UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: June 30, 2007

Dana Corporation

(Exact name of registrant as specified in its charter)

Virginia		34-4361040
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)
4500 Dorr Street, Toledo, Ohio		43615
(Address of principal executive offices)		(Zip Code)

(419) 535-4500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer o     Accelerated filer þ     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at July 31, 2007
Common stock, $1 par value		150,202,981

 

 

DANA CORPORATION — FORM 10-Q
FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 2007

Table of Contents

				10-Q Pages
Cover					1
Table of Contents					2
Forward-Looking Information					3
		PART I – FINANCIAL INFORMATION
Item 1		Financial Statements			5
		Condensed Consolidated Statement of Operations (Unaudited) for the Three and Six Months Ended June 30, 2007 and 2006			5
		Condensed Consolidated Balance Sheet (Unaudited) at June 30, 2007 and December 31, 2006			6
		Condensed Consolidated Statement of Cash Flows (Unaudited) for the Six Months Ended June 30, 2007 and 2006			7
		Notes to Condensed Consolidated Financial Statements			9
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations			43
Item 3		Quantitative and Qualitative Disclosures About Market Risk			76
Item 4		Controls and Procedures			76
		PART II – OTHER INFORMATION
Item 1		Legal Proceedings			78
Item 1A		Risk Factors			78
Item 6		Exhibits			79
Signatures					80
Exhibit Index					81
EX-10(W)
EX-10(W)(1)
EX-10(X)
EX-10(Y)
EX-10(Z)(1)
EX-10(Z)(2)
EX-10(Z)(3)
EX-31(A)
EX-31(B)
EX-32

FORWARD-LOOKING INFORMATION

     Statements in this report that are not entirely historical constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forwarding-looking statements are indicated by words such as “anticipates,” “expects,” “believes,” “intends,” “plans,” “estimates,” “projects” and similar expressions. These statements represent the present expectations of Dana Corporation (Dana, we or us) and its consolidated subsidiaries based on our current information and assumptions. Forward-looking statements are inherently subject to risks and uncertainties. Our plans, actions and actual results could differ materially from our present expectations due to a number of factors, including those discussed below and elsewhere in this report, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (our 2006 Form 10-K) and in our other filings with the Securities and Exchange Commission (SEC):

Bankruptcy-Related Risk Factors

	•		Our ability to continue as a going concern, operate pursuant to the terms of our debtor-in-possession credit facility, and obtain court approval with respect to motions in our bankruptcy proceedings from time to time;
	•		Our ability to fund and execute our business plan;
	•		Our ability to maintain satisfactory terms with our customers, vendors and service providers;
	•		Our ability to attract, motivate and/or retain key employees;
	•		Our ability to successfully complete the implementation of the reorganization initiatives discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) in Item 2 of Part I of this report; and
	•		Our ability to (i) file a plan of reorganization with the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) by September 3, 2007, that comports with the requirements of Chapter 11 of Title II of the United States Code (the Bankruptcy Code) and incorporates the union settlement agreements and equity investment commitments discussed in Note 2 to our financial statements in Item 1 of Part I of this report and in MD&A in Item 2 of Part I of this report, or an alternative proposal acceptable to the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (the USW) and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (the UAW), (ii) obtain Bankruptcy Court approval of the disclosure statement filed with our plan of reorganization, (iii) obtain confirmation of our plan of reorganization implementing such union settlement agreements and equity investment commitments (or such alternative proposal) by February 28, 2008, and (iv) emerge from bankruptcy by May 1, 2008.

Risk Factors in the Vehicle Markets We Serve

	•		High fuel prices and interest rates;
	•		The cyclical nature of the heavy-duty commercial vehicle market;
	•		Shifting consumer preferences in the United States (U.S.) from pickup trucks and sport utility vehicles (SUVs) to cross-over vehicles (CUVs) and passenger cars;
	•		Market share declines, production cutbacks, and potential vertical integration by our larger customers, including Ford Motor Company (Ford), General Motors Corporation (GM) and DaimlerChrysler AG (Chrysler);
	•		The ability of Ford, GM and Chrysler to renegotiate collective bargaining agreements with their unionized employees and avert potential production interruptions;
	•		High costs of commodities used in our manufacturing processes, such as steel, other raw materials and energy, particularly costs that cannot be recovered from our customers;
	•		Competitive pressures on our sales from other vehicle component suppliers; and
	•		Adverse effects that could result from any divestitures, consolidations or bankruptcies of our customers, vendors and competitors.

