objectives of the control  criteria,  the Company did not maintain effective internal control over financial  reporting as of December 31,  2005,  based on  criteria  established  in  Internal  Control -  Integrated Framework issued by the COSO.    /s/ PricewaterhouseCoopers LLP   Denver, Colorado March 24, 2006                                TITANIUM METALS CORPORATION                             CONSOLIDATED BALANCE SHEETS                        (In thousands, except per share data)                                                                                                  December 31,                                                                                    ----------------------------------- ASSETS                                                                                  2005               2004                                                                                    ----------------   ----------------                                                                                                           (restated) Current assets:       Cash and cash equivalents                                                       $       17,605     $        7,194    Restricted cash and cash equivalents                                                       146                721    Accounts and other receivables, less      allowance of $1,983 and $1,683                                                       142,902             96,756    Inventories, net                                                                       365,696            266,634    Prepaid expenses and other                                                               4,485              2,400    Deferred income taxes                                                                   19,436              4,974                                                                                    ----------------   ----------------         Total current assets                                                               550,270            378,679  Marketable securities                                                                      46,477             47,214 Investment in joint ventures                                                               25,978             22,591 Investment in common securities of TIMET Capital Trust I                                      180              6,259 Property and equipment, net                                                               252,990            228,173 Intangible assets, net                                                                        683              5,057 Deferred income taxes                                                                       8,009              1,053 Other                                                                                      22,677             11,577                                                                                    ----------------   ----------------           Total assets                                                              $      907,264     $      700,603                                                                                    ================   ================                              TITANIUM METALS CORPORATION                       CONSOLIDATED BALANCE SHEETS (CONTINUED)                        (In thousands, except per share data)                                                                                                  December 31,                                                                                    ----------------------------------- LIABILITIES, MINORITY INTEREST AND                                                      2005               2004                                                                                    ----------------   ---------------- STOCKHOLDERS' EQUITY                                                                                      (restated)  Current liabilities:       Notes payable                                                                   $      -           $      43,176    Accounts payable                                                                       61,457             44,164    Accrued liabilities                                                                    75,698             61,440    Deferred gain on sale of property                                                           -             12,016    Customer advances                                                                      15,577              6,913    Income taxes payable                                                                   13,151              2,516    Other                                                                                     967                257                                                                                    ----------------   ----------------         Total current liabilities                                                         166,850            170,482  Long-term debt                                                                            51,359                  - Accrued OPEB cost                                                                         15,580             14,470 Accrued pension cost                                                                      58,450             77,515 Accrued environmental cost                                                                 1,518              1,985 Deferred income taxes                                                                     27,445                 60 Debt payable to TIMET Capital Trust I                                                      5,852             12,010 Other                                                                                      4,519              5,114                                                                                    ----------------   ----------------         Total liabilities                                                                 331,573            281,636                                                                                    ----------------   ----------------  Minority interest                                                                         13,523             12,539                                                                                    ----------------   ----------------  Stockholders' equity:     Series A Preferred Stock, $.01 par value; $149,131 liquidation preference;      3,098 and 4,025 shares authorized, respectively, 2,983 and      3,909 shares issued and outstanding, respectively                                   132,493            173,650    Common stock, $.01 par value; 90,000 shares authorized,      70,965 and 63,853 shares issued, respectively                                           710                637    Additional paid-in capital                                                            401,057            350,389    Accumulated earnings (deficit)                                                         66,179            (77,044)    Accumulated other comprehensive loss                                                  (38,271)           (39,989)    Treasury stock, at cost  (0 and 180 shares, respectively)                                   -             (1,208)    Deferred compensation                                                                       -                 (7)                                                                                    ----------------   ----------------           Total stockholders' equity                                                      562,168            406,428                                                                                    ----------------   ----------------           Total liabilities, minority interest and stockholders' equity             $     907,264      $     700,603                                                                                    ================   ================   Commitments and contingencies (Note 19)            See accompanying notes to consolidated financial statements.                                TITANIUM METALS CORPORATION                        CONSOLIDATED STATEMENTS OF OPERATIONS                        (In thousands, except per share data)                                                                                    Year ended December 31,                                                                    ---------------------------------------------------                                                                         2005               2004              2003                                                                    ----------------    --------------    -------------                                                                                          (restated)        (restated)      Net sales                                                          $     749,777       $     501,828     $     385,304 Cost of sales                                                            550,415             438,151           379,660                                                                    ----------------    --------------    -------------     Gross margin                                                          199,362              63,677             5,644  Selling, general, administrative and    development expense                                                    53,646              44,908            36,438 Equity in earnings of joint ventures                                       5,059               1,278               451 Other income (expense), net                                               20,300              22,989            24,389                                                                    ----------------    --------------    -------------     Operating income (loss)                                               171,075              43,036            (5,954)  Interest expense                                                           3,963              12,451            16,419 Other non-operating income (expense), net                                 18,228              16,200              (294)                                                                    ----------------    --------------    -------------     Income (loss) before income taxes, minority interest and cumulative effect of change in      accounting principle                                                185,340              46,785           (22,667)  Income tax expense (benefit)                                              24,496              (2,132)            1,207 Minority interest, net of tax                                              4,899               1,219               378                                                                    ----------------    --------------    -------------     Income (loss) before cumulative effect of change      in accounting principle                                             155,945              47,698           (24,252)  Cumulative effect of change in accounting principle                            -                   -              (191)                                                                    ----------------    --------------    -------------     Net income (loss)                                                     155,945              47,698           (24,443)  Dividends on Series A Preferred Stock                                     12,244               4,398                 -                                                                    ----------------    --------------    -------------     Net income (loss) attributable to      common stockholders                                           $     143,701       $      43,300     $    (24,443)                                                                    ================    ==============    =============                               TITANIUM METALS CORPORATION                  CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)                        (In thousands, except per share data)                                                                                   Year ended December 31,                                                                 ------------------------------------------------------                                                                      2005               2004                2003                                                                 ---------------    ----------------    ---------------                                                                                      (restated)          (restated)  Basic earnings (loss) per share attributable to common stockholders:    Before cumulative effect of change           in accounting principle                                   $       2.20       $       0.68        $      (0.38)     Cumulative effect of change in accounting       principle                                                         -                  -                  (0.01)                                                                 ---------------    ----------------    ---------------  Basic earnings (loss) per share attributable to      common stockholders                                                    $       2.20       $       0.68        $      (0.39)                                                                 ===============    ================    ===============  Diluted earnings (loss) per share attributable to common stockholders:    Before cumulative effect of change       in accounting principle                                   $       1.72       $       0.66        $      (0.38)     Cumulative effect of change in accounting       principle                                                         -                  -                  (0.01)                                                                 ---------------    ----------------    ---------------  Diluted earnings (loss) per share attributable to    common stockholders                                                    $       1.72       $       0.66        $      (0.39)                                                                 ===============    ================    ===============   Weighted average shares outstanding:    Basic                                                               65,391             63,525              63,374                                                                 ===============    ================    ===============    Diluted                                                             90,856             72,502              63,374                                                                 ===============    ================    ===============              See accompanying notes to consolidated financial statements.                                TITANIUM METALS CORPORATION               CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)                                   (In thousands)                                                                                     Year ended December 31,                                                                    ----------------------------------------------------                                                                         2005               2004              2003                                                                    ---------------    ---------------   ---------------                                                                                         (restated)        (restated)      Net income (loss)                                                  $     155,945      $      47,698     $    (24,443)  Other comprehensive income (loss):    Currency translation adjustment, net of tax                           (11,880)             6,435            11,443    Unrealized (losses) gains on marketable     securities, net of tax                                                (3,017)            12,597                 -    TIMET's share of VALTIMET SAS's unrealized net      gains on derivative financial instruments      qualifying as cash flow hedges, net of tax                             (618)                97                 -    Pension liabilities adjustment , net of tax                            17,233             (8,892)            1,068                                                                    ---------------    ---------------   ---------------     Total other comprehensive income                                        1,718             10,237            12,511                                                                    ---------------    ---------------   ---------------     Comprehensive income (loss)                                     $     157,663      $      57,935     $     (11,932)                                                                    ===============    ===============   ===============    Currency translation adjustment:    Beginning of year                                               $      16,842      $      10,407     $      (1,036)    Change during year                                                    (11,880)             6,435            11,443                                                                    ---------------    ---------------   ---------------    End of year                                                     $       4,962      $      16,842     $      10,407                                                                    ===============    ===============   ===============  Unrealized (losses) gains on marketable securities:    Beginning of year                                               $      12,597      $      -          $           -    Change during year                                                     (3,017)            12,597                 -                                                                    ---------------    ---------------   ---------------    End of year                                                     $       9,580      $      12,597     $           -                                                                    ===============    ===============   ===============  TIMET's share of VALTIMET SAS's unrealized net gains on derivative financial    instruments qualifying as cash flow hedges:      Beginning of year                                             $          97      $      -          $           -      Change during year                                                     (618)                97                 -                                                                    ---------------    ---------------   ---------------      End of year                                                   $        (521)     $          97     $           -                                                                    ===============    ===============   ===============  Pension liabilities adjustment:    Beginning of year                                               $     (69,525)     $     (60,633)    $     (61,701)    Change during year                                                     17,233             (8,892)            1,068                                                                    ---------------    ---------------   ---------------    End of year                                                     $     (52,292)     $     (69,525)    $     (60,663)                                                                    ===============    ===============   ===============             See accompanying notes to consolidated financial statements.                                TITANIUM METALS CORPORATION                       CONSOLIDATED STATEMENTS OF CASH FLOWS                                  (In thousands)                                                                                     Year ended December 31,                                                                      --------------------------------------------------                                                                            2005              2004            2003                                                                      ---------------    --------------   -------------- Cash flows from operating activities:                                                     (restated)       (restated)         Net income (loss)                                                 $     155,945      $      47,698    $     (24,443)    Depreciation and amortization                                            31,532             32,828           36,572    Noncash impairment of equipment                                           1,251                  -                -    (Gain) loss on disposal of fixed assets                                 (13,408)                37              655    Gain on exchange of BUCS                                                      -            (15,465)               -    Equity in earnings of joint ventures,      net of distributions                                                   (5,009)               527              796    Equity in earnings of common securities of      TIMET Capital Trust I, net of distributions                                33                536             (432)    Deferred income taxes                                                     2,131             (5,711)            (259)    Minority interest, net of tax                                             4,899              1,219              378    Other, net                                                                  (50)               (73)             616    Change in assets and liabilities:      Receivables                                                           (52,599)           (25,587)           4,798      Inventories                                                          (108,845)           (68,533)          31,983      Prepaid expenses and other                                               (668)               (77)             461      Accounts payable and accrued liabilities                               30,912             20,037           (1,029)      Customer advances                                                       9,186              3,316             (207)      Income taxes                                                           14,396              4,417             (256)      Deferred revenue                                                        4,534                (84)           3,865      Accrued OPEB and pension costs                                            652              2,927           (2,007)      Accrued interest on debt payable to        TIMET Capital Trust I                                                   (33)           (18,936)          14,403      Other, net                                                             (1,963)            (1,509)             (73)                                                                      ---------------    --------------   --------------        Net cash provided (used) by operating activities                     72,896            (22,433)          65,821                                                                      ---------------    --------------   --------------  Cash flows from investing activities:    Capital expenditures                                                    (61,128)           (23,556)         (12,467)    Purchase of marketable securities                                        (2,223)           (34,472)               -    Proceeds from sale of property                                            1,289             11,973                -    Change in restricted cash, net                                              576              1,527           (2,102)    Other, net                                                                    -                  -               35                                                                      ---------------    --------------   --------------        Net cash used by investing activities                               (61,486)           (44,528)         (14,534)                                                                      ---------------    --------------   --------------  Cash flows from financing activities:    Indebtedness:      Borrowings                                                            373,369            160,195          127,253      Repayments                                                           (365,098)          (117,019)        (146,322)    Dividends paid to minority interest                                      (2,216)              (691)          (1,892)    Dividends paid on Series A Preferred Stock                              (12,506)            (3,298)               -    Issuance of common stock                                                  6,443                 75                -    Other, net                                                                  (20)              (520)          (1,107)                                                                      ---------------    --------------   --------------        Net cash (used) provided by financing activities                        (28)            38,742          (22,068)                                                                      ---------------    --------------   --------------  Net cash provided (used) by operating, investing    and financing activities                                          $      11,382      $     (28,219)   $      29,219                                                                      ===============    ==============   ==============                               TITANIUM METALS CORPORATION                  CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)                                   (In thousands)                                                                                     Year ended December 31,                                                                      -------------------------------------------------                                                                          2005              2004             2003                                                                      --------------    --------------   --------------                                                                                         (restated)        (restated) Cash and cash equivalents:    Net increase (decrease) from:          Operating, investing and financing activities                   $     11,382      $    (28,219)    $      29,219      Effect of exchange rate changes on cash                                 (971)              373              (393)                                                                      --------------    --------------   --------------                                                                            10,411           (27,846)           28,826    Cash and cash equivalents at beginning of year                           7,194            35,040             6,214                                                                      --------------    --------------   --------------     Cash and cash equivalents at end of year                          $     17,605      $      7,194     $      35,040                                                                      ==============    ==============   ==============  Supplemental disclosures:    Cash paid for:      Interest, net of amounts capitalized                            $      3,392      $     30,624     $       1,325      Income taxes, net                                               $      7,880      $     -          $       1,561                  See accompanying notes to consolidated financial statements.                               