• over $150 million of estimated savings from the reduction of high-cost manufacturing capacity by over 25 million units;

• between $200 million to $300 million of estimated savings related to our Asian sourcing strategy of increasing our procurement of tires, raw materials, capital equipment and indirects from Asia; and

• from $200 million to $250 million of estimated savings from reductions in selling, administrative and general expenses related to initiatives including benefit plan changes, back-office and warehouse consolidations and headcount reductions.

In addition, as described in our 2006 Form 10-K, as part of our new master labor agreement with the USW, we entered into a memorandum of understanding with the USW regarding the establishment of an independent Voluntary Employees' Beneficiary Association ("VEBA") intended to provide healthcare benefits for current and future USW retirees. While we continue to work with the USW on the process of establishing the VEBA, the initial steps have taken longer than originally expected. While this reduces much of the earnings impact we anticipated for 2007, it does not change our view of the benefits in 2008 and beyond. We currently expect to fund the VEBA entirely in cash. The savings we expect to achieve from the VEBA are included in our anticipated continuous improvement savings.
On February 28, 2007, we announced various changes to our U.S.-based retail and salaried employee pension and retiree benefit plans. The changes will be phased in over a two-year period, with most benefit plan changes effective in 2008 and the most significant pension plan changes in 2009. As a result of the changes, we expect after-tax savings of $80 million to $90 million in 2007, $100 million to $110 million in 2008, and $80 million to $90 million in 2009 and beyond. The ongoing savings are included in our targeted savings from reductions in selling, administrative and general expenses. As described above, we recorded a curtailment charge of $64 million related to these actions in the first quarter of 2007.
We made significant progress on our Capital Structure Improvement Plan in the first quarter of 2007 when we entered into an agreement to sell substantially all of the business activities and operations of our Engineered Products business to EPD Inc., a company controlled by Carlyle Partners IV, L.P., an affiliate of the Carlyle Group. The purchase price is approximately $1.5 billion in cash, subject to certain closing adjustments. The closing of the transaction is subject to the receipt of antitrust and other governmental approvals and other customary closing conditions. In addition, the closing of the transaction is subject to EPD Inc.'s completion of a labor agreement with the USW. Also, as described more fully under "Credit Sources," on April 20, 2007, we completed a refinancing of three of our primary credit facilities, which extended maturities, reduced applicable interest rates and provides us with a more flexible covenant package. As a result of the refinancing, we expect to achieve annualized interest expense savings of between $15 million to $20 million. We continue to review other actions to improve our capital structure, including the issuance of additional equity.
In order to support our new product pipeline and strategy of focusing on core businesses where we can achieve profitable growth, we intend to increase our production capacity of high-value-added tires by 40% over the next five years. Concurrently, we plan to make investments in our existing facilities that will increase our production capacity in low-cost countries by one-third to support growth in emerging markets. These investments are part of our strategy to have approximately one-half of our manufacturing capacity in low-cost locations within five years.
Finally, we have made some updates to our 2007 industry volume estimates for North America and Europe. Our estimates are as follows: In North America, we estimate consumer OE volume will be down approximately 3% and commercial OE volume will be down as much as 20% reflecting a spike in demand in 2006 in advance of the effective date of regulations regarding new commercial vehicle emission standards. North American consumer replacement volume is expected to be up approximately 1% to 2%, while volume for commercial replacement is expected to be down 2%. In Europe, consumer OE volume is expected to be flat to down 1% and commercial OE volume is expected to be up 7% to 8%. We expect consumer replacement volume to be down 1% to 2% and commercial replacement volume to be up 1.5% to 2.5%.
RESULTS OF OPERATIONS CONSOLIDATED
Net sales in the first quarter of 2007 were $4,499 million, increasing $37 million or 1% from $4,462 million in the 2006 first quarter. We recorded a loss from continuing operations of $110 million, or $0.61 per share in the 2007 first quarter compared to income from continuing operations of $46 million, or $0.23 per share, in the first quarter of 2006. Net loss of $174 million, or $0.96 per share, was recorded in the first quarter of 2007, compared to net income of $74 million, or $0.37 per share in 2006.
Net sales in the first quarter of 2007 were favorably impacted by price and product mix of approximately $223 million, mainly in North American Tire and European Union Tire, and approximately $127 million in foreign currency translation. These were offset by decreased volume of approximately $302 million, primarily in North American Tire and a decrease in other tire related business' sales of approximately $13 million.