Company-Specific Risk Factors

	•		Changes in business relationships with our major customers and/or in the timing, size and duration of their programs for vehicles with Dana content;
	•		Price reduction pressures from our customers;
	•		Our vendors’ ability to maintain projected production levels and furnish us with critical components for our products and other necessary goods and services;
	•		Adverse effects that could result if U.S. federal legislation relating to asbestos personal injury claims were enacted; and
	•		Adverse effects that could result from increased costs of environmental remediation and compliance.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DANA CORPORATION
(DEBTOR IN POSSESSION)

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Net sales		$	2,289			$	2,300			$	4,434			$	4,497
Costs and expenses
Cost of sales			2,141				2,161				4,184				4,257
Selling, general and administrative expenses			88				115				184				230
Realignment charges, net			134				1				153				2
Impairment of assets							1								15
Other income, net			32				39				78				70
Income (loss) from continuing operations before interest, reorganization items and income taxes			(42	)			61				(9	)			63
Interest expense (contractual interest of $55 and $53 for the three months ended June 30, 2007 and 2006 and $105 and $100 for the six months ended June 30, 2007 and 2006)			28				26				51				65
Reorganization items, net			38				34				75				89
Income (loss) from continuing operations before income taxes			(108	)			1				(135	)			(91	)
Income tax expense			(3	)			(36	)			(18	)			(58	)
Minority interest expense			(4	)			(2	)			(6	)			(3	)
Equity in earnings of affiliates			10				6				18				16
Loss from continuing operations			(105	)			(31	)			(141	)			(136	)
Income (loss) from discontinued operations			(28	)			3				(84	)			(18	)
Net loss		$	(133	)		$	(28	)		$	(225	)		$	(154	)
Basic loss per common share
Loss from continuing operations		$	(0.70	)		$	(0.21	)		$	(0.94	)		$	(0.91	)
Income (loss) from discontinued operations			(0.19	)			0.02				(0.56	)			(0.12	)
Net loss		$	(0.89	)		$	(0.19	)		$	(1.50	)		$	(1.03	)
Diluted loss per common share
Loss from continuing operations		$	(0.70	)		$	(0.21	)		$	(0.94	)		$	(0.91	)
Income (loss) from discontinued operations			(0.19	)			0.02				(0.56	)			(0.12	)
Net loss		$	(0.89	)		$	(0.19	)		$	(1.50	)		$	(1.03	)
Average shares outstanding — Basic			150				150				150				150
Average shares outstanding — Diluted			150				150				150				150

The accompanying notes are an integral part of the financial statements.

DANA CORPORATION
(DEBTOR IN POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

		June 30,				December 31,
		2007				2006
Assets
Current assets
Cash and cash equivalents		$	1,001			$	704
Restricted cash			103				15
Accounts receivable
Trade, less allowance for doubtful accounts of $23 in 2007 and 2006			1,411				1,131
Other			297				235
Inventories
Raw materials			322				290
Work in process and finished goods			451				435
Assets of discontinued operations			194				392
Other current assets			143				122
Total current assets			3,922				3,324
Investments and other assets			1,042				1,079
Investments in equity affiliates			211				555
Property, plant and equipment, net			1,732				1,776
Total assets		$	6,907			$	6,734
Liabilities and shareholders’ deficit
Current liabilities
Notes payable, including current portion of long-term debt		$	265			$	293
Debtor-in-possession financing			900
Accounts payable			1,146				886
Liabilities of discontinued operations			96				195
Other accrued liabilities			837				712
Total current liabilities			3,244				2,086
Liabilities subject to compromise			3,653				4,175
Deferred employee benefits and other non-current liabilities			473				504
Long-term debt			20				22
Debtor-in-possession financing							700
Commitments and contingencies (Note 14)
Minority interest in consolidated subsidiaries			92				81
Total liabilities			7,482				7,568
Shareholders’ deficit			(575	)			(834	)
Total liabilities and shareholders’ deficit		$	6,907			$	6,734

The accompanying notes are an integral part of the financial statements.