TITANIUM METALS CORPORATION             CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY                   Years ended December 31, 2005, 2004 and 2003                                  (In thousands)                                                                            Series A       Additional       Retained                                           Common        Common         Preferred       Paid-in         Earnings                                           Shares         Stock           Stock         Capital         (Deficit)                                          ----------    ----------     ------------   -------------    ------------                                                                                                       (restated)           Balance at December 31, 2002             63,701     $     637      $    -         $   350,285      $   (97,000)       Comprehensive income (loss)                -             -                -              -          (24,443)       Issuance of common stock                  60             -                -             71                -       Stock award cancellations               (146)           (1)               -           (317)               -       Amortization of deferred        compensation, net of effects of        stock award cancellations                 -             -                -              -                -                                          ----------    ----------     ------------   -------------    ------------     Balance at December 31, 2003             63,615           636                -        350,039         (121,443)       Comprehensive income                       -             -                -              -           47,698       Issuance of Preferred Stock ("PS")         -             -          173,650              -                -       Dividends declared on PS                   -             -                -              -           (3,299)       Issuance of common stock                  97             1                -            421                -       Stock award cancellations                (39)            -                -            (71)               -       Amortization of deferred        compensation, net                         -             -                -              -                -                                          ----------    ----------     ------------   -------------    ------------     Balance at December 31, 2004             63,673           637          173,650        350,389          (77,044)       Comprehensive income                       -        -               -               -               155,945       Issuance of common stock               1,110            12          -                6,571                -       Conversion of PS and BUCS              6,182            63         (41,157)         41,208                -       Treasury stock retirement                  -            (2)         -                 (990)            (216)       Tax benefit of stock options        exercised and restricted        stock vested                              -        -               -                3,879                -       Dividends declared on PS                   -        -               -               -               (12,506)       Amortization of deferred        compensation, net                         -        -               -               -                     -                                          ----------    ----------    -------------   -------------    ------------     Balance at December 31, 2005             70,965     $     710     $   132,493     $   401,057      $    66,179                                          ==========    ==========    =============   =============    ============             See accompanying notes to consolidated financial statements.                              TITANIUM METALS CORPORATION         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONT'D)                   Years ended December 31, 2005, 2004 and 2003                                  (In thousands)                                                Accumulated                                                Other                                            Comprehensive       Treasury        Deferred                                            Income (Loss)         Stock       Compensation         Total                                            ---------------     ----------    --------------    ------------                                                                                                (restated)          Balance at December 31, 2002            $     (62,737)      $  (1,208)    $       (255)     $   189,722       Comprehensive income (loss)                 12,511               -                -          (11,932)       Issuance of common stock                         -               -                -               71       Stock award cancellations                        -               -              318                -       Amortization of deferred        compensation, net of effects of        stock award cancellations                       -               -             (119)            (119)                                            ---------------     ----------    --------------    ------------     Balance at December 31, 2003                  (50,226)         (1,208)             (56)         177,742       Comprehensive income                        10,237               -                -           57,935       Issuance of Preferred Stock ("PS")               -               -                -          173,650       Dividends declared on PS                         -               -                -           (3,299)       Issuance of common stock                         -               -                -              422       Stock award cancellations                        -               -               71                -       Amortization of deferred        compensation, net                               -               -              (22)             (22)                                            ---------------     ----------    --------------    ------------     Balance at December 31, 2004                  (39,989)         (1,208)              (7)         406,428       Comprehensive income                         1,718          -                -               157,663       Issuance of common stock                    -               -                -                 6,583       Conversion of PS and BUCS                   -               -                -                   114       Treasury stock retirement                   -                1,208           -                     -       Tax benefit of stock options        exercised and restricted        stock vested                               -               -                -                 3,879       Dividends declared on PS                    -               -                -               (12,506)       Amortization of deferred        compensation, net                          -               -                     7                7                                            ---------------     ----------    --------------    ------------     Balance at December 31, 2005            $     (38,271)      $  -          $     -           $   562,168                                            ===============     ==========    ==============    ============             See accompanying notes to consolidated financial statements.                                TITANIUM METALS CORPORATION                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Note 1 - Organization and basis of presentation       Titanium Metals Corporation  ("TIMET") is a vertically  integrated producer of  titanium  sponge,  melted  products  and a  variety  of  mill  products  for aerospace,  industrial and other  applications.  The  accompanying  Consolidated Financial Statements include the accounts of TIMET and all of its majority-owned subsidiaries (collectively, the "Company") except the TIMET Capital Trust I (the "Capital Trust"), a wholly-owned  finance subsidiary.  See further discussion in Note 12. All material  intercompany  transactions and balances with consolidated subsidiaries  have been  eliminated,  and certain  prior year  amounts have been reclassified to conform to the current year presentation.       At December 31, 2005, Valhi, Inc. and subsidiaries  ("Valhi") held 39.5% of TIMET's  outstanding  common  stock  and 0.5% of the  Company's  6.75%  Series A Convertible  Preferred Stock (the "Series A Preferred  Stock").  At December 31, 2004, Contran Corporation  ("Contran") held,  directly or through  subsidiaries, 92% of Valhi's  outstanding  common  stock.  At December 31, 2005,  the Combined Master  Retirement  Trust  ("CMRT"),  a trust sponsored by Contran to permit the collective  investment  by trusts that  maintain the assets of certain  employee benefit plans adopted by Contran and certain  related  companies,  held 10.8% of the Company's common stock.  TIMET's U.S. pension plans invest in the portion of the CMRT that does not hold TIMET 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.  In  addition,  Mr.  Simmons is the sole trustee of the CMRT and a member of the trust investment committee for the CMRT. At December 31, 2005, Mr. Simmons directly owned 2.0% of TIMET's outstanding common stock and Mr. Simmons' spouse owned 0.3% of TIMET's outstanding common stock and 53.6% of the Company's outstanding Series A Preferred Stock. Consequently, Mr. Simmons may be deemed to control each of Contran,  Valhi and TIMET.  Subsequent  to December 31, 2005 and through March 10, 2006,  Mr. Simmons  purchased an additional  527,700 shares of TIMET common stock in open market transactions.       The Company  completed a two-for-one  split of its common stock,  which was effected in the form of a stock  dividend  (whereby an  additional  one share of post-split  stock was distributed for each share of pre-split  stock) and became effective  after the close of trading on February  16,  2006.  The Company  also completed a two-for-one  split of its common stock  effective after the close of trading on September 6, 2005 and a five-for-one  stock split of its common stock effective after the close of trading on August 26, 2004. The Company completed a one-for-ten  reverse  stock  split  which  became  effective  after the close of trading  on  February  14,  2003.  All share and per share  disclosures  for all periods  presented  have been  adjusted  to give  effect  to all of these  stock splits.       Note 2 - Summary of significant accounting policies       Use of estimates.  The  preparation  of financial  statements in conformity with accounting  principles  generally  accepted in the United States of America 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.  Estimates  are used in accounting  for,  among other things,  allowances  for  uncollectible  accounts, inventory allowances,  environmental accruals, self insurance accruals, deferred tax  valuation  allowances,   loss  contingencies,   fair  values  of  financial instruments,  the  determination  of  discount  and other rate  assumptions  for pension and postretirement  employee benefit costs,  asset  impairments,  useful lives of property and equipment,  asset  retirement  obligations,  restructuring accruals and other special items. Actual results may, in some instances,  differ from  previously  estimated  amounts.  Estimates  and  assumptions  are reviewed periodically,  and the effects of revisions are reflected in the period they are determined to be necessary.       Cash  and  cash  equivalents.   Cash  equivalents   include  highly  liquid investments with original maturities of three months or less.       Restricted cash and cash equivalents.  Restricted cash and cash equivalents generally consist of certificates of deposit and other interest bearing accounts collateralizing  certain  Company  obligations.   Such  restricted  amounts  are generally  classified as either a current or noncurrent  asset  depending on the classification  of the obligation to which the restricted  amount  relates.  All restricted amounts are classified as current at December 31, 2005 and 2004.       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.       Inventories  and  cost of  sales;  restatement  for  change  in  accounting principle.  Inventories  include material,  labor and overhead and are stated at the lower of cost or market, net of an allowance for slow-moving  inventories of $13.2 million at December 31, 2005 and $17.0 million at December 31, 2004. Prior to  January  1,  2005,  approximately  40% of  the  Company's  inventories  were determined  using the  last-in,  first-out  ("LIFO")  method,  with the  balance determined  primarily using an average cost method.  Effective  January 1, 2005, the Company changed its method for inventory costing from the LIFO method to the specific identification cost method for the inventories previously accounted for under the LIFO cost method. With the significant volatility seen recently in raw material prices,  the Company believes this change in accounting method provides a better matching of revenues and expenses. As required by accounting principles generally  accepted in the United  States of America  ("GAAP"),  the Company has restated its financial  statements for prior periods. As a result, the Company's net  inventory  balance as of December 31, 2004  increased by $26.7 million from the previously  reported amount,  with  corresponding  decrease to the Company's accumulated  deficit.  There  was no  impact  on the  Company's  cash  flow from operations for 2004 or 2003 related to this accounting change. The effect of the accounting  change on income  for 2004 was to (i)  reduce  cost of sales  with a corresponding increase in net income attributable to common stockholders by $7.8 million,  (ii)  increase  earnings  per basic share by $0.12 and (iii)  increase earnings  per diluted  share by $0.11.  The effect of the  accounting  change on income for 2003 was to (i) increase cost of sales with a corresponding  decrease in net income  attributable  to common  stockholders  by $11.4  million and (ii) decrease earnings per basic and diluted share by $0.18. See Note 3.       Cost  of  sales  includes  costs  for  materials,  packing  and  finishing, utilities, maintenance and depreciation, shipping and handling, and salaries and benefits.       Investments.  The Company's marketable securities,  including the shares of CompX International, Inc. ("CompX") contributed by the Company and held by CompX Group, Inc. ("CGI") (based upon the Company's redemption option), are classified as available-for-sale securities and are carried at fair value based upon quoted market prices,  with unrealized  gains and/or losses  included in  stockholders' equity as a component of other  comprehensive  income. The Company evaluates its investments  in marketable  securities  whenever  events or conditions  occur to indicate  that the fair  value of such  investments  has  declined  below  their carrying  amounts.  If the  decline  in fair  value is judged  to be other  than temporary,  the  carrying  amount of the security is written down to fair value. See further discussion in Note 4.       Investments  in 20% to 50% owned joint  ventures are  accounted  for by the equity method. Additionally,  TIMET's 100% owned investment in the Capital Trust is  accounted  for by the  equity  method,  as  further  discussed  in Note  12. Differences  between  the  Company's   investment  in  joint  ventures  and  its proportionate  share of the joint ventures'  reported equity are amortized based upon the respective useful lives of the assets to which the differences relate.       Property,  equipment and depreciation.  Property and equipment are recorded at cost  and  depreciated  principally  on the  straight-line  method  over  the estimated  useful lives of 15 to 40 years for  buildings and two to 25 years for machinery and  equipment.  Capitalized  software  costs are  amortized  over the software's  estimated  useful life,  generally three to five years.  Maintenance (including planned major  maintenance),  repairs and minor renewals are expensed as incurred and included in cost of sales.  Major  improvements  are capitalized and depreciated over the estimated  period to be benefited.  The Company's total interest  cost  incurred on bank debt during 2005 and 2004 was $3.9  million and $2.7  million,  respectively,  of which  approximately  $648,000 and $28,000 was capitalized  during 2005 and 2004,  respectively.  No interest  was  capitalized during 2003.       Generally,  when events or changes in  circumstances  indicate the carrying amount of  long-lived  assets,  including  property  and  equipment,  may not be recoverable, the Company prepares an evaluation comparing the carrying amount of the assets to the undiscounted expected future cash flows of the assets or asset group. If this comparison indicates the carrying amount is not recoverable,  the amount of the impairment would typically be calculated using discounted expected future cash flows or appraised  values.  All relevant  factors are considered in determining whether an impairment exists.       Intangible  assets and amortization.  Patents and other intangible  assets, except intangible  pension assets,  are recorded at cost and amortized using the straight-line  method over the estimated  period of benefit,  generally seven to nine years. The Company assesses the amortization  period and  recoverability of the carrying amount of patents and other intangible  assets at least annually or when events or circumstances require, and the effects of revisions are reflected in the period they are determined to be necessary.            Asset retirement  obligations.  The Company adopted  Statement of Financial Accounting   Standards  ("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 is accreted to its future 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,  in 2003 the  Company recognized  (i) an asset  retirement  cost  capitalized  as an  increase  to the carrying  value of its  property,  plant and  equipment  of  approximately  $0.2 million, (ii) accumulated depreciation on such capitalized cost of approximately $0.1 million and (iii) an other  noncurrent  liability for the asset  retirement obligation of approximately $0.3 million.  The difference between the amounts to be recognized as previously  described and any associated  amounts recognized in the  Company's  balance  sheet  as of  December  31,  2002 was  recognized  as a cumulative effect of a change in accounting principle as of January 1, 2003. The Company has recorded asset retirement obligations of $0.5 million as of December 31, 2005 and 2004.       The Company's asset  retirement  obligations  relate  primarily to landfill closure and leasehold restoration costs.  Additionally,  the Company is aware of the existence of asbestos at its facility in Toronto, Ohio. Currently,  there is no legal  obligation to remove or remediate  this asbestos.  However,  if in the future the Company decides, among other things, to undergo a major renovation or demolish  the  property  containing  the  asbestos,  the  Company  may  have  an obligation  to remove and dispose of or remediate  such  asbestos in  accordance with  the  applicable  environmental   regulations.   In  accordance  with  FASB Interpretation No. 47, Accounting for Conditional Asset Retirement  Obligations, as of December  31, 2005,  the Company has not  recorded a liability  related to this  potential  obligation  because the settlement  date of such  obligation is indeterminate and,  therefore,  the Company cannot reasonably  estimate the fair value of such liability.       Fair value of  financial  instruments.  Carrying  amounts of certain of the Company's  financial  instruments   including,   among  others,  cash  and  cash equivalents  and accounts  receivable,  approximate  fair value because of their short  maturities.  The  Company's  bank debt  reprices  with  changes in market interest rates and, accordingly, the carrying amount of such debt is believed to approximate  market  value.  The  Company's  Series A Preferred  Stock is also a publicly traded security (ticker symbol "TIELP.PK").  Based upon the last traded value of the Series A Preferred  Stock  ($217.37  per share) as of December  31, 2005, the market value of such securities, which the Company believes provides a reasonable  estimate of fair value,  was $648.3 million as of December 31, 2005. As of December  31,  2004,  the fair value of the Series A  Preferred  Stock was $218.0 million.            The Company's 6.625%  convertible junior  subordinated  debentures due 2026 (the "Subordinated Debentures") held by the Capital Trust were issued at a fixed rate;  however,  the  6.625%  mandatorily   redeemable   convertible   preferred securities,  beneficial unsecured convertible  securities ("BUCS") issued by the Capital Trust are a publicly traded security (ticker symbol  "TMCXP.PK").  Based on the last traded value of the BUCS as of December 31, 2004, the aggregate fair value  of  the  outstanding  Subordinated  Debentures  related  to  the  115,717 outstanding BUCS approximated  $1.9 million.  During 2005, the trading volume of the BUCS was  minimal  and,  therefore,  the  Company  does not believe the last traded  value of the BUCS  necessarily  provides a fair value of the  underlying Subordinated Debentures. The BUCS are convertible,  at the option of the holder, into TIMET common stock at the rate of 2.678 shares of common stock per BUCS, an equivalent  price of $18.67 per share.  Based on the last traded  value of TIMET common stock ($31.63 per share) on December 31, 2005, the "as  converted"  value of the 113,467 BUCS outstanding at December 31, 2005 (which the Company believes provides a reasonable estimate of the fair value of the Subordinated Debentures) was $9.6 million.       Translation of foreign  currencies.  Assets and liabilities of subsidiaries whose  functional  currency  is  deemed  to be 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 the currency translation adjustments component of other comprehensive  income (loss).  Currency transaction gains and losses are recognized in income currently.  The Company  recognized net currency transaction gains of $2.3 million in 2005 and net currency transaction losses of $0.5 million in 2004 and $0.2 million in 2003.       Derivative  transactions.  VALTIMET,  the Company's  43.7% owned  affiliate accounted  for by  the  equity  method,  has  entered  into  certain  derivative financial instruments that qualify as cash flow hedges under GAAP. The Company's pro-rata share of VALTIMET's  unrealized  net gains (losses) on such  derivative financial  instruments is included as a component of other comprehensive income. The Company has no other derivative instruments.       Stock-based  compensation.  The Company  currently  follows the  disclosure alternative prescribed by SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and  Disclosure,  and  has  chosen  to  account  for  its  stock-based  employee compensation  related to stock options in accordance with Accounting  Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees,  and its various  interpretations.  Under APB No. 25,  compensation  expense is generally recognized for fixed stock options for which the exercise price is less than the market price of the  underlying  stock on the grant date.  All of the  Company's stock  options were granted  with  exercise  prices equal to or in excess of the market price on the date of grant,  and the Company  recognized no  compensation expense for stock options in 2005, 2004 or 2003. The following table illustrates the effect on net income  (loss) and  income  (loss) per share  attributable  to common  stockholders  if the  Company  had  applied  the fair value  recognition provisions of SFAS No. 123 to all options granted since January 1, 1995:                                                                                    Year ended December 31,                                                                -------------------------------------------------------                                                                                          2004                2003                                                                     2005              (restated)          (restated)                                                                ----------------    ----------------   ----------------                                                                        (In thousands, except per share data) Net income (loss) attributable to        common stockholders, as reported                            $     143,701       $      43,300      $     (24,443) Less stock option related stock-based    employee compensation expense    determined under SFAS No. 123                                          (5)                (65)              (215)                                                                ----------------    ----------------   ----------------  Pro forma net income (loss) attributable   to common stockholders                                       $     143,696       $      43,235      $     (24,658)                                                                ================    ================   ================  Basic earnings (loss) per share attributable to common stockholders:          As reported                                           $       2.20        $       0.68       $       (0.39)                                                                ================    ================   ================          Pro forma                                             $       2.20        $       0.68       $       (0.39)                                                                ================    ================   ================  Diluted earnings (loss) per share attributable to common stockholders:          As reported                                           $       1.72        $       0.66       $       (0.39)                                                                ================    ================   ================          Pro forma                                             $       1.72        $       0.66       $       (0.39)                                                                ================    ================   ================        Employee  benefit  plans.  Accounting  and funding  policies for retirement plans and postretirement  benefits other than pensions ("OPEB") are described in Note 17.       Revenue recognition. Sales revenue is generally recognized when the Company has certified that its product meets the related  customer  specifications,  the product has been shipped,  and title and substantially all the risks and rewards of ownership  have passed to the customer.  Payments  received from customers in advance of these  criteria  being met are  recorded as customer  advances  until earned. For inventory  consigned to customers,  sales revenue is recognized when (i) the terms of the consignment end, (ii) the Company has completed performance of all  significant  obligations  and (iii) title and  substantially  all of the risks and rewards of ownership have passed to the customer.  Amounts  charged to customers for shipping and handling are included in net sales.  Sales revenue is stated net of price and early payment discounts.       