For the third quarter of 2007, we recorded tax expense of $95 million on income from continuing operations before income taxes and minority interest in net income of subsidiaries of $268 million. Included in tax expense for the third quarter of 2007 was a net tax charge of $15 million ($12 million net of minority interest) related primarily to a tax law change in Germany, which was enacted in the third quarter. 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 third quarter of 2006, we recorded tax expense of $59 million on income from continuing operations before income taxes and minority interest in net income of subsidiaries of $2 million. Included in tax expense for the third quarter of 2006 was a net tax benefit of $3 million ($2 million net of minority interest), which is related to the favorable settlement of prior years' tax liabilities.
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 within the next 12 months resulting in one-time tax benefits of up to $60 million ($50 million, net of minority interests in net income of subsidiaries).
Rationalization Activity
During the third quarter of 2007, $2 million of net charges were recorded. New charges of $7 million were comprised of $2 million of associate severance costs for plans initiated in 2007 and $5 million for plans initiated in 2006. Of the $5 million for plans initiated in 2006, $1 million was related to associate severance costs and the remaining $4 million was primarily for other exit costs and non-cancelable lease costs. The third quarter of 2007 includes the reversal of $5 million of reserves for rationalization actions no longer needed for their originally-intended purposes.
Upon completion of the 2007 plans, we estimate that annual operating costs will be reduced by approximately $13 million (approximately $9 million SAG and approximately $4 million CGS).
During the third quarter of 2006, $137 million of net charges were recorded and were comprised of $132 million of associate-related costs and $5 million primarily for non-cancelable lease costs for plans initiated in 2006. The $132 million of associate-related costs consisted of approximately $52 million of cash charges primarily for severance related costs and approximately $80 million related to non-cash pension and postretirement benefit curtailment charges and termination benefits. Additionally, in the third quarter, $1 million of associate-related costs were recorded for a plan initiated in 2005 and $1 million of reversals were recorded for actions no longer needed for their originally-intended purpose.
For further information, refer to Note 2, Costs Associated with Rationalization Programs.
Discontinued Operations
Discontinued operations had income of $509 million, or $2.08 per share, in the third quarter of 2007, compared to income of $28 million or $0.16 per share in the third quarter of 2006. Included in income for the third quarter of 2007 was a gain on the sale of discontinued operations of $517 million. For further information, refer to Note 11, Discontinued Operations. Nine Months Ended September 30, 2007 and 2006 Net sales in the first nine months of 2007 were $14,484 million, increasing $371 million or 3% from $14,113 million in the first nine months of 2006. We recorded income from continuing operations of $78 million, or $0.39 per share in the first nine months of 2007 compared to a loss from continuing operations of $63 million, or $0.36 per share in the first nine months of 2006. Net income of $550 million, or $2.44 per share, was recorded in the first nine months of 2007 compared to net income of $28 million, or $0.16 per share, in the first nine months of 2006.

Net sales in the first nine months of 2007 were favorably impacted by price and product mix of approximately $654 million and by approximately $524 million in foreign currency translation. These were partially offset by decreased volume of approximately $786 million, primarily in North American Tire, due to our June 2006 decision to exit certain segments of the private label business, and approximately $39 million in lower sales of other tire related businesses.
Worldwide tire unit sales in the first nine months of 2007 were 151.7 million units, a decrease of 12.1 million units, or 7.4% compared to the 2006 period. The change was driven by a decrease of 9.6 million units, or 8.3%, in replacement units, primarily in North American Tire and European Union Tire. North American Tire consumer replacement volume decreased 6.3 million units, or 14.1% and European Union Tire consumer replacement volume decreased 2.9 million units or 8.8%. The decrease in replacement volume was partially offset by an increase in Eastern Europe Tire of 0.4 million or 3.2%. OE units decreased by 2.5 million units or 5.2% primarily in North American Tire, partially offset by increases in Latin American Tire and European Union Tire.
CGS in the first nine months of 2007 was $11,759 million, an increase of $139 million, or 1% compared to $11,620 million in the first nine months of 2006. CGS as a percentage of sales was 81% in the first nine months of 2007 and 82% in the comparable period of 2006. CGS in the first nine months of 2007 increased due to higher foreign currency translation of approximately $394 million, higher raw material costs of approximately $192 million, product mix-related cost increases of approximately $163 million, mostly related to European Union Tire and North American Tire, and approximately $81 million of unfavorable conversion costs. Also increasing CGS was a curtailment charge of approximately $27 million related to the benefit plan changes announced in the first quarter of 2007 and increased costs of approximately $17 million related to production inefficiencies and the strike in South Africa. Reducing CGS were lower volume, primarily in North American Tire, of approximately $730 million, savings from rationalization plans of approximately $27 million, and lower accelerated depreciation of approximately $21 million. Included in 2006 was a pension plan curtailment gain of approximately $13 million and approximately $29 million related to favorable settlements with certain raw material suppliers.