Worldwide tire unit sales in the first quarter of 2007 were 49.2 million units, a decrease of 4.8 million units, or 8.9% compared to the 2006 period. The change was driven by a decrease of 3.8 million units, or 10.2%, in replacement units, primarily in North American Tire's consumer units due to strategic share reduction in the lower value segment following our decision to exit the wholesale private label business, and continued effects from the strike. OE units decreased 1.0 million units or 5.9%, driven by a decrease in North American Tire consumer units, partially offset by an increase in European Union's and Latin American's consumer units.
Cost of goods sold ("CGS") in the first quarter of 2007 was $3,741 million, an increase of $133 million, or 4% compared to $3,608 million in the first quarter 2006, while increasing as a percentage of sales to 83.2% from 80.9% in the 2006 period. CGS in the first quarter of 2007 increased due to higher raw material costs of approximately $117 million, unfavorable foreign currency translation of approximately $99 million, primarily in Europe, and higher conversion costs of approximately $42 million. Also increasing CGS was a curtailment charge of approximately $27 million related to the benefit plan changes announced in the first quarter, approximately $59 million of product mix-related costs and approximately $17 million of accelerated depreciation primarily related to the closure of the Tyler, Texas and Valleyfield, Quebec facilities in the North American Tire Segment. These were partially offset by decreased volume of approximately $264 million, largely in North American Tire. CGS also benefited from savings from rationalization plans of approximately $9 million. Included in 2006 was a pension plan curtailment gain of approximately $15 million and approximately $30 million related to favorable settlements with certain raw material suppliers.
Selling, administrative and general expense ("SAG") was $663 million in the first quarter of 2007, compared to $615 million in 2006, an increase of $48 million or 8%. The increase was driven by approximately $37 million related to a curtailment charge for the benefit plan changes announced in the first quarter, and foreign currency translation of approximately $17 million. Favorably impacting SAG was lower wage and benefits expenses of approximately $6 million and approximately $2 million in savings from rationalization programs. SAG as a percentage of sales was 14.7% in the first quarter 2007, compared to 13.8% in the 2006 period.
Other income, net was $20 million of income in the 2007 first quarter, a decrease of $7 million compared to $27 million of income in the 2006 first quarter. The decrease was primarily related to $15 million of income in the first quarter of 2006 resulting from a favorable settlement of a legal matter in Latin American Tire and a charge of $7 million in 2007 related to an insurance deductible for a fire in our Thailand facility. These were partially offset by higher interest income in 2007 of $10 million on higher cash deposits. In 2007, we expect an additional charge of approximately $10 million, net of insurance recoveries, related to the Thailand fire. It is also expected that Asia Pacific's operating income will be negatively affected by approximately $6 million due to losses in volume.
For the first quarter of 2007, we recorded tax expense of $63 million on a loss from continuing operations before income taxes, and minority interest in net income of subsidiaries of $25 million. The difference between our effective tax rate and the U.S. statutory rate was primarily attributable to continuing to maintain a full valuation allowance against our net Federal and state deferred tax assets. For the first quarter of 2006, we recorded tax expense of $68 million on income from continuing operations before income taxes, and minority interest in net income of subsidiaries of $126 million.
Our losses in certain foreign locations in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against our net deferred tax assets in these foreign locations. However, if our income projections for future periods are realized, it is reasonably possible that earnings in these locations could provide sufficient positive evidence to require release of all, or a portion, of these valuation allowances as early as the second half of 2007 resulting in one-time tax benefits of up to $60 million ($50 million, net of minority interests in net income of subsidiaries).
Rationalization Activity
In the first quarter of 2007, we initiated plans to reduce manufacturing headcount and to reduce selling, administrative and general expense through headcount reductions.
During 2007, $15 million of net charges were recorded. New charges of $17 million represent $5 million for plans initiated in 2007 and $12 million for plans initiated in 2006. The $5 million of charges for 2007 plans related to associate severance costs and the $12 million of charges for plans initiated in 2006 include $4 million of associate severance costs and $8 million for other exit costs. Approximately 140 associates will be released under programs initiated in 2007, most of whom will be released within the next 12 months.