DANA CORPORATION
(DEBTOR IN POSSESSION)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

		Six Months Ended
		June 30,
		2007				2006
Operating activities
Net loss		$	(225	)		$	(154	)
Depreciation and amortization			139				135
Impairment and divestiture-related charges			1				46
Gain on sale of assets			(8	)
Non-cash portion of U.K. pension charge			60
Reorganization items, net of payments			7				45
Payments to VEBAs for postretirement benefits			(27	)
Changes in working capital			(64	)			49
Other			(35	)			(39	)
Net cash flows provided by (used for) operating activities			(152	)			82
Investing activities
Purchases of property, plant and equipment			(94	)			(182	)
Proceeds from sale of businesses			305
Proceeds from sale of DCC assets and partnership interests			109				11
Proceeds from sale of other assets			7				28
Payments received on leases and loans			7				6
Increase in restricted cash			(88	)
Other			18				19
Net cash flows provided by (used for) investing activities			264				(118	)
Financing activities
Net change in short-term debt			(28	)			(555	)
Proceeds from debtor-in-possession facility			200				700
Issuance of long-term debt							7
Other			(2	)			(7	)
Net cash flows provided by financing activities			170				145
Net increase in cash and cash equivalents			282				109
Cash and cash equivalents — beginning of period			704				762
Effect of exchange rate changes on cash balances held in foreign currencies			28				(5	)
Net change in cash of discontinued operations			(13	)			5
Cash and cash equivalents — end of period		$	1,001			$	871

The accompanying notes are an integral part of the financial statements.

DANA CORPORATION
(DEBTOR IN POSSESSION)

INDEX TO NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

1.		Basis of Presentation
2.		Reorganization Under Chapter 11 of the Bankruptcy Code
3.		Debtor Financial Statements
4.		Asset Disposals and Impairments, Divestitures and Acquisitions
5.		Discontinued Operations
6.		Realignment of Operations
7.		Common Shares
8.		Goodwill
9.		Equity-Based Compensation
10.		Pension and Postretirement Benefit Plans
11.		Comprehensive Income (Loss)
12.		Cash Deposits
13.		Financing Agreements
14.		Commitments and Contingencies
15.		Warranty Obligations
16.		Income Taxes
17.		Other Income, Net
18.		Segments
19.		Union Settlement, Plan Support and Investment Agreements

Notes to Condensed Consolidated Financial Statements

Note 1. Basis of Presentation

     In management’s opinion, the accompanying financial statements include all normal recurring adjustments necessary for a fair presentation of Dana’s financial condition, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of full-year results.

     The financial statements in this report should be read in conjunction with the audited consolidated financial statements and accompanying notes in our 2006 Form 10-K.

Accounting Requirements

     As discussed in Note 2, Dana Corporation and forty of its wholly-owned subsidiaries (collectively, the Debtors) are reorganizing under the Bankruptcy Code. American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (SOP 90-7), which is applicable to companies operating under Chapter 11, generally does not change the manner in which financial statements are prepared. However, SOP 90-7 does require that the financial statements for periods subsequent to the filing of a Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.

     We adopted SOP 90-7 effective March 3, 2006 (the Filing Date) and prepare our financial statements in accordance with its requirements. Revenues, expenses, realized gains and losses and provisions for losses that can be directly associated with the reorganization and restructuring of our business are reported separately as reorganization items in our statement of operations. Our balance sheet distinguishes pre-petition liabilities subject to compromise both from those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by the Debtors’ plan of reorganization are reported at the amounts expected to be allowed by the Bankruptcy Court, although they may ultimately be settled for different amounts. In addition, cash provided by or used for reorganization items is disclosed separately in our statement of cash flows. See Note 3 for further information about our financial statement presentation under SOP 90-7.

Recent Accounting Pronouncements

     In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115.” SFAS No. 159 permits an entity to choose to measure many financial instruments and certain other items at fair value. Most of the provisions in SFAS No. 159 are elective; however, the amendment to SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” applies to all entities with available-for-sale and trading securities. The fair value option established by SFAS No. 159 permits companies to choose to measure eligible items at fair value at specified election dates. Companies must report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159

must be adopted effective January 1, 2008, and we are evaluating the effect, if any, that adoption will have on our consolidated financial statements in 2008.