SAG was $2,025 million in the first nine months of 2007, compared to $1,856 million in the first nine months of 2006, an increase of $169 million or 9%. The increase was driven primarily by approximately $37 million related to a curtailment charge for the benefit plan changes announced in the first quarter of 2007, unfavorable foreign currency translation of approximately $67 million, and higher advertising of approximately $26 million. Also unfavorably impacting SAG was higher incentive stock compensation expense of approximately $36 million due to an increase in our stock price and improved performance, and approximately $10 million in higher general and product liability expenses. Favorably impacting SAG was lower wages and benefits of approximately $21 million, and savings from rationalization plans of approximately $9 million. SAG as a percentage of sales was 14% in the first nine months of 2007 and 13% in 2006.
Other income, net was $14 million of income for the first nine months of 2007, a decrease of $22 million, compared to $36 million of income for the first nine months of 2006. Higher 2007 financing fees included $33 million related to the redemption of $315 million of long term debt, of which $28 million was a cash premium paid on the redemption and $5 million was deferred financing fee write-offs. Also included in the higher financing fees were $14 million of debt issuance costs written-off in connection with our refinancing activities in April 2007. In March 2007, we incurred a fire in our Thailand facility, which resulted in a loss of $11 million, net of insurance proceeds, for the first nine months of 2007. Also, we incurred higher losses of $17 million on foreign currency exchange for the first nine months of 2007 primarily as a result of the weakening of the U.S. dollar versus the Chilean peso, Colombian peso, and the Brazilian real. The 2006 period includes a $15 million gain resulting from a favorable settlement of a legal matter in Latin American Tire. The increase in expense was partially offset by higher gains on asset sales of $27 million in 2007 related to sales of property primarily in North American Tire and Asia Pacific Tire and higher interest income of $42 million on higher cash deposits.
Minority interest in net income of subsidiaries for the nine months ended September 30, 2007 was $52 million, an increase of $10 million or 24%. The increase is primarily related to increased earnings in GDTE.
For the first nine months of 2007, we recorded tax expense of $209 million on income from continuing operations before income taxes and minority interest in net income of subsidiaries of $339 million. Included in tax expense for the first nine months of 2007 was a net tax charge of $4 million, consisting of $15 million ($12 million net of minority interest) related primarily to a tax law change in Germany, which was enacted in the third quarter, and a tax benefit of $11 million ($0.05 per share) related to prior periods. The out-of-period adjustment related to our correction of the inflation adjustment on equity of our subsidiary in Colombia as a permanent tax benefit rather than as a temporary tax benefit dating back as far as 1992, with no individual year being significantly affected. 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 nine months of 2006, we recorded tax expense of $174 million on income from continuing operations before income taxes and minority interest in net income of subsidiaries of $153 million. Included in tax expense for the first nine months of 2006 was a net tax benefit of $10 million ($7 million net of minority interest), which is primarily related to favorable settlement of prior years' tax liabilities and a benefit from enacted tax law changes. Rationalization Activity
For the first nine months of 2007, $24 million of net charges were recorded. New charges of $35 million were comprised of $7 million for plans initiated in 2007 and $28 million for plans initiated in 2006. New charges of $7 million for the 2007 plans related to associate severance costs. The $28 million of new charges for 2006 plans consist of $8 million of associate-related costs and $20 million primarily for other exit costs and non-cancelable lease costs. The first nine months of 2007 includes the reversal of $11 million of reserves for actions no longer needed for their originally-intended purposes. Approximately 200 associates will be released under programs initiated in 2007, of which 65 were released by September 30, 2007.
For the first nine months of 2006, $210 million of net charges were recorded. New charges of $213 million were comprised of $209 million for plans initiated in 2006 and $4 million for plans initiated in 2005 for associate-related costs. The $209 million of new charges for 2006 plans consisted of $198 million of associate-related costs and $11 million primarily for non-cancelable lease costs. The $198 million of associate-related costs consisted of approximately $118 million related primarily to associate-related severance costs and approximately $80 million related to non-cash pension and postretirement benefit curtailment charges and termination benefits. The first nine months of 2006 includes the reversal of $3 million of reserves for actions no longer needed for their originally-intended purposes. Approximately 4,835 associates will be released under programs initiated in 2006, of which 3,740 were released by September 30, 2007.
