Sales growth continued to be substantial for the Coatings Effects business, despite ongoing price pressure on some areas of the business, especially in some parts of Electronic Materials and Imaging & Inks. Profit margins continued to improve in the third quarter, as a result of innovative products, higher sales volumes and higher production capacity utilization. Operating income margin for the third quarter was 15.5 percent, up from 14.1 percent in 2005. The segment also strengthened its innovation base during the third quarter with the acquisition of a metal effects business.
Overall, business conditions for the remainder of the year are expected to remain similar to those experienced currently, with full-year utility and raw material costs higher than 2005. Assuming business conditions for the remainder of 2006 are along current levels of activity, sales for the year in local currencies are expected to be higher than 2005. Excluding restructuring and impairment costs, and assuming that currency levels do not worsen, operational income is expected to increase, resulting in margins remaining around the 2005 level, and net income from continuing operations after tax is expected to improve. The company also anticipates a strong improvement in free cash flow.