Research and development.  Research and development expense, which includes activities  directed toward expanding the use of titanium and titanium alloys in all  market  sectors,  is  recorded  as  selling,  general,  administrative  and development  expense as incurred and totaled $3.2 million in 2005,  $2.9 million in 2004 and $2.8 million in 2003. Related engineering and experimentation  costs associated with ongoing commercial production are recorded in cost of sales.       Advertising  costs.  Advertising  costs,  which  are not  significant,  are expensed as incurred.            Self-insurance.  The Company is self insured for certain exposures relating to employee and retiree medical benefits and workers'  compensation  claims. The Company purchases insurance from third-party providers, which limits its maximum exposure to $150,000 per occurrence for employee  medical  benefits and $500,000 per occurrence for workers'  compensation claims. The Company paid $12.7 million during 2005,  $14.9 million during 2004 and $11.9 million during 2003 related to employee  medical  benefits and $403,000  during 2005,  $334,000 during 2004 and $139,000 during 2003 related to workers'  compensation  claims. The Company also maintains  insurance  from  third-party  providers  for  automobile,   property, product,  fiduciary  and  other  liabilities,   which  are  subject  to  various deductibles and policy limits typical to these types of insurance policies.  See Note 18 for discussion of policies provided by related parties.       Income taxes.  Deferred  income tax assets and  liabilities  are recognized based on the expected future tax consequences of temporary  differences  between the  income  tax  and  financial   reporting  carrying  amounts  of  assets  and liabilities,  including  investments  in  subsidiaries  not  included in TIMET's consolidated U.S. tax group. The Company  periodically  reviews its deferred tax assets to  determine  if future  realization  is  "more-likely-than-not,"  and a change in the valuation  allowance is recorded in the period it is determined to be necessary. See Note 16.       Accounting  principles  not yet adopted.  In November  2004,  the Financial Accounting  Standards  Board ("FASB") issued SFAS No. 151,  Inventory  Costs, an amendment  of ARB No. 43,  Chapter 4,  which  clarifies  the types of costs that should be expensed  rather than  capitalized  as inventory.  This statement also clarifies the  circumstances  under which fixed overhead costs  associated  with operating facilities involved in inventory processing should be capitalized. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15,  2005,  and the Company  will adopt SFAS No. 151 as of January 1, 2006.  The Company does not expect that the adoption of SFAS No. 151 will have a material impact on its consolidated financial position or results of operations.       In  September  2005,  the  Emerging  Issues Task Force  ("EITF")  reached a consensus on Issue 04-13,  Accounting  for Purchases and Sales of Inventory with the Same  Counterparty  ("EITF  04-13").  The FASB  Task  Force  concluded  that inventory  purchases and sales transactions with the same counterparty should be combined for accounting  purposes if they were entered into in  contemplation of each other.  The EITF  provided  indicators  to be  considered  for  purposes of determining  whether such transactions are entered into in contemplation of each other.  Guidance was also provided on the circumstances  under which nonmonetary exchanges of inventory  within the same line of business should be recognized at fair value.  EITF 04-13 will be effective in reporting  periods  beginning after March 15,  2006.  The Company has not yet  determined  the impact,  if any,  the adoption  of EITF  04-13 will have on its  consolidated  financial  position  or results of operations.            In December 2004, the FASB issued SFAS No. 123 (revised 2004),  Share-Based Payment  ("SFAS No.  123R"),  which replaces SFAS No. 123 and supersedes APB No. 25. SFAS No. 123R requires the measurement of all employee  share-based payments to employees,  including  grants of employee stock options,  to be recognized in the financial  statements  based on their fair values.  Under SFAS No. 123R, the pro forma disclosures  previously permitted under SFAS No. 123 will no longer be an  alternative  to  financial  statement  recognition.   Under  the  transition alternatives  permitted  under SFAS No.  123R,  the  Company  will apply the new standard  to any 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.  If the Company were to grant a significant  number of options or modify,  repurchase  or cancel  existing  options in the future,  the Company could recognize  material  amounts of compensation  cost related to such options in its consolidated financial statements. As permitted by regulations of the SEC, the Company will adopt SFAS No. 123R as of January 1, 2006 and does not believe  the  adoption  of SFAS No.  123R  will  have a  material  effect on the Company's  financial  position  or  results  of  operations,  as all of  TIMET's outstanding  options will be fully vested as of the adoption date. SFAS No. 123R requires certain expanded disclosures regarding the Company's stock options, and such expanded disclosures have been provided in Note 14.  Note 3 - Inventories                                                                                            December 31,                                                                          -------------------------------------------                                                                                                          2004                                                                                2005                   (restated)                                                                          ------------------     --------------------                                                                                        (In thousands)     Raw materials                                                            $         89,956       $          71,067 Work-in-process                                                                   169,856                  97,470 Finished products                                                                  73,395                  67,756 Inventory consigned to customers                                                   20,000                  17,944 Supplies                                                                           12,489                  12,397                                                                          ------------------     --------------------                                                                           $        365,696       $         266,634                                                                          ==================     ====================        Effective  January 1, 2005,  the Company  changed its method for  inventory determination  from the LIFO cost  method to the  specific  identification  cost method  for  the  approximate  40% of  the  Company's  consolidated  inventories previously  accounted  for  under  the LIFO cost  method.  With the  significant volatility  seen  recently in raw material  prices,  the Company  believes  this change in accounting method provides a better matching of revenues and expenses. As required by GAAP, the Company has restated its financial statements for prior periods.  As a result of the  accounting  change,  the  Company's  net inventory balance as of December 31, 2004  increased by $26.7 million from the  previously reported amount  (representing  the elimination of the Company's LIFO reserve at such date), with a corresponding decrease to the Company's accumulated deficit.            The following  table  provides the effect of the  accounting  change on the Company's results of operations for 2005, 2004 and 2003:                                                                                     Year ended December 31,                                                                 ----------------------------------------------------------                                                                       2005                 2004                2003                                                                 -----------------    -----------------    ----------------                                                                                      (In thousands) Net income (loss) attributable to common stockholders:         Prior to change in accounting method                         $       122,521      $      35,541 (1)    $     (13,057) (1)    Decrease (increase) in cost of sales     related to change in accounting method, net of     applicable income taxes                                              21,180              7,759              (11,386)                                                                 -----------------    -----------------    ----------------     After change in accounting method                            $       143,701      $      43,300        $     (24,443)                                                                 =================    =================    ================  Basic earnings (loss) per share attributable to common stockholders:     Prior to change in accounting method                         $         1.88       $        0.56 (1)    $      (0.21) (1)    Increase (decrease) related to change in     accounting method                                                     0.32                0.12               (0.18)                                                                 -----------------    -----------------    ----------------     After change in accounting method                            $         2.20       $        0.68        $      (0.39)                                                                 =================    =================    ================  Diluted earnings (loss) per share attributable to common stockholders:     Prior to change in accounting method                         $         1.49       $        0.55 (1)    $      (0.21) (1)    Increase (decrease) related to change in     accounting method                                                     0.23                0.11               (0.18)                                                                 -----------------    -----------------    ----------------     After change in accounting method                            $         1.72       $        0.66        $      (0.39)                                                                 =================    =================    ================  - --------------------------------------------------------------------------------------------------------------------------  (1) As previously reported.       Note 4 - Marketable securities       The following table  summarizes the Company's  marketable  securities as of December 31, 2005:                                                                                                                Unrealized             Marketable security                     Shares          Market value         Cost basis       gains (losses) - --------------------------------------------     -------------    -----------------    ---------------    ---------------                                                                                      ($ in thousands) As of December 31, 2005:         CompX (1)                                       2,696,420      $        43,197      $      34,234      $       8,963    NL Industries, Inc. ("NL")                        222,100                3,129              2,461                668    Kronos Worldwide, Inc. ("Kronos")                   5,203                  151                202                (51)                                                                   -----------------    ---------------    ---------------                                                                    $        46,477      $      36,897      $       9,580                                                                   =================    ===============    ===============  As of December 31, 2004:    CompX (1)                                       2,549,520      $        42,144      $      32,011      $      10,133    NL Industries, Inc. ("NL")                        222,100                4,908              2,461              2,447    Kronos Worldwide, Inc. ("Kronos")                   3,985                  162                145                 17                                                                   -----------------    ---------------    ---------------                                                                    $        47,214      $      34,617      $      12,597                                                                   =================    ===============    ===============  - -------------------------------------------------------------------------------------------------------------------------  (1)  The  Company  directly  held  483,600  and  336,700  shares  of CompX as of      December 31, 2005 and 2004, respectively. The remaining 2,212,820 shares as      of  December  31, 2005 and 2004 were held by CGI.  See  further  discussion      below.       During the first  nine  months of 2004,  the  Company  purchased  2,212,820 shares of CompX Class A common shares,  representing  approximately 14.6% of the total number of shares of all classes of CompX common stock  outstanding at that date. At September 30, 2004, NL, a subsidiary of Valhi, held an additional 68.4% of CompX.  Effective on October 1, 2004, the Company and NL contributed  100% of their  respective  holdings on that date of all classes of CompX common stock to CGI in return for a 17.6% and 82.4% ownership interest in CGI, respectively, and CGI  became  the  holder  of the  83.0% of CompX  that  the  Company  and NL had previously  held in the aggregate.  The CompX shares are the sole assets of CGI. The  Company's  shares of CGI are  redeemable at the option of the Company based upon the market  value of the  underlying  CompX  stock held by CGI,  and if the Company so elects to redeem its shares of CGI,  the  Company  can require CGI to pay the  redemption  price  for its CGI  shares  in the form of  shares of CompX common  stock,  with the number of CompX shares  received  equal to the pro-rata portion of the number of shares of CompX the Company  originally  contributed to CGI  at  CGI's  formation,  based  on the  number  of CGI  shares  so  redeemed. Accordingly,   the  Company   accounts   for  its   investment   in  CGI  as  an available-for-sale  marketable  security carried at fair value based on the fair value of the underlying CompX shares held by CGI.       As of December  31, 2005 and 2004,  the Company  directly  held 483,600 and 336,700  respectively,  shares of CompX,  which  were  purchased  subsequent  to October 1, 2004.  The Company has not  contributed  any of the shares  purchased subsequent to October 1, 2004 to CGI.       At December 31, 2005 and 2004, the Company held  approximately 0.5% of NL's outstanding  common stock, and Valhi and a wholly owned subsidiary of Valhi held an additional 83% in the aggregate.       During 2005 and 2004, NL paid  dividends on its common stock in the form of (i) cash and (ii) shares of Kronos common stock.  At December 31, 2005 and 2004, the Company  held less than 0.1% of Kronos'  outstanding  common stock and Valhi and NL held an additional  93% in the aggregate.  During 2005,  CompX and Kronos each paid cash dividends on their respective common stock.   Note 5 - Investment in joint ventures                                                                                                December 31,                                                                                 --------------------------------------                                                                                       2005                 2004                                                                                 -----------------    -----------------                                                                                            (In thousands)     VALTIMET SAS ("VALTIMET")                                                       $         25,911     $         22,466 MZI, LLC ("MZI")                                                                              67                  125                                                                                 -----------------    -----------------                                                                                  $         25,978     $         22,591                                                                                 =================    =================        VALTIMET is a manufacturer  of welded  stainless  steel and titanium tubing with operations in the United States, France, South Korea and China. At December 31, 2005,  VALTIMET was owned 43.7% by TIMET,  51.3% by Valinox Welded, a French manufacturer of welded tubing, and 5.0% by Sumitomo Metals  Industries,  Ltd., a Japanese  manufacturer of steel products.  At December 31, 2004, the unamortized net  difference  between the  Company's  carrying  amount of its  investment  in VALTIMET and its proportionate  share of VALTIMET's net assets was $3.3 million, and is principally  attributable  to the difference  between the carrying amount and fair value of fixed assets initially  contributed by TIMET.  This difference is being amortized over 15 years and reduces the amount of equity in earnings or increases the amount of equity in losses that the Company reports related to its investment  in VALTIMET.  The Company  received  dividends  related to 2004 from VALTIMET of $1.1 million in February 2006,  which were declared  during 2005 and accrued on the Company's  financial  statements as of December 31, 2005.  During 2004,  the  Company  received  dividends  related to 2003 from  VALTIMET of $1.7 million.       MZI provides  certain testing services and is 33.3% owned by TIMET with the remainder owned by another titanium manufacturer.       In November  2005,  the Company  entered  into a joint  venture  with XI'AN BAOTIMET  VALINOX TUBES CO. LTD.  ("BAOTIMET") to produce welded titanium tubing in the Peoples Republic of China. As of December 31, 2005, the Company,  through a wholly owned  subsidiary,  held an 11% direct  interest in BAOTIMET,  although none of the  joint  venture  partners  had  contributed  any  funds to the joint venture as of such date. The remaining  ownership  interests in BAOTIMET are (i) 40% held by Baoji Titanium Industry Co. Ltd., one of China's principal producers of titanium products,  (ii) 20% held by VALTIMET and (iii) 29% held by Changzhou Valinox Great Wall Welded Tube Co. Ltd. (a 66%-owned subsidiary of VALTIMET). At December 31, 2005, TIMET had an obligation to contribute a total of $0.7 million to the joint venture, which was contributed in the first quarter of 2006.       VALTIMET and MZI are exempted from the scope of FASB  Interpretation No. 46 ("FIN 46R"),  Consolidation of Variable Interest Entities (an  interpretation of Accounting Research Bulletin No. 51). Therefore,  the current SFAS No. 94 model, under which  consolidation is based upon control (generally defined as ownership of more than 50% of an entity), continues to apply to these entities.       Note 6 - Property and equipment                                                                                                December 31,                                                                                ---------------------------------------                                                                                      2005                  2004                                                                                ------------------    -----------------                                                                                            (In thousands)     Land and improvements                                                          $         8,922       $         8,703 Buildings and improvements                                                              37,259                31,780 Information technology systems                                                          61,175                63,609 Manufacturing equipment and other                                                      348,080               333,031 Construction in progress                                                                31,488                14,819                                                                                ------------------    -----------------                                                                                        486,924               451,942 Less accumulated depreciation                                                          233,934               223,769                                                                                ------------------    -----------------                                                                                 $       252,990       $       228,173                                                                                ==================    =================        See Note 11 with respect to the Company's property and equipment held under capital leases.       During the first quarter of 2005,  the Company  determined  that certain of its manufacturing equipment would no longer be utilized in its operations,  and, accordingly,  recognized a $1.2 million  noncash  abandonment  charge to cost of sales during the period.       In November 2004, pursuant to an agreement with Basic Management,  Inc. and certain of its affiliates  ("BMI"),  the Company sold certain  property  located adjacent  to its  Henderson,  Nevada  plant  site to BMI, a  32%-owned  indirect subsidiary of Valhi,  and recorded a $12.0 million  deferred gain related to the cash proceeds  received in November 2004. During the second quarter of 2005, the Company ceased using the property and,  accordingly,  recognized a $13.9 million non-operating  gain related to the sale of such property,  which is comprised of (i) the  previously  reported  $12.0 million cash proceeds  received in November 2004,  (ii) the reversal of $0.6 million  previously  accrued by the Company for potential  environmental  issues related to the property and (iii) an additional $1.2 million cash payment received from BMI in June 2005. See Note 19.  Note 7 - Intangible assets       As of December  31, 2005 and 2004,  the  Company's  intangible  assets with definite lives are solely comprised of patents. In accordance with SFAS No. 142, Goodwill and Other  Intangible  Assets,  the Company has evaluated the remaining useful lives of its patents,  which will become fully amortized during 2006. The carrying amount and accumulated  amortization of the Company's intangible assets are as follows:                                                               December 31, 2005                    December 31, 2004                                                  ----------------------------------    --------------------------------                                                    Carrying           Accumulated        Carrying         Accumulated                                                     Amount            Amortization        Amount         Amortization                                                  --------------     ---------------    --------------    --------------                                                                             (In thousands) Intangible assets:   Definite lives, subject to amortization:           Patents                                     $      8,789       $        8,106     $     14,874      $      13,224    Other intangible asset - pension asset (1)               -                     -           3,407                  -                                                  --------------     ---------------    --------------    --------------                                                   $      8,789       $        8,106     $     18,281      $      13,224                                                  ==============     ===============    ==============    ==============  - -----------------------------------------------------------------------------------------------------------------------  (1) Not covered by the scope of SFAS No. 142.       The Company's  amortization  expense relating to its intangible  assets was $1.0 million in 2005, $1.5 million in 2004 and $1.7 million in 2003. The Company expects its aggregate  amortization  expense during 2006 will  approximate  $0.7 million.  Note 8 - Other noncurrent assets                                                                                               December 31,                                                                               ---------------------------------------                                                                                     2005                  2004                                                                               ------------------    -----------------                                                                                           (In thousands)        Deferred financing costs                                                   $           177       $           786    Prepaid pension cost                                                                22,337                10,531    Notes receivable from officers                                                           -                    49    Other                                                                                  163                   211                                                                               ------------------    -----------------                                                                                $        22,677       $        11,577                                                                               ==================    =================        The  Company's  deferred  financing  costs  relate to the  issuance  of the Company's BUCS and are amortized on a straight-line basis through 2026. See Note 12 for further  discussion of the BUCS deferred financing costs. See Note 17 for further discussion of the prepaid pension cost.       Note 9 - Accrued liabilities                                                                                                December 31,                                                                                 --------------------------------------                                                                                       2005                 2004                                                                                 -----------------    -----------------                                                                                            (In thousands)     OPEB cost                                                                       $         2,181      $         2,777 Pension cost                                                                              5,353                5,285 Payroll and vacation                                                                      6,227                5,810 Incentive compensation                                                                   20,091               12,570 Other employee benefits                                                                   9,938                9,721 Deferred revenue                                                                         14,525               10,046 Environmental costs                                                                       1,718                2,530 Taxes, other than income                                                                  5,318                4,166 Other                                                                                    10,347                8,535                                                                                 -----------------    -----------------                                                                                  $        75,698      $        61,440                                                                                 =================    =================        See Note 19 with regard to environmental costs.       