For further information, refer to Note 2, Costs Associated with Rationalization Programs.
Discontinued Operations
Discontinued operations had income of $472 million, or $2.05 per share, in the first nine months of 2007, compared to income of $91 million or $0.52 per share in the first nine months of 2006. Included in income for the first nine months of 2007 was a gain on the sale of discontinued operations of $517 million. For further information, refer to Note 11, Discontinued Operations.
SEGMENT INFORMATION
Segment information reflects our strategic business units ("SBUs"), which are organized on a regional basis, to meet customer requirements and global competition.
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 $382 million in the third quarter of 2007, increasing from $282 million in the third quarter of 2006. Total segment operating margin (total segment operating income divided by segment sales) in the third quarter of 2007 was 7.5%, compared to 5.7% in the third quarter of 2006.
In the first nine months of 2007, total segment operating income was $917 million, increasing from $798 million in the first nine months of 2006. Total segment operating margin (total segment operating income divided by segment sales) in the first nine months of 2007 was 6.3%, compared to 5.7% in the first nine months 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 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                                Nine Months Ended
                                    September 30,                                    September 30,
                                                          Percent                                          Percent
(In millions)         2007         2006        Change     Change       2007         2006        Change     Change
Tire Units             20.7         23.5        (2.8 )    (11.8)%       60.7         70.4        (9.7 )    (13.7)%
Net Sales           $ 2,285      $ 2,432      $ (147 )      (6)%     $ 6,578      $ 7,011      $ (433 )      (6)%
Segment                  66           19          47       247%           99           68          31        46%
Operating Income
Segment                 2.9 %        0.8 %                               1.5 %        1.0 %
Operating Margin

Three Months Ended September 30, 2007 and 2006 North American Tire unit sales in the 2007 third quarter decreased 2.8 million units or 11.8% from the 2006 period. The decrease was related to a decline in replacement volume of 1.9 million units or 11.6%, primarily in consumer replacement units due in part to our June 2006 decision to exit certain segments of the private label business. OE volume also decreased 0.9 million units or 12.2%, due to a decrease in consumer and commercial businesses related to reduced vehicle production.
Net sales decreased $147 million or 6% in the third quarter of 2007 from the 2006 period due primarily to unfavorable volume of approximately $184 million and decreased sales in chemical and other tire related businesses of approximately $63 million. This was partially offset by favorable price and product mix of approximately $93 million and favorable foreign currency translation of approximately $7 million.
Operating income increased $47 million in the third quarter of 2007 from the 2006 period. The 2007 period was impacted by favorable price and product mix of approximately $60 million and favorable conversion costs of approximately $14 million. The $14 million favorable conversion costs resulted from lower employee benefit expenses and lower workers' compensation costs, which were partially offset by unabsorbed fixed costs due to plants that are planned for closure, training of new workers and plant changeovers. Partially offsetting these improvements were decreased volume of approximately $4 million, increased raw material costs of approximately $8 million and unfavorable SAG costs of approximately $13 million. The unfavorable SAG results stemmed from higher advertising expenses and higher product liability costs, partially offset by favorable employee benefit expenses.
Operating income in the third quarter of 2007 did not include approximately $6 million of accelerated deprecation charges, net rationalization reversals of $3 million and gains on asset sales of $9 million. Operating income in 2006 did not include third quarter net rationalization charges of $110 million. Nine Months Ended September 30, 2007 and 2006 North American Tire unit sales in the first nine months of 2007 decreased 9.7 million units or 13.7% from the 2006 period. The decrease was primarily related to a decline in replacement volume of 6.6 million units or 13.7%, primarily in consumer replacement units mainly due to our June 2006 decision to exit certain segments of the private label business, partially offset by increased volume of our higher value branded products. OE volume also decreased 3.1 million units or 13.7% in our consumer and commercial businesses related to reduced vehicle production.
Net sales decreased $433 million or 6% in the first nine months of 2007 from the 2006 period due primarily to decreased volume of approximately $627 million and decreased sales in chemical and other tire related businesses of approximately $66 million. This was offset in part by favorable price and product mix of approximately $254 million and favorable foreign currency translation of approximately $6 million.
Operating income increased $31 million or 46% in the first nine months of 2007 from the 2006 period. The 2007 period was favorably impacted by price and . . .