In the first quarter of 2007, $14 million was incurred primarily for associate severance payments and $14 million primarily for non-cancelable lease costs and other exit costs.
Additional rationalization charges of $2 million related to the rationalization plans initiated in the first quarter of 2007 have not yet been recorded and are expected to be incurred and recorded during the next twelve months.
Upon completion of the 2007 plans, we estimate that annual operating costs will be reduced by approximately $11 million (approximately $9 million SAG and approximately $2 million CGS).
For further information, refer to the Note 2, Costs Associated with Rationalization Programs.
Discontinued Operations
Discontinued operations had a net loss of $64 million, or $0.35 per share, in 2007 compared to net income $28 million, or $0.14 per share in 2006. The net loss in 2007 includes a curtailment charge of $72 million.
SEGMENT INFORMATION
Segment information reflects our strategic business units ("SBUs"), which are organized to meet customer requirements and global competition. The Tire businesses are segmented on a regional basis.
Results of operations are measured based on net sales to unaffiliated customers and segment operating income. Segment operating income is computed as follows: Net Sales less CGS (excluding certain accelerated depreciation charges and asset impairment charges) and SAG (including certain allocated corporate administrative expenses).
Total segment operating income was $226 million in the first quarter of 2007, decreasing from $282 million in the first quarter of 2006. Total segment operating margin (total segment operating income divided by segment sales) in the first quarter of 2007 was 5.0%, compared to 6.3% in the first quarter of 2006.
Management believes that total segment operating income is useful because it represents the aggregate value of income created by our SBUs and excludes items not directly related to the SBUs for performance evaluation purposes. Total segment operating income is the sum of the individual SBUs' segment operating income. Refer to the Note 9, Business Segments, for further information and for a reconciliation of total segment operating income to Income from Continuing Operations before Income Taxes.

North American Tire

                                              Three Months Ended March 31,
                                                                         Percentage
          (In millions)                2007        2006       Change       Change
          Tire Units                   19.3         23.7       (4.4 )        (18.6 )%
          Net Sales                 $ 2,017      $ 2,239     $ (222 )          (10 )%
          Operating (Loss) Income       (20 )         43        (63 )         (147 )%
          Operating Margin             (1.0 )%       1.9 %

North American Tire unit sales in the 2007 first quarter decreased 4.4 million units or 18.6% from the 2006 period. The decrease was primarily related to a decline in replacement volume of 3.1 million units or 19.8%, primarily due to strategic share reduction in the lower value segment following our decision to exit the wholesale private label business, and continued effects from the USW strike. OE units also decreased 1.3 million units or 16.3% driven by lower vehicle production.
Net sales decreased $222 million or 10% in the first quarter of 2007 from the 2006 period due primarily to decreased volume of approximately $277 million and a decrease in other tire related business' sales of approximately $21 million. These decreases were offset by favorable price and product mix of approximately $78 million.

In the first quarter of 2007, North American Tire incurred an operating loss of $20 million compared to operating income of $43 million in the first quarter of 2006, a change of $63 million. The 2007 period was unfavorably impacted by increased raw material costs of approximately $67 million, lower volume of approximately $30 million and higher conversion costs of approximately $21 million of which $15 million is related to the exit of the wholesale private label business. Favorably impacting operating income were price and product mix of approximately $61 million and lower SAG expenses of approximately $11 million. Included in 2006 is $21 million of favorable settlements with certain raw material suppliers. Also, the above amounts include the impact of approximately $34 million of costs as a result of the USW strike.
Operating income did not include approximately $17 million of accelerated depreciation primarily related to the closure of the Tyler, Texas and Valleyfield, Quebec facilities in 2007. Also, operating income did not include first quarter rationalization net charges of $6 million in 2007 and gains on asset sales of $1 million in 2006.
European Union Tire

                                           Three Months Ended March 31,
                                                                      Percentage
               (In millions)        2007        2006       Change       Change
               Tire Units            14.9        15.6       (0.7 )        (4.3 )%
               Net Sales          $ 1,274     $ 1,134     $  140            12 %
               Operating Income        75          72          3             4 %
               Operating Margin       5.9 %       6.3 %