Effective January 1, 2004, the Company modified the vacation policy for its U.S.  salaried  employees,  whereby such employees no longer accrue their entire year's  vacation  entitlement on January 1, but rather accrue the current year's vacation  entitlement over the course of the year. As a result,  in January 2004 the Company  reduced its $1.9 million  vacation  accrual as of December 31, 2003 for these employees to zero.       Under the  terms of the  Company's  long-term  agreement  ("LTA")  with The Boeing  Company  ("Boeing"),  Boeing is required to purchase  from the Company a buffer  inventory of titanium  products for use by the Company in the production of titanium products ordered by Boeing in the future. As the buffer inventory is completed,  Boeing is billed  and takes  title to the  inventory,  although  the Company could retain an  obligation to further  process the material as directed by Boeing.  Accordingly,  the revenue and costs of sales on the buffer inventory is deferred and  subsequently  recognized  at the time the final mill product is delivered  to Boeing.  As of December  31, 2005 and 2004,  $9.0 million and $9.9 million of the  Company's  deferred  revenue  related  to the buffer  inventory, respectively.  Note 10 - Customer advances       Under the terms of the Company's  previous LTA with Boeing, in 2002 through 2007,  Boeing would have been required to advance  TIMET $28.5 million  annually less $3.80 per pound of titanium product purchased by Boeing subcontractors from TIMET during the preceding  year.  The advance  related to Boeing's  take-or-pay obligations  under the previous LTA.  Effectively,  the Company  collected $3.80 less from Boeing than the LTA selling  price for each pound of titanium  product sold directly to Boeing and reduced the related customer advance recorded by the Company.  For  titanium  products  sold to Boeing  subcontractors,  the  Company collected  the full LTA selling  price,  but gave Boeing  credit by reducing the next year's annual advance by $3.80 per pound of titanium product sold to Boeing subcontractors.  The Boeing  customer  advance was also  reduced as  take-or-pay benefits  were earned.  As of December 31, 2005,  approximately  $0.7 million of customer advances related to the Company's  previous LTA with Boeing,  which was refunded to Boeing in 2006.            Effective July 1, 2005, the Company  entered into a new LTA with Boeing for the purchase and sale of titanium products.  The new LTA expires on December 31, 2010 and provides for, among other things, (i) mutual annual purchase and supply commitments by both parties,  (ii) continuation of the existing buffer inventory program  currently  in place for  Boeing  and  (iii)  certain  improved  product pricing. Beginning in 2006, the new LTA also replaces the take-or-pay provisions of the previous LTA with an annual makeup payment early in the following year in the event Boeing  purchases less than its annual volume  commitment in any year. See Note 15.  Note 11 - Bank debt and capital lease obligations                                                                                                December 31,                                                                                ---------------------------------------                                                                                      2005                  2004                                                                                ------------------    -----------------                                                                                            (In thousands)     Notes payable - U.S. credit facility                                           $        -            $        43,176                                                                                ==================    =================  Long-term debt:    U.S. credit facility                                                        $        40,255       $        -    U.K. credit facility                                                                 11,104                -                                                                                ------------------    -----------------                                                                                 $        51,359       $        -                                                                                ==================    =================  Capital lease obligations                                                      $           157       $           197    Less current maturities                                                                  19                    22                                                                                ------------------    -----------------                                                                                 $           138       $           175                                                                                ==================    =================        Long-term  bank credit  agreements.  As of December 31, 2005, the Company's outstanding  borrowings  under its U.S. credit  agreement were $40.3 million and excess  availability was  approximately  $79 million.  On February 17, 2006, the Company  entered into a new $175 million  long-term  credit  agreement (the "New U.S.  Facility"),  replacing  its  previous  U.S  credit  agreement,  which  was terminated  on that date.  The New U.S.  Facility  is secured  primarily  by the Company's U.S. accounts  receivable,  inventory,  personal property,  intangible assets, a pledge of 65% of TIMET UK's common stock and a negative pledge on U.S. fixed  assets,  and  matures in  February  2011.  Borrowings  under the New U.S. Facility  accrue  interest at the U.S. prime rate or varying  LIBOR-based  rates based on a  quarterly  ratio of  outstanding  debt to EBITDA as  defined  by the agreement.  The New U.S.  Facility  also  provides for the issuance of up to $10 million of letters of credit.             The New U.S. Facility contains certain restrictive  covenants,  that, among other things,  limit or restrict the ability of the Company to incur debt, incur liens, make  investments,  make capital  expenditures or pay dividends.  The New U.S.  Facility  also  requires  compliance  with  certain  financial  covenants, including  minimum  tangible  net worth,  a fixed  charge  coverage  ratio and a leverage ratio, and contains other covenants  customary in lending  transactions of this type including  cross-default  provisions with respect to other debt and obligations of the Company.  Borrowings under the New U.S.  Facility are limited to the lesser of $175  million or a  formula-determined  amount  based upon U.S. accounts  receivable,  inventory  and fixed  assets  (subject to pledging  fixed assets). Such formula-determined amount only applies if borrowings exceed 60% of the  commitment  amount or the leverage ratio exceeds a certain  limitation.  At February 17, 2006,  approximately $21 million was outstanding under the New U.S. Facility and $4.4 million of letters of credit were issued and outstanding.  The Company's previous U.S. credit agreement  contained similar covenant  compliance requirements,  and the Company was in compliance with all such covenants for all periods during the years ended December 31, 2005 and 2004.       Under the  previous  U.S.  credit  agreement,  the Company was  required to maintain a lock box  arrangement  whereby  daily net cash  receipts were used to reduce outstanding borrowings.  Accordingly,  any outstanding balances under the previous  U.S.  credit  agreement  were  classified  as  a  current   liability, regardless of the maturity date of the  agreement.  As a result of the Company's entrance  into  the  New  U.S.  Facility,  which  does  not  contain  a  similar requirement regarding  application of daily net cash receipts,  borrowings under the  Company's  previous  U.S.  credit  agreement  have  been  re-classified  to long-term on the  Company's  balance  sheet as of December  31, 2005.  Under the Company's  previous U.S. credit  agreement,  interest  accrued at rates based on LIBOR plus 2% and bank prime rate plus 0.5%. The weighted  average interest rate on  borrowings  outstanding  was  6.4% as of  December  31,  2005 and 4.3% as of December 31, 2004.  Borrowings were  collateralized  by substantially all of the Company's U.S. assets.       During the second  quarter of 2005,  the  Company's  subsidiary,  TIMET UK, terminated its previous credit facility (the "U.K. Facilities") and entered into a new working capital credit facility (the "New U.K.  Facility") that expires on April  30,  2008.  Under  the New  U.K.  facility,  TIMET  UK may  borrow  up to (pound)22.5 million, subject to a formula-determined borrowing base derived from the value of accounts receivable,  inventory and property,  plant and equipment. Borrowings under the New U.K. facility can be in various  currencies,  including U.S.  dollars,  British  pounds  sterling  and euros and are  collateralized  by substantially  all of TIMET UK's  assets.  Interest  on  outstanding  borrowings generally  accrues at rates that vary from 1.125% to 1.375%  above the  lender's published base rate. The New U.K.  facility also contains  financial  ratios and covenants  customary in lending  transactions of this type,  including a minimum net  worth  covenant.  TIMET UK was in  compliance  with all  covenants  for all periods  during the year ended  December 31, 2005. As of December 31, 2005,  the Company's outstanding borrowings, which are due on April 30, 2008, under the New U.K. Facility were $11.1 million,  and excess availability was approximately $28 million. The weighted average interest rate on borrowings  outstanding under the New U.K. facility was 5.6% as of December 31, 2005.            The U.K.  Facilities  provided  for  borrowings  limited  to the  lesser of (pound)22.5  million or a  formula-determined  borrowing  base  derived from the value of accounts receivable,  inventory and property,  plant and equipment. The credit  agreement  included  revolving and term loan facilities and an overdraft facility and required the maintenance of certain  financial  ratios and amounts, including a minimum net worth covenant and other covenants  customary in lending transactions of this type. TIMET UK was in compliance with all covenants for all periods during the year ended December 31, 2004. The U.K. overdraft facility was subject to annual  review in  December  of each year and was renewed in December 2004.  During the second quarter of 2003, TIMET UK received an  interest-bearing intercompany  loan from a U.S.  subsidiary of the Company  enabling  TIMET UK to reduce its long-term borrowings under the U.K. Facilities to zero. This loan was repaid in full during the third  quarter of 2004.  As of December 31, 2004,  the Company had no borrowings under the U.K. Facilities.       The Company also has  overdraft  and other credit  facilities at certain of its other European  subsidiaries that aggregate the equivalent of $19 million at December 31, 2005.  These  facilities  accrue  interest at various rates and are payable on demand. At December 31, 2005,  approximately $2 million of letters of credit had been issued under these facilities. As of December 31, 2005 and 2004, there  were  no  outstanding  borrowings  under  these  facilities,  and  unused borrowing availability at December 31, 2005 was approximately $17 million.       Capital lease obligations.  In January 2004, the Company purchased for $0.7 million substantially all of the U.S. equipment held under capital leases, which were due to expire at  various  times  during  2004 and 2005.  During the fourth quarter of 2004,  three of the Company's U.K. lease agreements were amended such that they no longer meet the criteria for capital lease treatment under SFAS No. 13,  Accounting  for Leases,  and are now  accounted  for as  operating  leases. Accordingly,  the Company reduced its capital lease  obligations and related net property  and  equipment  by  $10.3  million  and  $7.8  million,  respectively, resulting in a $2.5 million  deferred gain that the Company will  recognize on a straight-line basis over the term of the amended lease agreements,  one of which expires  in 2014 and two of which  expire  in 2024.  The  Company's  first  rent payment  under the amended lease  agreements is not due until October 2006,  and the Company is  recognizing  rent  expense  with  respect to the  amended  lease agreements  based on the  aggregate  contractual  rent  payments  allocated on a straight-line basis over the terms of the amended lease agreements.       At December 31, 2005 and 2004,  the Company held  equipment  under  capital leases of $0.2 million and $0.3  million,  respectively.  The related  aggregate accumulated depreciation was approximately $0.1 million at December 31, 2005 and 2004.            Aggregate  maturities of capital lease  obligations as of December 31, 2005 are reflected in the following table:                                                                                           Amount                                                                                 ----------------------                                                                                    (In thousands)          Year ending December 31,                           2006                                                                $              28             2007                                                                               28             2008                                                                               28             2009                                                                               28             2010 and thereafter                                                                78                                                                                 ----------------------                                                                                               190             Less amounts representing interest                                                 33                                                                                 ----------------------                                                                                  $             157                                                                                 ======================   Note 12 - Capital Trust       In November  1996,  the Capital Trust issued  $201.3  million BUCS and $6.2 million  6.625%  common  securities.  TIMET owns all of the  outstanding  common securities of the Capital Trust, and the Capital Trust is a wholly owned finance subsidiary  of TIMET.  The Capital Trust used the proceeds from such issuance to purchase from the Company $207.5 million  principal  amount of the  Subordinated Debentures.  The Subordinated Debentures and accrued interest receivable are the sole assets of the Capital Trust at December 31, 2005.       In August 2004, the Company completed an exchange offer,  pursuant to which the Company had offered to  exchange  any and all of the  4,024,820  outstanding BUCS issued by the Capital Trust for shares of the Company's  Series A Preferred Stock at the  exchange  rate of one share of Series A  Preferred  Stock for each BUCS. Based upon the 3,909,103 BUCS tendered and accepted for exchange as of the close of the offer on August 31, 2004,  the Company issued  3,909,103  shares of Series A Preferred Stock in exchange for such BUCS.  During the third quarter of 2004, the Company recognized a $15.5 million non-cash non-operating gain related to the BUCS exchange,  reflecting  the difference  between the carrying value of the related  Subordinated  Debentures ($195.5 million) and the fair value of the Series A Preferred Stock issued ($173.7  million,  based on the closing price of the BUCS on August 31, 2004  according to NASDAQ's  website of $45.25 per share, less $3.2  million  attributable  to accrued  and unpaid  dividends),  less $6.3 million of unamortized deferred financing costs related to the exchanged BUCS.            The BUCS, which mature December 2026, do not require principal amortization and are redeemable at the Company's  option.  The redemption price  approximates 101% of the  principal  amount as of  December  1, 2005 and  declines to 100% on December 1, 2006. The New U.S.  Facility  contains certain  financial  covenants that may restrict the Company's  ability to make  distributions on the BUCS. The Subordinated  Debentures allow the Company the right to defer interest  payments for a period of up to 20 consecutive  quarters,  although interest  continues to accrue at the coupon rate on the principal and unpaid interest.  Similarly,  the Capital  Trust is  permitted  by the  terms of the BUCS to defer  its  quarterly dividend  payments  on the  BUCS  when  TIMET  defers  interest  payment  on the Subordinated  Debentures.  During 2002, the Company exercised its right to defer interest payments on the Subordinated Debentures,  effective for the December 1, 2002  scheduled  interest  payment.  Interest  continued to accrue at the 6.625% coupon rate on the principal and unpaid  interest  until the Company's  Board of Directors  approved  resumption of scheduled  quarterly interest payments on the Subordinated  Debentures  beginning  with  the  payment  on  June 1,  2004.  The Company's Board also approved payment of all previously deferred interest on the Subordinated  Debentures.  On April 15,  2004,  the  Company  paid the  deferred interest in the amount of $21.7  million,  $21.0 million of which related to the BUCS.       TIMET's  guarantee  of  payment  of  the  remaining  outstanding  BUCS  (in accordance with the terms thereof) and its  obligations  under the Capital Trust documents constitute,  in the aggregate,  a full and unconditional  guarantee by the  Company  of the  Capital  Trust's  obligations  under  the  BUCS.  The BUCS represent  undivided  beneficial  ownership  interests in the Capital Trust, are entitled to cumulative preferred  distributions from the Capital Trust of 6.625% per  annum,  compounded  quarterly,  and are  convertible,  at the option of the holder,  into TIMET common stock at the rate of 2.678 shares of common stock per BUCS (an equivalent price of $18.67 per share),  for an aggregate of 0.3 million common shares if the 113,467 remaining BUCS are fully converted.       On  September  1, 2005,  the Company and the  Capital  Trust  agreed to the cancellation  of  120,907  of  the  Capital  Trust's  common  securities  and  a corresponding  cancellation  of  $6.0  million  of  the  Company's  Subordinated Debentures.  There  was no net  effect  of  this  transaction  on the  Company's consolidated  financial  position  or results of  operations,  as the  Company's carrying value of the common securities of the Capital Trust that were cancelled equaled  the  carrying  value of the  Subordinated  Debentures  that  were  also cancelled.       On March 3,  2006,  the  Company  called  all of the  outstanding  BUCS for redemption.  The  redemption  price equals  100.6625% of the $50.00  liquidation amount per BUCS, or $50.3313,  plus accrued  distributions to the March 24, 2006 redemption date on the BUCS of $0.2116 per BUCS. The Company expects to report a nominal pre-tax loss related to the call of the BUCS.  Note 13 - Minority interest       Minority  interest  relates  principally to the Company's  70%-owned French subsidiary,  TIMET Savoie,  S.A. ("TIMET Savoie").  The Company has the right to purchase from  Compagnie  Europeenne du  Zirconium-CEZUS,  S.A.  ("CEZUS"),  the holder of the remaining 30% interest, CEZUS' interest in TIMET Savoie for 30% of TIMET Savoie's equity  determined under French accounting  principles,  or $13.3 million as of December 31,  2005.  CEZUS has the right to require the Company to purchase  its  interest  in TIMET  Savoie for 30% of TIMET  Savoie's  registered capital,  or $3.0 million as of December 31,  2005.  TIMET Savoie made  dividend payments to CEZUS of $2.2 million in 2005 and $0.7 million in 2004.       Note 14 - Stockholders' equity       Preferred  stock. At December 31, 2005, the Company was authorized to issue 10 million  shares of preferred  stock.  The Board of Directors  determines  the rights of preferred  stock as to, among other  things,  dividends,  liquidation, redemption, conversions and voting rights.       Upon  completion  of the BUCS  exchange  offer  discussed  in Note 12,  the Company issued 3,909,103  shares of Series A Preferred Stock.  Each share of the Series A  Preferred  Stock is  convertible,  at any time,  at the  option of the holder thereof, at a conversion price of $7.50 per share of the Company's common stock  (equivalent to a conversion  rate of six and two-thirds  shares of common stock for each share of Series A Preferred Stock),  with any partial shares paid in cash. The  conversion  rate is subject to adjustment if certain events occur, including,  but not limited to, a stock dividend on the Company's  common stock, subdivisions or certain  reclassifications  of the Company's common stock or the issuance of warrants to holders of the Company's common stock.       The  Series  A  Preferred  Stock  is  not  mandatorily  redeemable,  but is redeemable  at the option of the  Company at any time after  September  1, 2007. Holders of the Series A Preferred Stock are entitled to receive  cumulative cash dividends at the rate of 6.75% of the $50 per share  liquidation  preference per annum per share  (equivalent  to $3.375 per annum per  share),  when,  as and if declared by the Company's board of directors.  The Company paid $12.5 million in 2005  and $3.3  million  in 2004 of such  dividends.  Whether  or not  declared, cumulative dividends on Series A Preferred Stock are deducted from net income to arrive at net income attributable to common stockholders. The Company's new U.S. credit  agreement  contains  certain  financial  covenants that may restrict the Company's  ability to make dividend payments on the Series A Preferred Stock. As of December 31, 2005, net income  attributable to common  stockholders  included $0.8 million ($0.28 per outstanding share) of undeclared  dividends.  Subsequent to December 31, 2005,  the Company's  board of directors  declared a dividend of $0.84375  per share,  payable on March 15, 2006 to holders of record of Series A Preferred Stock as of the close of trading on March 1, 2006.       During 2005,  an aggregate  of 926,490  shares of Series A Preferred  Stock were converted into 6,176,600  shares of TIMET common stock.  As of December 31, 2005, there were 2,982,613  shares  outstanding of the Series A Preferred Stock. Subsequent  to December  31,  2005 and through  March 10,  2006,  an  additional 346,016 shares of Series A Preferred Stock were converted into 2,306,765  shares of TIMET common stock.       Common stock.  At December 31, 2005, the Company was authorized to issue 90 million shares of common stock. On February 15, 2006, the Company's  certificate of  incorporation  was amended to increase  the number of  authorized  shares of common stock to 200 million.  The Company's new U.S. credit  agreement,  and the Indenture pursuant to which the Subordinated  Debentures were issued,  limit the payment of common stock dividends under certain circumstances. See also Note 12.       Treasury  stock. On August 12, 2005, the Company retired all 180,000 shares of its treasury stock.  The retirement of such treasury stock,  which had a cost basis of $1.2  million,  resulted  in a $1,800  reduction  of  common  stock,  a $990,000  reduction of  additional  paid-in  capital and a $216,000  decrease in accumulated earnings.            Restricted  stock and common stock  options.  The Company's  1996 Long-Term Performance Incentive Plan (the "Incentive Plan") provides for the discretionary grant of restricted common stock, stock options,  stock appreciation  rights and other incentive compensation to officers and other key employees of the Company. Options  generally vest over five years and expire ten years from date of grant. No  restricted  stock or options have been issued since 2000 under the Incentive Plan.       Eligible  non-employee  directors  are  covered  by a  plan  that  includes stock-based grants as an element of director compensation (the "Director Plan"). In 2005,  2004 and 2003,  the Director  Plan  provided for annual grants to each non-employee  director of 500 shares of the  Company's  common  stock as partial payment of director  fees.  Options  previously  granted to  eligible  directors vested in one year and expire ten years from date of grant (five year expiration for grants prior to 1998).  The weighted average fair value at grant date of the 14,000, 70,000 and 60,000 total shares issued to non-employee directors in 2005, 2004 and 2003, respectively,  was $139,825 in 2005, $343,055 in 2004 and $71,730 in 2003.       The  weighted  average  remaining  life of  options  outstanding  under the Incentive  Plan and the Director Plan was 1.8 years at December 31, 2005 and 3.6 years at December 31, 2004.  At December  31,  2005,  2004 and 2003,  options to purchase  1,038,360,   2,051,040  and  1,908,040  shares,   respectively,   were exercisable at average exercise prices of $12.20, $9.20 and $9.72, respectively. As of December 31, 2005, the amount payable upon exercise of options outstanding was $12.7  million and the related  aggregate  intrinsic  value  (defined as the excess of the market price of TIMET's common stock over the exercise  price) was $20.2  million.  At December  31,  2005,  3,515,280  shares and 352,520  shares, respectively,  were  available for future grant under the Incentive Plan and the Director Plan. Shares issued under these plans are newly issued shares.       The  following  table  summarizes  information  about the  Company's  stock options:                                                                                Amount payable                                                        Exercise price        upon exercise         Weighted-average                                         Options          per option          (in thousands)         exercise price                                       ------------    -----------------    -------------------    -------------------       Outstanding at December 31, 2002       2,465,000      $ 0.83-17.66         $        22,607        $          9.17   Canceled                              (247,120)     $ 1.93-17.66                  (2,726)       $         11.03                                       ------------                         -------------------  Outstanding at December 31, 2003       2,217,880      $ 0.83-17.66                   19,881        $         8.96   Exercised                              (20,200)     $ 3.99                            (81)       $         3.99   Canceled                               (46,640)     $ 3.99-14.66                     (495)       $        10.62                                       ------------                         -------------------  Outstanding at December 31, 2004       2,151,040      $ 0.83-17.66                   19,305        $         8.97   Exercised                           (1,095,600)     $ 1.80-14.66                   (6,443)       $         5.88   Canceled                               (17,080)     $ 3.99-14.66                     (198)       $        11.58                                       ------------                         -------------------  Outstanding at December 31, 2005       1,038,360      $ 0.83-17.66         $         12,664        $        12.20                                       ============                         ===================        The intrinsic value of the Company's  options  exercised  aggregated  $10.0 million in 2005 and $35  thousand in 2004,  and the  related  income tax benefit from such exercises was $3.8 million in 2005 and $13,000 in 2004.       As of December 31, 2004,  2,151,040 of the  Company's  outstanding  options were   exercisable.   The  following  table  summarizes  the  Company's  options outstanding,  all of which were  exercisable,  as of December  31, 2005 by price range:                                                            Options Outstanding and Exercisable                                  -----------------------------------------------------------------------------                                                                   Weighted average                                                                        remaining               Range of                                            contractual life        Weighted average            exercise prices         Outstanding at 12/31/05           (in years)            exercise price       -------------------------- ----------------------------- ---------------------   -------------------------                  $ 0.83-1.77                               10,000                      7.0            $         0.83       $ 1.78-3.53                               30,000                      5.7            $         1.94       $ 3.54-5.30                              176,200                      3.1            $         4.13       $ 7.07-8.83                               10,000                      5.4            $         7.11       $ 10.59-12.36                            126,800                      0.4            $        11.50       $ 12.37-14.13                            181,200                      0.9            $        13.74       $ 14.14-15.89                            316,160                      1.6            $        14.76       $ 15.90-17.66                            188,000                      1.8            $        16.93                                  -----------------------------                                               1,038,360                      1.8            $        12.20                                  =============================        Subsequent  to  December  31,  2005 and  through  March 10,I 2006,  453,960 options were exercised.       During 2000, the Company awarded 935,000 shares of TIMET restricted  common stock under the  Incentive  Plan to certain  officers and  employees.  The stock grant  restrictions  lapsed ratably on an annual basis over a five-year  period. Since  holders  of  restricted  stock  have all of the  rights  of other  common stockholders,  subject to forfeiture  unless  certain  periods of employment are completed,  all such shares of restricted stock were considered currently issued and outstanding. During 2004 and 2003, respectively, 10,600 and 71,600 shares of restricted stock were forfeited. The market value of the restricted stock awards was approximately  $2.0 million ($2.19 per share) on the date of grant, and this amount  was  recorded  as  deferred   compensation,   a  separate  component  of stockholders' equity.       The Company amortizes  deferred  compensation to expense on a straight-line basis  for  each  tranche  of  the  award  over  the  period  during  which  the restrictions lapse. During 2005, 2004 and 2003, respectively, 80,200, 88,400 and 101,400  shares of restricted  stock vested,  with an aggregate  market value of $0.6 million,  $0.4 million and $0.1 million,  respectively.  Compensation cost, net of  income  tax  benefits,  related  to  such  shares  of  restricted  stock recognized for GAAP financial  reporting  purposes was less than $0.1 million in each of 2005,  2004 and 2003.  During February 2005, all of such shares of TIMET restricted stock became fully vested.       Note 15 - Other income (expense)                                                                                  Year ended December 31,                                                                 ----------------------------------------------------                                                                     2005               2004               2003                                                                 --------------     --------------    ---------------                                                                                   (In thousands) Other operating income (expense):       Boeing take-or-pay                                            $     17,134       $     22,093      $     23,083   Litigation settlements                                                   -                  -             1,113   Insurance claim settlement                                               -                648                 -   Settlement of customer claim                                         1,800                  -                 -   Other, net                                                           1,366                248               193                                                                 --------------     --------------    ---------------                                                                  $     20,300       $     22,989      $     24,389                                                                 ==============     ==============    ===============  Other non-operating income (expense):   Dividends and interest                                        $      2,025       $        687      $        383   Equity in earnings of common securities      of the Capital Trust                                                279                424               432   Foreign exchange gain (loss), net                                    2,288               (477)             (189)   Gain on sale of property (Note 6)                                   13,881                  -                 -   Gain on BUCS exchange, net (Note 12)                                     -             15,465                 -   Other, net                                                            (245)               101              (920)                                                                 --------------     --------------    ---------------                                                                  $     18,228       $     16,200      $       (294)                                                                 ==============     ==============    ===============        Based upon the terms of the Company's previous LTA with Boeing, the Company received an annual $28.5 million (less $3.80 per pound of titanium  product sold to Boeing  subcontractors in the preceding year) customer advance from Boeing in January of each year  related to  Boeing's  purchases  from TIMET for that year. Effective July 1, 2005, the Company  entered into a new LTA with Boeing pursuant to which,  beginning in 2006, these take-or-pay provisions were replaced with an annual makeup payment early in the following year in the event Boeing  purchases less than its annual  commitment in any year. The previous LTA was structured as a  take-or-pay  agreement  such  that  Boeing  forfeited  $3.80 per pound of its advance  payment in the event that its  orders for  delivery  were less than 7.5 million pounds in any given calendar year. The Company  recognized income to the extent Boeing's  year-to-date orders for delivery plus TIMET's maximum quarterly volume  obligations  for the remainder of the year totaled less than 7.5 million pounds.  This  income  was  recognized  as other  operating  income  and was not included  in sales  revenue,  sales  volume  or gross  margin.  Based on  actual purchases  of  approximately   3.0  million  pounds  during  2005,  the  Company recognized  $17.1 million of take-or-pay  income for the year ended December 31, 2005.  The Company  recognized  $22.1  million and $23.1  million of such income during  2004 and  2003,  respectively.  Recognition  of the  take-or-pay  income reduced the Boeing customer advance as described in Note 10.       During the first quarter of 2005, the Company received $1.8 million related to its settlement of a customer claim regarding prior order  cancellations  from such customer.       Note 16 - Income taxes       Summarized in the following  table are (i) the  components of income (loss) before income taxes and minority  interest  ("pre-tax income (loss)"),  (ii) the difference  between the income tax  expense  (benefit)  attributable  to pre-tax income  (loss) and the  amounts  that would be expected  using the U.S.  federal statutory income tax rate of 35%, (iii) the components of the income tax expense (benefit)  attributable  to pre-tax income (loss) and (iv) the components of the comprehensive tax provision (benefit):                                                                                   Year ended December 31,                                                                  -----------------------------------------------------                                                                                          2004               2003                                                                       2005            (restated)         (restated)                                                                  ---------------    ---------------   ----------------                                                                                     (In thousands) Pre-tax income (loss):       U.S.                                                           $    119,799       $     29,636      $    (14,817)   Non-U.S.                                                             65,541             17,149            (7,850)                                                                  ---------------    ---------------   ----------------                                                                   $    185,340       $     46,785      $    (22,667)                                                                  ===============    ===============   ================  Expected income tax expense (benefit), at 35%                    $     64,869       $     16,375      $     (7,933) Non-U.S. tax rates                                                     (1,134)              (451)              535 Incremental tax on earnings of non-U.S. group affiliates                  455                106               131 U.S. state income taxes, net                                            3,954                297            (1,050) Dividends received deduction                                             (331)               (93)             (312) Nontaxable income                                                        (279)               (98)             (123) Change in state rate                                                      325                  -                 - Revision of estimated tax liability                                         -               (551)             (241) Elimination of minimum pension liability equity adjustment component                                                    4,405                  -                 - Tax on repatriation of foreign earnings                                 1,523                  -                 - Change in Valuation Allowance                                         (50,096)           (17,106)           10,076 Other, net                                                                805               (611)              124                                                                  ---------------    ---------------   ----------------                                                                   $     24,496       $     (2,132)     $      1,207                                                                  ===============    ===============   ================                                                                                    Year ended December 31,                                                                  -----------------------------------------------------                                                                                          2004              2003                                                                       2005            (restated)         (restated)                                                                  ---------------    ---------------   ----------------                                                                                     (In thousands) Income tax expense (benefit):   Current income taxes:          U.S.                                                        $      5,120       $        648      $         30      Non-U.S.                                                          17,245              2,931             1,436                                                                  ---------------    ---------------   ----------------                                                                        22,365              3,579             1,466                                                                  ---------------    ---------------   ----------------    Deferred income taxes (benefit):      U.S.                                                              10,638             (4,202)           -      Non-U.S.                                                          (8,507)            (1,509)             (259)                                                                  ---------------    ---------------   ----------------                                                                         2,131             (5,711)             (259)                                                                  ---------------    ---------------   ----------------                                                                   $     24,496       $     (2,132)     $      1,207                                                                  ===============    ===============   ================  Comprehensive tax provision (benefit) allocable to:   Pre-tax income (loss)                                          $     24,496       $     (2,132)     $      1,207   Additional paid in capital                                           (3,878)                 -                 -    Other comprehensive income:      Currency translation adjustment                                      (48)                 -                 -      VALTIMET's unrealized net gains on derivative       financial instruments qualifying as cash flow       hedges                                                             (268)                 -                 -      Pension liabilities adjustment                                     2,949                  -                 -                                                                  ---------------    ---------------   ----------------                                                                   $     23,251       $     (2,132)     $      1,207                                                                  ===============    ===============   ================        The  following  table  summarizes  the  Company's  deferred  tax assets and deferred tax liabilities as of December 31, 2005 and 2004:                                                                                      December 31,                                                            -----------------------------------------------------------                                                                       2005                            2004                                                            ----------------------------    ---------------------------                                                                                            Assets         Liabilities                                                              Assets        Liabilities     (restated)     (restated)                                                            ------------    ------------    -----------    ------------                                                                                  (In millions) Temporary differences relating to net assets:        Inventories                                              $      -        $     (8.7)     $      -       $    (13.2)   Property and equipment, including software                      -             (34.8)            -            (29.9)   Goodwill                                                        6.6             -               7.7            -   Accrued pension cost                                           11.8             -              21.1   Accrued OPEB cost                                               6.9             -               6.2            -   Accrued liabilities and other deductible differences           10.4             -              22.6            -   Other taxable differences                                       -             (10.2)            -             (8.0) Tax loss and credit carryforwards                                40.2             -              70.9            - Valuation allowance                                             (22.2)            -             (71.4)           -                                                            ------------    ------------    -----------    ------------ Gross deferred tax assets (liabilities)                          53.7           (53.7)           57.1          (51.1) Netting                                                         (53.7)           53.7           (51.1)          51.1                                                            ------------    ------------    -----------    ------------ Total deferred taxes                                              -               -               6.0            - Less current deferred taxes                                      19.4             -               5.0            -                                                            ------------    ------------    -----------    ------------  Net noncurrent deferred taxes                              $    (19.4)     $      -        $      1.0     $      -                                                            ============    ============    ===========    ============          The  Company  periodically  reviews  its  deferred  income  tax  assets  to determine  if future  realization  is more  likely  than not.  During  the first quarter of 2005, based on the Company's recent history of U.S. income,  its near term outlook and the effect of its change in method of  inventory  determination from the LIFO cost method to the  specific  identification  cost method for U.S. federal  income tax purposes  (see Note 2), the Company  changed its estimate of its ability to utilize the tax benefits of its U.S. net  operating  loss ("NOL") carryforwards,  alternative  minimum tax ("AMT") credit  carryforwards and other net deductible  temporary  differences (other than the majority of the Company's capital loss carryforwards).  Consequently,  the Company determined that its net deferred  income tax asset  related to such U.S.  tax  attributes  and other net deductible temporary differences now meet the "more-likely-than-not" recognition criteria.  Accordingly,  the Company  reversed  $36.9  million of the  valuation allowance  attributable to such U.S. deferred income tax asset during 2005 ($8.6 million in the fourth quarter).       During the first quarter of 2005,  based on the Company's recent history of U.K.  income,  its near term outlook and its historic  U.K.  profitability,  the Company also  changed its estimate of its ability to utilize its net  deductible temporary  differences and other tax attributes  related to the U.K.,  primarily comprised of (i) the future  benefits  associated  with the reversal of its U.K. minimum pension liability deferred income tax asset and (ii) the benefits of its U.K.  NOL  carryforward.  Consequently,  the  Company  determined  that  its net deferred  income  tax asset in the U.K.  now  meets  the  "more-likely-than-not" recognition  criteria.  Accordingly,  the Company  reversed $13.2 million of the valuation  allowance  attributable to such deferred income tax asset during 2005 ($0.1 million in the fourth quarter).       During  2004,  due to a change in  estimate  of the  Company's  ability  to utilize the benefits of its NOL carryforwards in Germany, the Company determined that its  deferred  income tax asset in Germany  met the  "more-likely-than-not" recognition  criteria.  Accordingly,  the  Company  reversed  the  $0.7  million valuation allowance attributable to such deferred income tax asset. In addition, the Company's  deferred income tax asset valuation  allowance  related to income from continuing operations decreased by $16.4 million during 2004, primarily due to the utilization of the U.S. and U.K. NOL carryforwards,  the benefit of which had previously not met the "more-likely-than-not" recognition criteria.       During the  second  quarter  of 2005 and the  fourth  quarter of 2004,  the Company  recognized a deferred  income tax benefit related to a $0.5 million and $4.2 million,  respectively,  decrease in the Company's U.S. deferred income tax asset valuation allowance  attributable to the Company's  recognition,  for U.S. income  tax  purposes  only,  of a capital  gain on the fourth  quarter  sale of certain property located at the Company's  Henderson,  Nevada facility (see Note 6). The Company recognized a corresponding  deferred income tax expense in 2005, when the gain was recognized under accounting  principles  generally accepted in the United States of America. The Company utilized a portion of its U.S. capital loss  carryforward  to offset the income taxes  generated  from the sale of such property.               The  following  table  summarizes  the  components  of  the  change  in the Company's deferred tax asset valuation allowance in 2005, 2004 and 2003:                                                                                     Year ended December 31,                                                                 ------------------------------------------------------                                                                                          2004               2003                                                                      2005             (restated)         (restated)                                                                 ----------------    ---------------    ---------------                                                                                    (In thousands) Effect of:       (Income) loss before income taxes                             $    (50,096)       $    (17,106)     $     10,076   Cumulative effect of change in accounting method                         -                   -                60   Accumulated other comprehensive (income) loss                        1,055              (1,582)             (533)   Offset to the change in net deferred income tax    assets due principally to revision of estimated    tax liability                                                           -               4,651                 -   Currency translation adjustment                                       (232)                787             1,122                                                                 ----------------    ---------------   ----------------                                                                  $    (49,273)       $    (13,250)     $     10,725                                                                 ================    ===============   ================        At  December  31,  2005,  the  Company  had,  for U.S.  federal  income tax purposes,  (i) NOL  carryforwards  of $21 million  that expire in 2022 and 2023, (ii) a capital loss  carryforward  of $73 million that expires in 2008 and (iii) AMT credit carryforwards of $4 million,  which can be utilized to offset regular income taxes payable in future years, with an indefinite carryforward period.       In October  2004,  the American  Jobs Creation Act of 2004 was enacted into law.  The new law  provides for a special 85%  deduction  for certain  dividends received from controlled foreign  corporations in 2005. In the second quarter of 2005, the Company  completed its evaluation of this new provision and determined that it would  benefit from the special  dividend  received  deduction,  but the Company did not  distribute  dividends  under the Act until the third quarter of 2005. In the third quarter of 2005, the Company executed a reinvestment plan and distributed  $19  million of  earnings  from its  European  subsidiaries,  which qualified for the special  dividend  received  deduction and, in accordance with the  requirements of FASB Staff Position No. 109-2,  recognized the $1.0 million income tax related to such repatriation.  Additionally, in the fourth quarter of 2005, the Company  determined  that an additional  $10 million of  repatriations would  qualify  for the special  dividend  received  deduction,  and the Company recognized an additional  $0.5 million  income tax related to the fourth quarter repatriation.  The Company has not  provided for U.S.  deferred  income taxes or foreign  withholding  taxes on basis  differences  in its non-U.S.  consolidated subsidiaries  that result  primarily  from  undistributed  earnings  the Company intends  to  reinvest  indefinitely.  The new law also  provides  for a  special deduction  from U.S.  taxable  income equal to a specified  percentage of a U.S. company's qualified income from domestic manufacturing  activities (as defined). The Company  believes that the majority of its operations meet the definition of qualified domestic manufacturing activities. However, the Company did not derive any  benefit  from the  special  manufacturing  deduction  in 2005,  because the Company's  existing U.S. NOL  carryforwards  fully offset its 2005 U.S.  taxable income.       In June 2005,  the State of Ohio  enacted a new tax law,  which  phases out Ohio's  existing income tax system over the next five years and replaces it with a tax based on gross  receipts.  In the second  quarter of 2005,  as a result of this phase out,  the  Company  reduced  its  deferred  income tax asset  related primarily to its Ohio NOL  carryforwards by $0.6 million.  In the fourth quarter of  2005,  due  primarily  to  updated  income   forecasts  and  revised  timing information on the  recognition of certain  temporary  differences,  the Company increased  its  deferred  income  tax asset  related  primarily  to its Ohio NOL carryforwards by $0.3 million.  