European Union Tire segment unit sales in the 2007 first quarter decreased 0.7 million units or 4.3% from the 2006 period. Replacement unit sales decreased 0.9 million units or 8.3% due to a strategic shift to higher margin business, offset by an increase in OE volume of 0.2 million units or 5.6%.
Net sales in the first quarter of 2007 increased $140 million or 12% compared to the first quarter of 2006. Favorably impacting the 2007 period was foreign currency translation of approximately $113 million and favorable price and product mix of approximately $72 million. Partially offsetting these items were lower volume of approximately $40 million and approximately $5 million of lower sales of other tire related businesses.
For the first quarter of 2007, operating income increased $3 million or 4% compared to 2006 due to improvement in price and product mix of approximately $49 million, lower SAG expenses of approximately $6 million due primarily to the timing of advertising programs and reduced wages and benefits as a result of rationalization programs, and favorable foreign currency translation of approximately $6 million. Operating income was adversely impacted by higher raw material costs of approximately $30 million, approximately $11 million in lower volume, and approximately $7 million of lower operating income of other tire related businesses. Included in 2006, was approximately $6 million of favorable settlements with certain raw material suppliers.
Operating income did not include first quarter rationalization net charges of $2 million in 2007 and $26 million in 2006. Operating income also did not include first quarter net gains on asset sales of $1 million in 2007 and 2006. Eastern Europe, Middle East and Africa Tire

                                           Three Months Ended March 31,
                                                                      Percentage
               (In millions)         2007        2006      Change       Change
               Tire Units              5.2        4.6        0.6           12.4 %
               Net Sales           $   414     $  339      $  75             22 %
               Operating Income         64         43         21             49 %
               Operating Margin       15.5 %     12.7 %

Eastern Europe, Middle East and Africa Tire unit sales in the 2007 first quarter increased 0.6 million units or 12.4% from the 2006 period. Replacement unit sales increased 0.6 million units or 17.3% due primarily due to strong markets throughout Eastern European countries.

Net sales increased $75 million or 22% in the 2007 first quarter compared to 2006 due to favorable price and mix of approximately $38 million, improved volume of approximately $33 million and approximately $13 million of improvements in other tire related businesses. These were offset by decreased unfavorable foreign currency translation of approximately $9 million.
Operating income in the 2007 first quarter increased $21 million or 49% from the first quarter of 2006. Operating income for the 2007 period was favorably impacted by price and product mix of approximately $23 million, improved volume of approximately $7 million and improvements in other tire related businesses of approximately $6 million. Negatively impacting the 2007 period were higher conversion costs of approximately $9 million and increased raw material costs of approximately $4 million.
Operating income did not include first quarter rationalization net charges of $3 million in 2007 and $6 million in 2006. Latin American Tire

                                           Three Months Ended March 31,
                                                                     Percentage
               (In millions)        2007        2006      Change       Change
               Tire Units             5.3        5.3          -          (1.1 )%
               Net Sales           $  410     $  397      $  13             3 %
               Operating Income        78        102        (24 )         (24 )%
               Operating Margin      19.0 %     25.7 %

Latin American Tire unit sales in the 2006 first quarter remained consistent with the 2006 period. Replacement unit sales decreased 0.2 million units or 6.1% offset by an increase in OE volume of 0.2 million units or 11.4%.
Net sales in the 2007 first quarter increased $13 million or 3% from the 2006 period. Net sales increased in 2007 due to favorable price and mix of approximately $10 million and favorable foreign currency translation, mainly in Brazil, of approximately $5 million. Unfavorable volume of approximately $4 million negatively impacted sales.
Operating income in the first quarter of 2007 decreased $24 million or 24% from the same period in 2006. Operating income decreased approximately $17 million due to a pension plan curtailment gain in 2006, higher conversion costs of approximately $11 million and unfavorable raw material prices of approximately $9 million. Improvements in price and mix of approximately $10 million and foreign currency translation of approximately $2 million favorably impacted operating income.
Operating income did not include first quarter rationalization net charges of $2 million in 2007 and net gains on asset sales of $1 million in 2007. Asia Pacific Tire

                                           Three Months Ended March 31,
                                                                     Percentage
                (In millions)        2007       2006      Change       Change
                Tire Units             4.5       4.8       (0.3 )        (4.9 )%
                Net Sales           $  384     $ 353     $   31             9 %
                Operating Income        29        22          7            32 %
                Operating Margin       7.6 %     6.2 %

Asia Pacific Tire unit sales in the 2007 first quarter decreased 0.3 million units or 4.9% from the 2006 period. Replacement unit sales decreased 0.2 million units or 6.2% and OE unit sales decreased 0.1 million units or 2.1%.

Net sales in the 2007 quarter increased $31 million or 9% compared to the . . .