The net impact of these adjustments for 2005 was a decrease of $0.3 million. The provision for income taxes in 2005 includes $4.4 million of deferred income taxes resulting from the elimination of the Company's minimum  pension  liability  equity  adjustment  component of accumulated  other comprehensive income related to the Company's U.S. defined benefit pension plan. In accordance  with GAAP,  the Company did not  recognize a deferred  income tax benefit related to a portion of the minimum pension equity adjustment previously recognized,  as the  Company  had also  recognized  a deferred  income tax asset valuation related to its U.S. net operating loss carryforward and other U.S. net deductible  temporary  differences  during a portion of the periods in which the minimum pension equity adjustment had previously been recognized.  In accordance with GAAP, a portion of such valuation  allowance  recognized ($4.4 million) was recognized  through  the  pension  liability  component  of other  comprehensive income.  As discussed,  during 2005 the Company  concluded  recognition  of such deferred income tax asset  valuation  allowance was no longer  required,  and in accordance  with  GAAP  the  reversal  of all of such  valuation  allowance  was recognized  through the provision for income taxes included in the determination of net income,  including the $4.4 million  portion of the  valuation  allowance which was  previously  recognized  through  other  comprehensive  income.  As of December  31,  2005,  the Company was no longer  required to recognize a minimum pension liability related to its U.S. plan, and the Company reversed the minimum pension liability previously recognized in other comprehensive income. After the reversal of such minimum  pension  liability,  which in accordance with GAAP was recognized  on  a  net-of-tax   basis,  the  $4.4  million  amount  remained  in accumulated  other  comprehensive  income  related to the U.S.  minimum  pension liability,  which in  accordance  with GAAP is required to be  recognized in the provision  for  income  taxes  during the  period in which the  minimum  pension liability is no longer required to be recognized.  Note 17 - Employee benefit plans       Variable  compensation  plans.  The  majority  of the  Company's  worldwide employees   participate  in   compensation   programs   providing  for  variable compensation  based primarily on the financial  performance of the Company.  The cost of these plans was  approximately  $18.8 million in 2005,  $12.1 million in 2004 and $0.4 million in 2003.       Defined  contribution  plans.  Approximately 56% of the Company's worldwide employees at December 31, 2005 participate in defined contribution pension plans with employer  contributions  based upon a fixed  percentage  of the  employee's eligible  earnings.  All of the  Company's  U.S.  employees  (62%  of  worldwide employees at December 31, 2005) are also eligible to participate in contributory savings plans with partial matching employer contributions, although the Company suspended making such partial matching  contributions for certain employees from April 1, 2003 through April 3, 2004. The cost of these pension and savings plans approximated  $4.1  million in 2005,  $3.3  million in 2004 and $1.9  million in 2003.       Defined benefit pension plans. The Company maintains  contributory  defined benefit  pension  plans  covering a majority  of its  European  employees  and a noncontributory  defined  benefit  pension plan  covering a minority of its U.S. employees. The Company's funding policy is to annually contribute, at a minimum, amounts satisfying the applicable statutory funding  requirements.  Between 1989 and  1995,  the  U.S.   defined   benefit  pension  plans  were  closed  to  new participants.  Additionally,  in some cases, benefit levels have been frozen. As of December 31, 2003, the U.S. plans were merged into one plan. The U.K. defined benefit  plan  was  closed  to new  participants  in  1996;  however,  employees participating  in the plan  continue  to  accrue  additional  benefits  based on increases in compensation and service.            Information  concerning the Company's defined benefit pension plans,  based on a December 31 measurement date, is set forth in the following tables:                                                                                          Year ended December 31,                                                                                ---------------------------------------                                                                                      2005                  2004                                                                                ------------------    -----------------                                                                                            (In thousands) Change in projected benefit obligations:      Balance at beginning of year                                                 $      262,480        $      223,091   Service cost                                                                          3,728                 3,308   Participants' contributions                                                           1,308                 1,132   Interest cost                                                                        13,656                12,646   Plan amendments                                                                           -                   756   Actuarial loss                                                                       21,941                20,238   Benefits paid                                                                       (10,024)              (10,413)   Change in currency exchange rates                                                   (19,931)               11,722                                                                                ------------------    -----------------         Balance at end of year                                                  $      273,158        $      262,480                                                                                ==================    =================  Change in plan assets:   Fair value at beginning of year                                              $      188,659        $      158,923   Actual return on plan assets                                                         47,951                21,291   Employer contributions                                                                9,136                10,027   Participants' contributions                                                           1,308                 1,132   Benefits paid                                                                       (10,024)              (10,413)   Change in currency exchange rates                                                   (13,788)                7,699                                                                                ------------------    -----------------         Fair value at end of year                                               $      223,242        $      188,659                                                                                ==================    =================  Funded status:   Plan assets under projected benefit obligations                              $      (49,916)       $      (73,821)    Unrecognized:      Actuarial loss                                                                    68,559                91,682      Prior service cost                                                                 2,852                 3,407                                                                                ------------------    -----------------         Total prepaid pension cost                                              $       21,495        $       21,268                                                                                ==================    =================  Accumulated benefit obligation                                                 $      270,120        $      260,273                                                                                ==================    =================  Amounts recognized in balance sheets:   Intangible pension asset                                                     $       -             $        3,407   Noncurrent prepaid pension cost                                                      22,337                10,531   Current pension liability                                                            (5,353)               (5,285)   Noncurrent pension liability                                                        (58,450)              (77,515)   Accumulated other comprehensive loss                                                 62,961                90,130                                                                                ------------------    -----------------                                                                                 $       21,495        $       21,268                                                                                ==================    =================          As of December 31, 2005, the Company's  European  defined  benefit  pension plans have accumulated benefit obligations totaling $190.7 million, which are in excess of fair value of plan assets of $138.5 million.  As of December 31, 2004, all of the Company's  defined  benefit  pension plans have  accumulated  benefit obligations in excess of fair value of plan assets.       The components of the net periodic pension expense are set forth below:                                                                                  Year ended December 31,                                                                -------------------------------------------------------                                                                     2005                2004               2003                                                                ----------------    ----------------   ----------------                                                                                    (In thousands)      Service cost                                                   $        3,728      $        3,308     $        2,858 Interest cost                                                          13,656              12,646             11,087 Expected return on plan assets                                        (14,833)            (13,098)            (9,504) Amortization of unrecognized prior service cost                           556                 489                576 Amortization of net losses                                              4,796               4,357              3,875                                                                ----------------    ----------------   ----------------    Net pension expense                                          $        7,903      $        7,702     $        8,892                                                                ================    ================   ================        The Company used the  following  discount  rate,  long-term  rate of return ("LTRR") and salary rate increase weighted-average  assumptions to arrive at the aforementioned benefit obligations and net periodic expense:                                          Significant assumptions used to calculate projected and accumulated                                                       benefit obligations at December 31,                            -------------------------------------------------------------------------------------------                                                2005                                           2004                            ---------------------------------------------    ------------------------------------------                               Discount                   Salary increase       Discount                      Salary                                 rate           LTRR                              rate          LTRR         increase                            -------------- ------------- ----------------    ------------- -------------- -------------         U.S. plan                       5.50%         10.00%           n/a              5.65%         10.00%          n/a U.K. plan                       4.75%          6.70%          3.25%             5.30%          7.10%         3.25% Savoie plan                     5.25%          3.47%           2.50%            5.30%          5.25%         2.50%                                         Significant assumptions used to calculate net periodic pension expense                                                         for the year ended December 31,                            -------------------------------------------------------------------------------------------                                       2005                            2004                           2003                            ----------------------------    ---------------------------    ----------------------------                               Discount                        Discount                       Discount                                 rate           LTRR             rate          LTRR             rate           LTRR                            -------------- -------------    -------------- ------------    -------------- -------------         U.S. plans                      5.65%         10.00%            6.00%         10.00%           6.25%         8.50% U.K. plan                       5.30%          7.10%            5.50%          7.10%           5.70%         6.70% Savoie plan                     5.30%          5.25%            5.50%          5.25%           5.70%         6.00%        The Company currently  expects to make cash  contributions of approximately $8.5  million,  principally  in the U.K., to its defined  benefit  pension plans during 2006.            The U.S. plan(s) paid benefits of approximately  $5.6 million in 2005, $5.7 million in 2004 and $5.6  million in 2003,  and the U.K.  plan paid  benefits of approximately  $4.3  million in 2005,  $4.7  million in 2004 and $4.3 million in 2003.  Benefits  paid under the Savoie plan were less than $0.1 million for each of 2005, 2004 and 2003. Based upon current projections, the Company believes the plans will be required to pay the following benefits over the next ten years:                                                                             Projected retirement benefits                                                            -----------------------------------------------------------                                                               U.S. Plan             U.K.Plan               Total                                                            ----------------     -----------------    -----------------                                                                                   (In thousands) Year ending December 31,           2006                                                    $     5,872                4,270          $    10,142      2007                                                    $     5,902                4,387          $    10,289      2008                                                    $     5,910                4,508          $    10,418      2009                                                    $     5,902                4,632          $    10,534      2010                                                    $     5,877                4,760          $    10,637      2011 through 2015                                       $    29,397               25,839          $    55,236        The assets of the defined benefit pension plans are invested as follows:                                                                                                December 31,                                                                                ---------------------------------------                                                                                      2005                  2004                                                                                ------------------    ----------------- US plan:       Equity securities                                                                   93.2%                 84.3%    Debt securities                                                                      3.5%                 14.1%    Cash and other                                                                       3.3%                  1.6%                                                                                ------------------    -----------------                                                                                        100.0%                100.0%                                                                                ==================    =================  European plans:    Equity securities                                                                   84.6%                 86.9%    Debt securities                                                                     15.4%                 13.1%                                                                                ------------------    -----------------                                                                                        100.0%                100.0%                                                                                ==================    =================        During the second quarter of 2003, the Company  transferred all of its U.S. plans' assets into the CMRT;  however,  the  Company's  plan assets are invested only in the  portion  of the CMRT that does not hold  TIMET  common  stock.  The CMRT's long-term investment objective is to provide a rate of return exceeding a composite of broad market equity and fixed income indices (including the S&P 500 and certain Russell indices) utilizing both third-party  investment  managers as well as investments  directed by Mr. Simmons.  During the 18-year history of the CMRT through  December 31, 2005, the average annual rate of return earned by the CMRT, as  calculated  based on the average  percentage  change in the CMRT's net asset  value per CMRT unit for each  applicable  year,  has been 14% (with a 36% return for 2005).  Such parties  have in the past,  and may again in the future, periodically  change the  relative  asset mix based upon,  among  other  things, advice they receive from third-party  advisors and their  expectation as to what asset mix will generate the greatest overall return.            During  2003,  the  trustees for the U.K.  plan  selected a new  investment advisor  (effective in 2004) for the U.K. plan and modified its asset allocation goals. The Company's future expected long-term rate of return on plan assets for its  U.K.  plan  is  based  on an  asset  allocation  assumption  of 80%  equity securities  and 20% fixed  income  securities  by the end of 2006 and 75% equity securities  and 25% fixed income  securities by the end of 2007, and all current contributions  to the plan, net of benefits  paid, are invested  wholly in fixed income securities in order to gradually effect the shift.       Postretirement  benefits other than pensions.  The Company provides certain health care and life insurance  benefits on a  cost-sharing  basis to certain of its U.S. retirees and certain of its active U.S. employees upon retirement,  for whom health care  coverage  generally  terminates  once the retiree (or eligible dependent) becomes  Medicare-eligible  or reaches age 65,  effectively  limiting coverage for these  participants to less than ten years based on TIMET's minimum retirement age. The Company also provides certain postretirement health care and life  insurance  benefits on a cost sharing basis to closed groups of certain of its U.S.  retirees,  for whom health care  coverage  generally  reduces once the retiree (or eligible  dependent) becomes  Medicare-eligible,  but whose coverage continues until death. The Company funds such benefits as they are incurred, net of any contributions by the retirees.       The  plan  under  which  these  benefits  are  provided  is  unfunded,  and contributions to the plan during the year equal benefits paid. The components of accumulated  OPEB  obligations  and periodic  OPEB cost,  based on a December 31 measurement date, are set forth in the following tables:                                                                                                December 31,                                                                                ---------------------------------------                                                                                      2005                  2004                                                                                ------------------    -----------------                                                                                            (In thousands) Actuarial present value of accumulated OPEB obligations:      Balance at beginning of year                                                 $        34,441       $        28,584   Service cost                                                                             661                   540   Interest cost                                                                          1,652                 1,780   Actuarial (gain) loss                                                                 (3,614)                6,062   Participant contributions                                                              1,131                 1,266   Benefits paid                                                                         (3,446)               (3,791)                                                                                ------------------    -----------------   Balance at end of year                                                                30,825                34,441 Unrecognized net actuarial loss                                                        (15,027)              (19,621) Unrecognized prior service cost                                                          1,963                 2,427                                                                                ------------------    ----------------- Total accrued OPEB cost                                                                 17,761                17,247 Less current portion                                                                     2,181                 2,777                                                                                ------------------    -----------------    Noncurrent accrued OPEB cost                                                 $        15,580       $        14,470                                                                                ==================    =================                                                                                     Year ended December 31,                                                                      -------------------------------------------------                                                                          2005              2004              2003                                                                      --------------    --------------    -------------                                                                                       (In thousands)      Service cost                                                         $       661       $       540       $       487 Interest cost                                                              1,652             1,780             1,722 Amortization of unrecognized prior service cost                             (464)             (464)             (464) Amortization of net losses                                                   980             1,120               956                                                                      --------------    --------------    -------------    Net OPEB expense                                                   $     2,829       $     2,976       $     2,701                                                                      ==============    ==============    =============          The Company used the  following  weighted-average  discount rate and health care cost  trend  rate  ("HCCTR")  assumptions  to arrive at the  aforementioned benefit obligations and net periodic expense:                                                                     Significant assumptions used to calculate                                                                  accumulated OPEB obligation at December 31,                                                       ----------------------------------------------------------------                                                                  2005                                2004                                                       ----------------------------       -----------------------------     Discount rate                                                    5.50%                              5.65% Beginning HCCTR                                                  8.23%                              9.29% Ultimate HCCTR                                                   4.00%                              4.00% Ultimate year                                                    2010                                2010                                                       Significant assumptions used to calculate net periodic                                                         OPEB expense for the year ended December 31,                                         ------------------------------------------------------------------------------                                                   2005                       2004                       2003                                         -----------------------     -----------------------     ----------------------      Discount rate                                     5.65%                       6.00%                       6.25% Beginning HCCTR                                   9.29%                      10.35%                      11.35% Ultimate HCCTR                                    4.00%                       4.00%                       4.25% Ultimate year                                     2010                        2010                       2010        If the HCCTR were  increased  by one  percentage  point for each year,  the aggregate of the service and interest cost components of OPEB expense would have increased approximately $0.3 million in 2005, and the actuarial present value of accumulated   OPEB  obligations  at  December  31,  2005  would  have  increased approximately $3.2 million.  If the HCCTR were decreased by one percentage point for each year, the aggregate of the service and interest cost components of OPEB expense  would  have  decreased  approximately  $0.3  million  in 2005,  and the actuarial  present value of  accumulated  OPEB  obligations at December 31, 2005 would have decreased approximately $3.5 million.       Based upon  current  projections,  the Company  will be required to pay the following OPEB benefits over the next ten years:                                            Projected            Projected            Projected         Projected net                                      gross payments           retiree              Part D              payments                                                            contributions           subsidy                                      ----------------    ------------------    ----------------    -----------------                                                                      (In thousands) Year ended December 31,                  2006                            $      3,767               (1,394)              (199)         $        2,174       2007                            $      4,001               (1,481)              (410)         $        2,110       2008                            $      4,270               (1,577)              (439)         $        2,254       2009                            $      4,570               (1,693)              (471)         $        2,406       2010                            $      4.821               (1,785)              (501)         $        2,535       2011 through 2015               $     28,983              (10,784)            (3,012)         $       15,187          The Medicare  Prescription Drug,  Improvement and Modernization Act of 2003 (the  "Medicare  Act of 2003")  introduced a  prescription  drug  benefit  under Medicare  (Medicare Part D) as well as a federal  subsidy to sponsors of retiree health care benefit  plans that  provide a benefit that is at least  actuarially equivalent to Medicare Part D. In May 2004, the Financial  Accounting  Standards Board ("FASB")  issued FSP No. 106-2 which  provides  guidance on (i) accounting for  the  effects  of the  Medicare  Act of 2003  once  the  Company  is able to determine actuarial equivalency and (ii) various required disclosures.       During 2005, the Company  determined that the benefits provided by its U.S. health and  welfare  plan are  actuarially  equivalent  to the  Medicare  Part D benefit and therefore the Company is eligible for the federal  subsidy  provided for by the Medicare  2003 Act. The effect of such  subsidy,  which was accounted for  prospectively  from  the  date  actuarial  equivalence  was  determined  in accordance  with FASB Staff  Position No. 106-2,  resulted in a reduction in the Company's  actuarial  present value of its  accumulated  OPEB obligation of $5.4 million at December 31, 2005 related to benefits  attributed to past service and a reduction in net periodic OPEB cost of $0.7 million in 2005 (reflecting a $0.1 million reduction in service cost, a $0.3 million reduction in interest cost and a $0.3 million reduction in amortization of net losses).  Note 18 - Related party transactions       Corporations  that may be deemed to be controlled by or affiliated with Mr. Simmons sometimes engage in (i) 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 (ii)  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.  The Company continuously considers, reviews and evaluates such transactions, and understands that  Contran,  Valhi 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") that the  Company  has  historically  entered  into  with  various  related  parties, employees of one company provide certain  management,  tax planning,  financial, risk management,  environmental,  administrative,  facility or other 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 of such persons,  or the cost of facilities, equipment  or supplies  provided.  These ISAs are  reviewed  and approved by the independent directors of the companies that are parties to the agreements.       In 2004, the Company,  Tremont LLC (a wholly-owned subsidiary of Valhi) and Contran  agreed to enter into a single,  combined ISA covering the  provision of services by Contran to TIMET and the  provision  of services by TIMET to Tremont LLC and NL.  Under the  combined  ISA,  TIMET paid a net amount of $1.4  million during  2005 and $1.2  million  during  2004.  The  Company  has  extended  this agreement  through 2006.  Because Contran employees will in 2006 perform certain executive  and  management  functions  previously  performed by employees of the Company,  the Company  expects to pay a net amount of $3.2 million under the ISA during 2006.       In  2003,  the  Company  had an ISA with  Tremont  LLC to  provide  certain management,  financial,  environmental,  human  resources and other  services to Tremont  LLC,  under  which  Tremont  LLC paid the  Company  approximately  $0.2 million.       During 2003, the Company had an ISA with NL, a majority-owned subsidiary of Valhi,  whereby NL provided  certain  financial and other services to TIMET at a cost to TIMET of  approximately  $15,000.  In 2004, the ISA with NL was combined with the ISA with Contran.       In 2003,  the Company  entered  into an ISA with  Contran  whereby  Contran provided certain business,  financial and other services to TIMET.  During 2003, TIMET paid Contran approximately $0.3 million related to this agreement.       The  Company  previously  extended  market-rate  loans to certain  officers pursuant to a  Board-approved  program to facilitate  the officers'  purchase of Company  stock and BUCS and to pay  applicable  taxes on  shares  of  restricted Company  stock as such  shares  vested.  The  Company  terminated  this  program effective July 30, 2002,  subject to continuing only those loans  outstanding at that time in accordance with their then-current  terms. The loans were generally payable in five annual  installments  beginning  six years from date of loan and bore interest at a rate tied to the Company's borrowing rate, payable quarterly. At December 31, 2005, all officer loans had been repaid to the Company in full.       In  2004,  the  Company  entered  into  an  agreement  with  Waste  Control Specialists LLC ("WCS"),  a wholly owned subsidiary of Valhi, for the removal of certain waste materials from the Company's  Henderson  plant site.  During 2005, TIMET paid $1.3  million to WCS for the  removal  of such  materials,  and TIMET currently  expects  to pay an  additional  $0.7  million  to  WCS  in  2006  for completion  of  this  removal,   which  is  accrued  in  the  Company's  current environmental obligations.       Tall Pines  Insurance  Company  ("Tall  Pines")  (including  a  predecessor company,  Valmont  Insurance  Company) and EWI RE, Inc.  ("EWI")  provide for or broker  insurance  policies  for  Contran and  certain of its  subsidiaries  and affiliates,  including the Company.  Tall Pines is a wholly owned  subsidiary of Valhi,  and EWI is a wholly owned  subsidiary of NL.  Consistent  with insurance industry  practices,  Tall Pines and EWI receive  commissions from the insurance and  reinsurance  underwriters  and/or  assess fees for the  policies  that they provide or broker.  The  Company's  aggregate  premiums for such  policies  were approximately $4.7 million in 2005 and $2.3 million in 2004 and 2003. 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 affiliates,  including the Company, have entered into a loss sharing  agreement under which any uninsured loss is shared by those entities  that 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 justify the risk associated with the potential for any uninsured loss.            TIMET supplies titanium strip to VALTIMET under a long-term  contract.  The LTA was  entered  into in 1997 and  expires  in 2007.  Under the LTA,  TIMET has agreed to provide a certain  percentage of VALTIMET's  titanium  requirements at formula-determined  selling  prices,  subject  to  certain  conditions.  Certain provisions  of this contract have been amended in the past and may be amended in the future to meet  changing  business  conditions.  Sales to VALTIMET  were $30 million in 2005,  $21  million  in 2004 and $9  million  in 2003.  Additionally, VALTIMET converts  TIMET-owned material into welded tube for TIMET on a purchase order  basis.  Payments  by TIMET to VALTIMET  for such  services  totaled  $1.8 million in 2005, $1.7 million in 2004, and $2.1 million in 2003.       Tremont  LLC owns 32% of BMI.  Among other  things,  BMI  provides  utility services  (primarily  water  distribution,  maintenance  of a common  electrical facility and sewage disposal  monitoring) to the Company and other manufacturers within an industrial  complex located in Henderson,  Nevada.  Power transmission and sewer  services are  provided on a cost  reimbursement  basis,  similar to a cooperative, while water delivery is currently provided at the same rates as are charged by BMI to an unrelated  third party.  Amounts paid by the Company to BMI for these utility  services were $1.4 million  during 2005,  $1.3 million during 2004 and $1.2  million  during  2003.  The Company  also paid BMI an  electrical facilities upgrade fee of $0.8 million in 2005, and $1.3 million in each of 2004 and 2003. This fee continues at $0.8 million  annually for 2006 through 2009 and terminates completely after January 2010.       Based on the previous  agreements and  relationships,  receivables from and payables to related  parties  (aggregated in accounts and other  receivables and other current liabilities,  respectively) included in the Company's Consolidated Balance Sheets are summarized in the following table:                                                                                                December 31,                                                                                 --------------------------------------                                                                                       2005                 2004                                                                                 -----------------    -----------------                                                                                            (In thousands) Receivables from related parties:       VALTIMET                                                                     $         7,080      $         2,264    Notes receivable from officers                                                             -                   49                                                                                 -----------------    -----------------                                                                                  $         7,080      $         2,313                                                                                 =================    =================  Payables to related parties:    VALTIMET                                                                     $         1,556      $           863    Kronos                                                                                     7                   15                                                                                 -----------------    -----------------                                                                                  $         1,563      $           878                                                                                 =================    =================     Note 19 - Commitments and contingencies       Long-term  agreements.  The Company has LTAs with certain major  customers, including,  among  others,  Boeing,  Rolls-Royce  plc and its  German  and  U.S. affiliates  ("Rolls-Royce"),  United Technologies  Corporation  ("UTC",  Pratt & Whitney and related companies),  Societe Nationale d'Etude et de Construction de Moteurs  d'Aviation  ("Snecma"),  Wyman-Gordon  (a unit of  Precision  Castparts Corporation  ("PCC")) and VALTIMET.  These  agreements  expire from 2007 through 2012, are subject to certain  conditions,  and generally provide for (i) minimum market  shares of the  customers'  titanium  requirements  or firm annual volume commitments,  (ii)  formula-determined  prices  (although some contain  elements based on market  pricing) and (iii) price  adjustments  for certain raw material and energy cost fluctuations.  Generally, the LTAs require the Company's service and product performance to meet specified criteria and contain a number of other terms and conditions customary in transactions of these types. In certain events of  nonperformance  by the Company or the  customer,  the LTAs may be terminated early.  Although it is possible that some portion of the business would continue on a non-LTA basis, the termination of one or more of the LTAs could result in a material  effect on the Company's  business,  results of  operations,  financial position or liquidity.  The LTAs were designed to limit selling price volatility to  the  customer,  while  providing  TIMET  with a  committed  base  of  volume throughout the aerospace business cycles.       During 2001,  the Company  recorded a charge of $3.0 million  relating to a titanium sponge  supplier's  agreement to renegotiate  certain  components of an agreement entered into in 1997,  including minimum purchase commitments for 1999 through  2001.  The $0.6 million  accrued and unpaid  balance as of December 31, 2004 was paid during 2005.  In September  2002,  the Company  entered into a new agreement  with this supplier,  effective from January 1, 2002 through  December 31, 2007.  This new  agreement  replaced the 1997  agreement.  The new agreement requires minimum annual purchases by the Company of approximately $38 million in 2006 and $34 million in 2007.       Concentration of credit and other risks. Substantially all of the Company's sales and operating income (loss) are derived from operations based in the U.S., the U.K.,  France and Italy. As shown in the below table, the Company  generates over half of its sales revenue from sales to the commercial aerospace sector. As described  previously,  the  Company  has  LTAs  with  certain  major  aerospace customers,  including Boeing,  Rolls-Royce,  UTC, Snecma and Wyman-Gordon.  This concentration  of customers may impact the Company's  overall exposure to credit and other risks, either positively or negatively, in that all of these customers may be  similarly  affected  by the  same  economic  or  other  conditions.  The following table provides  supplemental sales revenue  information  regarding the Company's  dependence on the commercial  aerospace  sector and certain  customer relationships:                                                                                     Year ended December 31,                                                                   --------------------------------------------------                                                                        2005              2004              2003                                                                   ---------------    --------------    -------------                                                                          (Percentage of total sales revenue) Sales revenue to:        Commercial aerospace sector                                             57%               57%              57%                                                                   ===============    =============    ==============    Customers under LTAs                                                    49%               44%              41%                                                                   ===============    =============    ==============    Significant customers under LTAs (1):      Rolls-Royce and other Rolls-Royce suppliers (2)                      12%               15%              15%                                                                   ===============    =============    ==============    Ten largest customers                                                   45%               48%              44%                                                                   ===============    =============    ==============    Significant customers (1):      PCC and related entities                                             13%               13%              13%                                                                   ===============    =============    ==============  - --------------------------------------------------------------------------------------------------------------------   (1)  Greater than 10% of net sales. (2)  Includes  direct  sales to certain of the  PCC-related  entities  under the      terms of the Rolls-Royce LTAs.       The availability of certain of the Company's raw materials (titanium sponge and  titanium  scrap) has  tightened  during  the past  several  quarters,  and, consequently,  the prices for such raw materials have  increased.  To the extent that this trend  continues,  the  Company  could be  limited  in its  ability to produce enough  titanium  products to fully meet customer  demand.  In addition, during 2005, certain of the Company's LTAs limited the Company's ability to pass on all of its increased raw material costs.  However,  the Company's  ability to offset  increased  material costs with higher selling prices should  increase in 2006,  as  many  of  the  Company's  LTAs  have  either  expired  or  have  been renegotiated for 2006 with price adjustments that take into account raw material cost fluctuations.       Operating  leases.  The Company  leases  certain  manufacturing  and office facilities and various  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 leases will be renewed or replaced by other leases in the normal course of business.  Net rent expense was $5.1 million in 2005, $3.9 million in 2004 and $4.0 million in 2003.       At  December  31,  2005,  future  minimum  payments  under   noncancellable operating  leases having an initial or remaining term in excess of one year were as follows:                                                                                                          Amount                                                                                                 --------------------                                                                                                   (In thousands) Year ending December 31,     2006                                                                                            $        3,103   2007                                                                                                     3,363   2008                                                                                                     2,640   2009                                                                                                     2,260   2010                                                                                                     2,219   2011 and thereafter                                                                                     18,512                                                                                                 --------------------                                                                                                    $       32,097                                                                                                 ====================          Environmental  matters.  TIMET and BMI entered  into an  agreement  in 1999 which  provided  that upon  payment by BMI of the cost to design,  purchase  and install the  technology  and  equipment  necessary  to allow the Company to stop discharging  liquid and solid  effluents and  co-products  into  settling  ponds located on certain lands owned by the Company adjacent to its Henderson,  Nevada plant site (the "TIMET Pond Property"),  the Company would convey the TIMET Pond Property to BMI, at no additional  cost. In November  2004,  the Company and BMI entered into several agreements that superceded the 1999 agreement.  Under these new agreements,  the Company conveyed the TIMET Pond Property to BMI in exchange for (i) $12 million  cash,  (ii) BMI's  assumption  of the liability for certain environmental issues associated with the TIMET Pond Property,  including certain possible  groundwater  issues for which the Company  currently  has $0.6 million accrued,  and (iii) an additional $1.2 million cash payment received from BMI in June 2005.       The  Company is also  continuing  assessment  work with  respect to its own active plant site in Henderson,  Nevada.  The Company currently has $2.5 million accrued  based on the  undiscounted  cost  estimates of the  probable  costs for remediation  of these sites,  which  includes an increase in the accrual of $0.5 million  during 2005  related to  specific  future  remediation  costs which the Company now considers probable. The Company expects these accrued expenses to be paid over a period of up to thirty years.       At December 31, 2005, the Company had accrued an aggregate of approximately $3.2 million for  environmental  matters,  including those discussed  above. The upper end of the range of reasonably  possible costs to remediate  these matters is  approximately  $5.4  million.  The Company  records  liabilities  related to environmental  remediation  obligations when estimated future costs are probable and  reasonably  estimable.  Such  accruals are adjusted as further  information becomes  available  or  circumstances  change.  Estimated  future  costs are not discounted to their present  value.  It is not possible to estimate the range of costs  for  certain  sites.  The  imposition  of  more  stringent  standards  or requirements  under  environmental  laws or  regulations,  the results of future testing and analysis undertaken by the Company at its operating facilities, or a determination  that the Company is  potentially  responsible  for the release of hazardous  substances at other sites, could result in costs in excess of amounts currently  estimated to be required for such matters.  No assurance can be given that  actual  costs  will not exceed  accrued  amounts or that costs will not be incurred  with  respect to sites as to which no problem  is  currently  known or where no estimate can presently be made. Further, there can be no assurance that additional environmental matters will not arise in the future.       Legal proceedings.  At December 31, 2005, the Company had accrued less than $0.1  million  for  expected  legal   settlement   costs.  The  Company  records liabilities  related to legal  proceedings when estimated costs are probable and reasonably estimable.  Such accruals are adjusted as further information becomes available or circumstances change.  Estimated future costs are not discounted to their  present  value.  It is not  possible to  estimate  the range of costs for certain  matters.  No  assurance  can be given that actual costs will not exceed accrued amounts or that costs will not be incurred with respect to matters as to which no problem is currently  known or where no estimate can presently be made. Further,  there can be no assurance that additional  legal  proceedings will not arise in the future.       Other. The Company has entered into letters of credit to collateralize  (i) potential workers'  compensation claims in Ohio and Nevada and (ii) future usage of electricity in Nevada.  As of December 31, 2005, the outstanding  amounts for such letters of credit,  which reduce the Company' excess availability under its U.S. credit agreement, were $2.3 million and $2.1 million, respectively.       TIMET is the  primary  obligor on two $1.5  million  workers'  compensation bonds  issued  on  behalf  of a former  subsidiary,  Freedom  Forge  Corporation ("Freedom Forge"),  which TIMET sold in 1989. Freedom Forge filed for Chapter 11 bankruptcy  protection  on  July  13,  2001,  and  discontinued  payment  on the underlying  workers'  compensation  claims in November 2001.  During 2002, TIMET received notices that the issuers of the bonds were required to make payments on the first  bond with  respect to  certain  of these  claims and were  requesting reimbursement  from  TIMET.  As of  December  31,  2005,  the  Company  has made aggregate payments under the two bonds of $1.5 million, and $0.2 million remains accrued for future  payments.  TIMET may revise its  estimated  liability  under these bonds in the future as additional facts become known or claims develop.        The Company is involved in various employment, environmental,  contractual, product liability,  general liability and other claims,  disputes and litigation incidental  to  its  business   including  those  discussed  above.  In  several instances,  the Company believes it has insurance coverage to eliminate any risk of loss  (other  than  standard  deductibles,  which  generally  are less tha $1 million).  The Company  currently  believes  that the outcome of these  matters, individually  and in the aggregate,  will not have a material  adverse effect on the  Company's  financial  position,  liquidity or overall  trends in results of operations. However, all such matters are subject to inherent uncertainties, and were an unfavorable outcome to occur with respect to several of these matters in a given period,  it is possible that it could have a material  adverse impact on the results of  operations  or cash flows in that  particular  period.  In cases where these employment,  environmental,  contractual, product liability, general liability  and other clams,  disputes and  litigation  involve  matters that the Company has concluded the risk of loss is not probable, but is more than remote, the  Company  believes  the range of loss,  to the extent the Company is able to reasonably  estimate  a range of loss,  would be  limited at the high end to the Company's standard insurance deductibles.  Note 20 - Earnings per share       Basic earnings (loss) per share is based on the weighted  average number of unrestricted  common shares  outstanding  during each period.  Diluted  earnings (loss) per share  attributable  to common  stockholders  reflects  the  dilutive effect of common stock options,  restricted stock and the assumed  conversion of the BUCS and the Series A Preferred Stock, if applicable.  A  reconciliation  of the  numerator  and  denominator  used in the  calculation  of basic and diluted earnings (loss) per share is presented in the following table:                                                                                 Year ended December 31,                                                                -----------------------------------------------------                                                                                       2004                2003                                                                    2005            (restated)           (restated)                                                                --------------     --------------    ----------------                                                                                   (In thousands) Numerator:   Net income (loss) attributable to          common stockholders                                       $    143,701       $     43,300      $    (24,443)   Interest expense on BUCS (net of tax)                                 310                 --                 -   Dividends on Series A Preferred Stock                              12,244              4,398                 -                                                                --------------     --------------    ----------------    Diluted net income (loss) attributable      to common stockholders                                    $    156,255       $     47,698      $    (24,443)                                                                ==============     ==============    ================  Denominator:   Average common shares outstanding                                  65,391             63,525            63,374   Average dilutive stock options and      restricted stock                                                   365                266                 -   BUCS                                                                  310                  -                 -   Series A Preferred Stock                                           24,790              8,711                 -                                                                --------------     --------------    ----------------  Diluted shares                                                       90,856             72,502            63,374                                                                ==============     ==============    ================          For the years ended  December 31, 2004 and 2003, the conversion of the BUCS was  antidilutive.  Stock  options to purchase  244,000  shares of common  stock during 2005,  1,252,400 shares during 2004 and 2,193,000 shares during 2003 were excluded from the  calculation of diluted  earnings (loss) per share because the exercise price for such options was greater than the average market price of the common shares and such options were therefore antidilutive during the respective period.  An additional  183,740  incremental stock options and restricted shares were excluded from the 2003  calculation  because they were  antidilutive due to the loss for that year.  Note 21 - Business segment information       The  Company's  production  facilities  are  located in the United  States, United  Kingdom,  France and Italy,  and its  products are sold  throughout  the world.  The Company's Chief  Executive  Officer is the Company's chief operating decision  maker  ("CODM") as that term is defined in SFAS No.  131,  Disclosures about  Segments of an  Enterprise  and Related  Information.  The CODM  receives financial  information  about  TIMET  from which he makes  decisions  concerning resource  utilization  and performance  analysis only on a global,  consolidated basis. Based upon this level of  decision-making,  the Company currently has one segment, its worldwide "Titanium melted and mill products" segment. Sales, gross margin,   operating  income  (loss),  inventory  and  receivables  are  the  key management  measures used to evaluate segment  performance.  The following table provides  segment  information   supplemental  to  the  Company's   Consolidated Financial Statements:                                                                                Year ended December 31,                                                          -----------------------------------------------------------                                                                2005                  2004                2003                                                          -----------------     -----------------    ----------------                                                                 (In thousands, except product shipment data) Titanium melted and mill products:         Melted product net sales                             $     112,252         $      72,092        $      57,409     Mill product net sales                                     528,555               364,248              279,563     Other product sales                                        108,970                65,488               55,132     Other (1)                                                        -                     -               (6,800)                                                          -----------------     -----------------    ----------------                                                          $     749,777         $     501,828        $     385,304                                                          =================     =================    ================  Melted product shipments:     Volume (metric tons)                                         5,655                 5,360                4,725     Average price ($ per kilogram)                       $       19.85         $       13.45        $       12.15  Mill product shipments:     Volume (metric tons)                                        12,660                11,365                8,875     Average price ($ per kilogram)                       $       41.75         $       32.05        $       31.50  Geographic segments:    Net sales - point of origin:      United States                                       $     512,313         $     325,857        $     277,947      United Kingdom                                            201,936               154,535              111,313      France                                                     91,610                57,942               44,877      Other Europe                                               46,525                29,744               30,566      Other (1)                                                       -                     -               (6,800)      Eliminations                                             (102,607)              (66,250)             (72,599)                                                          -----------------     -----------------    ---------------                                                          $     749,777         $     501,828        $     385,304                                                          =================     =================    ===============     Net sales - point of destination:      United States                                       $     422,143         $     277,317        $     217,653      United Kingdom                                            136,638               100,081               76,086      France                                                     87,811                55,959               43,410      Other locations                                           103,185                68,471               54,955      Other (1)                                                       -                     -               (6,800)                                                          -----------------     -----------------    ---------------                                                          $     749,777         $     501,828        $     385,304                                                          =================     =================    ===============     Long-lived assets - property and equipment, net:      United States                                       $     193,623         $     165,661        $     170,400      United Kingdom                                             53,576                56,255               62,287      Other Europe                                                5,791                 6,257                6,495                                                          -----------------     -----------------    ---------------                                                          $     252,990         $     228,173        $     239,182                                                          =================     =================    ===============  - -------------------------------------------------------------------------------------------------------------------  (1)  Represents  the effect of a $6.8  million  reduction  to sales  during 2003      related to termination of a purchase and sale agreement with  Wyman-Gordon.      See further discussion in Note 9.       Export sales from U.S.-based  operations  approximated  $54 million in 2005 and $16 million in each of 2004 and 2003.       Note 22 - Quarterly results of operations (unaudited)                                                                               For the quarter ended                                                       ----------------------------------------------------------------                                                         March 31          June 30         Sept. 30         Dec. 31                                                       -------------    --------------   -------------    -------------                                                                    (In millions, except per share data) Year ended December 31, 2005:         Net sales                                           $    155.2       $    183.7       $    190.0       $    220.8   Gross margin                                        $     29.0       $     47.9       $     55.7       $     66.8   Operating income                                    $     19.4       $     36.9       $     51.7       $     63.0   Net income attributable to      common stockholders                              $     38.1       $     33.6       $     33.4       $     38.6     Basic earnings per share attributable to     common stockholders                               $     0.60       $     0.53       $     0.51       $     0.56    Diluted earnings per share attributable to     common stockholders                               $     0.46       $     0.41       $     0.40       $     0.45  Year ended December 31, 2004 (restated):    Net sales                                           $    120.5       $    124.1       $    120.2       $    137.0   Gross margin                                        $     12.8       $     17.0       $     14.7       $     19.2   Operating (loss) income                             $      3.3       $      8.5       $     13.5       $     17.8   Net (loss) income attributable to      common stockholders                              $     (1.2)      $      3.4       $     25.2       $     15.9     Basic (loss) earnings per share attributable to     common stockholders                               $    (0.02)      $     0.05       $     0.40       $     0.25    Diluted (loss) earnings per share attributable to     common stockholders                               $    (0.02)      $     0.05        $     0.36      $     0.21  - -------------------------------------------------------------------------------------------------------------------  Note 1 -  The sum of  quarterly  amounts may not agree to the full year  results           due to rounding. Note 2 -  The quarter  ended  December 31, 2004 has been restated for the change           in accounting from LIFO to specific identification.  Note 23 - Subsequent event       In  January  2006,  the  Company   announced  its  plans  to  relocate  and consolidate the corporate functions  currently performed in Denver,  Colorado to Dallas,  Texas  or its  operating  facility  in  Morgantown,  Pennsylvania.  The Company's  estimate  of  the  cost  of  this  relocation,  consisting  of  lease termination and employee severance costs, is approximately $3.4 million and will be recognized during 2006.                                REPORT OF INDEPENDENT REGISTERED PUBLIC                  ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE    To the Board of Directors of Titanium Metals Corporation:       Our  audits  of the  consolidated  financial  statements,  of  management's assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report  dated March 24, 2006  appearing  in this Annual  Report on Form 10-K also included an audit of the financial  statement  schedule listed in the index on page F of this Form 10-K. In our opinion,  this financial  statement schedule presents  fairly,  in all material  respects,  the information set forth therein when read in conjunction with the related consolidated financial statements.    /s/ PricewaterhouseCoopers LLP   Denver, Colorado March 24, 2006                                   TITANIUM METALS CORPORATION                   SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS                                   (In thousands)                                                                     Additions                                                         -----------------------------                                            Balance        Charged                                              at              to            Charged                          Balance                                           beginning      costs and        to other                          at end             Description                    of year        expenses        accounts        Deductions        of year - -------------------------------------    ------------   -------------    ------------    -------------    ------------  Year ended December 31, 2005:           Allowance for doubtful accounts       $    1,683     $       923      $    (61) (1)   $     (562) (2)  $    1,983                                          ============   =============    ============    =============    ============     Allowance for excess and      slow moving inventories             $   16,989     $    (2,770)     $ (1,006) (1)   $   -            $   13,213                                          ============   =============    ============    =============    ============  Year ended December 31, 2004:     Allowance for doubtful accounts       $    1,906     $       250      $     65(1)     $     (538)(2)   $    1,683                                          ============   =============    ============    =============    ============     Allowance for excess and      slow moving inventories             $   16,723     $      (456)     $    722(1)     $   -            $   16,989                                          ============   =============    ============    =============    ============  Year ended December 31, 2003:     Allowance for doubtful accounts       $    2,386     $       623      $    144 (1)    $   (1,247) (2)  $    1,906                                          ============   =============    ============    =============    ============     Allowance for excess and      slow moving inventories             $   15,090     $       508      $  1,125 (1)    $   -            $   16,723                                          ============   =============    ============    =============    ============     Reserve for restructuring             $       80     $     -          $  -            $      (80) (3)  $    -                                          ============   =============    ============    =============    ============ - ----------------------------------------------------------------------------------------------------------------------   (1)  Amounts represent foreign currency translation  adjustments for the related      account. (2)  Amounts written off and reductions in reserve, less recoveries. (3)  Amount represents cash payments for restructuring severance obligations and      credits to reduce the initial restructuring charge.       EX-21.1 2 timetexh211.txt                                                                    EXHIBIT 21.1                           SUBSIDIARIES OF THE REGISTRANT                                                                       Jurisdiction of                 % of Voting                                                                   Incorporation or              Securities held at                    Name of Corporation                              Organization                December 31, 2005 - -----------------------------------------------------------   --------------------------     -------------------------  Consolidated subsidiaries:       Ti-Pro, LLC                                                   Nevada                                   90%    TIMET Colorado Corporation                                    Colorado                                100%    TIMET Millbury Corporation                                    Oregon                                  100%      TIMET Castings Corporation                                  Delaware                                100%    TIMET Finance Management Company                              Delaware                                100%    TIMET UK Limited                                              United Kingdom                          100%      TIMET UK (EXPORT) Limited                                   United Kingdom                          100%      TIMET Europe Limited                                        United Kingdom                          100%         TIMET Savoie, SA                                         France                                   70%         TIMET Germany, GmbH                                      Germany                                 100%      Titanium MC Limited                                         United Kingdom                          100%    Titanium Hearth Technologies, Inc.                            Delaware                                100%    TMCA International, Inc.                                      Delaware                                100%      Loterios SpA                                                Italy                                   100%    TIMET Real Estate Corporation                                 Colorado                                100%    TIMET ASIA, INC.                                              Delaware                                100%  Unconsolidated subsidiary:    TIMET Capital Trust I                                         Delaware                                100%  Unconsolidated affiliates:    MZI, LLC                                                      Oregon                                   33%    VALTIMET SAS                                                  France                                   44%    XI'AN BAOTIMET VALINOX      TUBES CO. LTD.                                              China                                    11%     EX-23.1 3 timetexh231.txt                                                                     EXHIBIT 23.1             CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRM   We  hereby  consent  to the  incorporation  by  reference  in  the  Registration Statements on Form S-3 (No.  333-18829),  Form S-8 (No.  333-20403) and Form S-8 (No.  333-61392) of Titanium  Metals  Corporation of our reports dated March 24, 2006  relating  to  the  financial  statements,  financial  statement  schedule, management's  assessment of the effectiveness of internal control over financial reporting and the  effectiveness of internal  control over financial  reporting, which appear in this Form 10-K.    /s/ PricewaterhouseCoopers LLP - ------------------------------------ Denver, Colorado March 24, 2006     EX-31.1 4 timetexh311.txt                                                                    Exhibit 31.1                               CERTIFICATION PURSUANT TO                   SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002   I, Steven L. Watson,  Vice Chairman of the Board and Chief Executive  Officer of Titanium Metals Corporation, certify that:  1.   I have  reviewed  this  December  31,  2005  annual  report on Form 10-K of      Titanium Metals Corporation;  2.   Based on my knowledge, this report does not contain any untrue statement of      a material  fact or omit to state a  material  fact  necessary  to make the      statements made, in light of the circumstances  under which such statements      were made,  not  misleading  with  respect  to the  period  covered by this      report;  3.   Based on my  knowledge,  the  financial  statements,  and  other  financial      information  included  in  this  report,  fairly  present  in all  material      respects the financial  condition,  results of operations and cash flows of      the registrant as of, and for, the periods presented in this annual report;  4.   The  registrant's  other  certifying  officer  and  I are  responsible  for      establishing and maintaining disclosure controls and procedures (as defined      in Exchange Act Rules  13a-15(e) and 15d-15(e))  and internal  control over      financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and      15d-15(f)) for the registrant and we have:       a.   designed  such  disclosure  controls  and  procedures,  or caused such           disclosure   controls  and   procedures  to  be  designed   under  our           supervision,  to ensure  that  material  information  relating  to the           registrant,  including its consolidated subsidiaries, is made known to           us by others within those entities,  particularly during the period in           which this report is being prepared; and       b.   designed such internal  control over  financial  reporting,  or caused           such internal  control over  financial  reporting to be designed under           our  supervision,   to  provide  reasonable  assurance  regarding  the           reliability  of financial  reporting and the  preparation of financial           statements for external purposes in accordance with generally accepted           accounting principles; and       c.   evaluated the  effectiveness of the registrant's  disclosure  controls           and procedures and presented in this report our conclusions  about the           effectiveness of the disclosure controls and procedures, as of the end           of the period covered by this report based on such evaluation; and       d.   disclosed  in this  report  any  change in the  registrant's  internal           control over financial reporting that occurred during the registrant's           most recent fiscal quarter (the registrant's  fourth fiscal quarter in           case  of  an  annual  report)  that  has  materially  affected,  or is           reasonably  likely to materially  affect,  the  registrant's  internal           control over financial reporting;  5.   The registrant's  other certifying  officer and I have disclosed,  based on      our most recent evaluation of internal control over financial reporting, to      the registrant's  auditors and the audit committee of registrant's board of      directors (or persons performing the equivalent functions):       a.   all significant  deficiencies and material weaknesses in the design or           operation  of internal  control  over  financial  reporting  which are           reasonably  likely to  adversely  affect the  registrant's  ability to           record, process, summarize and report financial information; and       b.   any fraud, whether or not material,  that involves management or other           employees who have a  significant  role in the  registrant's  internal           control over financial reporting.     Date:  March 24, 2006   /s/ Steven L. Watson - ----------------------------------- Steven L. Watson Vice Chairman of the Board and    Chief Executive Officer     EX-31.2 5 timetexh312.txt                                                                     Exhibit 31.2                               CERTIFICATION PURSUANT TO                   SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002   I, Bruce P.  Inglis,  Vice  President  - Finance  and  Corporate  Controller  of Titanium Metals Corporation, certify that:  1.   I have  reviewed  this  December  31,  2005  annual  report on Form 10-K of      Titanium Metals Corporation;  2.   Based on my knowledge, this report does not contain any untrue statement of      a material  fact or omit to state a  material  fact  necessary  to make the      statements made, in light of the circumstances  under which such statements      were made,  not  misleading  with  respect  to the  period  covered by this      report;  3.   Based on my  knowledge,  the  financial  statements,  and  other  financial      information  included  in  this  report,  fairly  present  in all  material      respects the financial  condition,  results of operations and cash flows of      the registrant as of, and for, the periods presented in this annual report;  4.   The  registrant's  other  certifying  officer  and  I are  responsible  for      establishing and maintaining disclosure controls and procedures (as defined      in Exchange Act Rules  13a-15(e) and 15d-15(e))  and internal  control over      financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and      15d-15(f)) for the registrant and we have:       a.   designed  such  disclosure  controls  and  procedures,  or caused such           disclosure   controls  and   procedures  to  be  designed   under  our           supervision,  to ensure  that  material  information  relating  to the           registrant,  including its consolidated subsidiaries, is made known to           us by others within those entities,  particularly during the period in           which this report is being prepared; and       b.   designed such internal  control over  financial  reporting,  or caused           such internal  control over  financial  reporting to be designed under           our  supervision,   to  provide  reasonable  assurance  regarding  the           reliability  of financial  reporting and the  preparation of financial           statements for external purposes in accordance with generally accepted           accounting principles; and       c.   evaluated the  effectiveness of the registrant's  disclosure  controls           and procedures and presented in this report our conclusions  about the           effectiveness of the disclosure controls and procedures, as of the end           of the period covered by this report based on such evaluation; and       d.   disclosed  in this  report  any  change in the  registrant's  internal           control over financial reporting that occurred during the registrant's           most recent fiscal quarter (the registrant's  fourth fiscal quarter in           case  of  an  annual  report)  that  has  materially  affected,  or is           reasonably  likely to materially  affect,  the  registrant's  internal           control over financial reporting; and  5.   The registrant's  other certifying  officer and I have disclosed,  based on      our most recent evaluation of internal control over financial reporting, to      the registrant's  auditors and the audit committee of registrant's board of      directors (or persons performing the equivalent functions):       a.   all significant  deficiencies and material weaknesses in the design or           operation  of internal  control  over  financial  reporting  which are           reasonably  likely to  adversely  affect the  registrant's  ability to           record, process, summarize and report financial information; and       b.   any fraud, whether or not material,  that involves management or other           employees who have a  significant  role in the  registrant's  internal           control over financial reporting.    Date:  March 24, 2006   /s/ Bruce P. Inglis - ------------------------------------------- Bruce P. Inglis Vice President - Finance and Corporate Controller        EX-32.1 6 timetexh321.txt                                                                     EXHIBIT 32.1                              CERTIFICATION PURSUANT TO                   SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002   In  connection  with the  Annual  Report of  Titanium  Metals  Corporation  (the "Company")  on Form 10-K for the period  ending  December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), we, Steven L. Watson,  Vice Chairman of the Board and Chief Executive Officer of the  Company,  and Bruce P.  Inglis,  Vice  President  - Finance  and  Corporate Controller of the Company,  certify,  pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:       1. the Annual Report fully complies with the  requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and       2. the information  contained in the Annual Report fairly presents,  in all material  respects,  the  financial  condition  and result of  operations of the Company     March 24, 2006   /s/ Steven L. Watson - ----------------------------------- Steven L. Watson Vice Chairman of the Board and    Chief Executive Officer  /s/ Bruce P. Inglis - ----------------------------------- Bruce P. Inglis Vice President - Finance and Corporate    Controller     Note: The certification  the registrant  furnishes in this exhibit is not deemed "filed" for purposes of Section 18 of the  Securities  Exchange Act of 1934,  as amended,  or otherwise subject to the liabilities of that Section.  Registration Statements or other documents filed with the Securities and Exchange  Commission shall not incorporate this exhibit by reference,  except as otherwise  expressly stated in such filing.     -----END PRIVACY-ENHANCED MESSAGE-----