     In September 2006, the FASB Emerging Issues Task Force (EITF) promulgated Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (EITF No. 06-4). In March 2007, the EITF promulgated Issue No. 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements” (EITF No. 06-10). EITF Nos. 06-4 and 06-10 require a company that provides a benefit to an employee under an endorsement or collateral assignment split-dollar life insurance arrangement that extends to postretirement periods to recognize a liability and related compensation costs. We will adopt EITF Nos. 06-4 and 06-10 effective in the first quarter of 2008 and are evaluating the effect, if any, that adoption will have on our consolidated financial statements in 2008.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States (GAAP or U.S. GAAP) and expands disclosures about fair value measurements. We will adopt SFAS No. 157 as of January 1, 2008 and are evaluating the effect, if any, that adoption will have on our consolidated financial statements for 2008 and subsequent periods.

     We expect to emerge from bankruptcy following the confirmation of our plan of reorganization and to adopt “fresh-start” reporting as defined in SOP 90-7. SOP 90-7 requires that changes in accounting principles that will be required in the financial statements of the emerging entity within the twelve months following the date of emergence must be adopted at the time ”fresh-start” reporting is adopted.

Note 2. Reorganization Under Chapter 11 of the Bankruptcy Code

The Bankruptcy Cases

     The Debtors are operating under Chapter 11 of the Bankruptcy Code. The Debtors’ Chapter 11 cases (collectively, the Bankruptcy Cases) have been consolidated in the Bankruptcy Court under the caption In re Dana Corporation, et al., Case No. 06-10354 (BRL). Neither Dana Credit Corporation (DCC) and its subsidiaries nor any of Dana’s non-U.S. affiliates are Debtors.

     During the bankruptcy proceedings, investments in Dana securities are highly speculative. Although shares of our common stock are trading on the OTC Bulletin Board under the symbol “DCNAQ,” the opportunity for any recovery by shareholders under a confirmed plan of reorganization is uncertain and the shares may be cancelled without any compensation pursuant to such plan.

     The Bankruptcy Cases are being jointly administered, with the Debtors managing their businesses as debtors in possession subject to the supervision of the Bankruptcy Court. We are continuing normal business operations while we evaluate our business financially and operationally. We are proceeding with previously announced divestiture and realignment plans and taking steps to reduce costs, increase efficiency and enhance productivity so that we can emerge from bankruptcy as a stronger, more viable company.

     Official committees of the Debtors’ unsecured creditors (the Creditors Committee) and retirees not represented by unions (the Retiree Committee) have been appointed in the

Bankruptcy Cases. The Debtors bear certain of the committees’ costs and expenses, including those of their counsel and other professional advisors. An official committee of Dana’s equity security holders was also appointed, but it was later disbanded.

     The Debtors have filed schedules of their assets and liabilities existing on the Filing Date, including certain amendments to the initial schedules, with the Bankruptcy Court.

     Under the Bankruptcy Code, the Debtors’ have the right to assume or reject executory contracts (i.e., contracts that are to be performed by the parties after the Filing Date) and unexpired leases, subject to Bankruptcy Court approval and other limitations. The Bankruptcy Court has approved the Debtors’ assumption and rejection of certain executory contracts and unexpired leases, but a significant number of contracts and leases have not yet been assumed or rejected.

     The Bankruptcy Court has entered an order establishing procedures for trading in claims and equity securities that is designed to protect the Debtors’ potentially valuable tax attributes (such as net operating loss carryforwards). Under the order, holders or acquirers of 4.75% or more of Dana’s common stock are subject to certain notice and consent procedures before acquiring or disposing of the shares. Holders of claims against the Debtors that would entitle them to more than 4.75% of the common shares of reorganized Dana under a confirmed plan of reorganization utilizing the tax benefits provided under Section 382(l)(5) of the Internal Revenue Code may be required to sell down the excess claims if necessary to implement such a plan of reorganization. The Plan Support Agreement discussed below contemplates a plan of reorganization utilizing tax benefits under Section 382(l)(6) of the Internal Revenue Code.

     The Bankruptcy Court has also authorized the Debtors to enter into the agreements discussed in Note 19.

Pre-petition Claims

     Most persons and entities asserting pre-petition claims (with the exception of, among others, asbestos-related personal injury claims and claims resulting from the future rejection of executory contracts and unexpired leases) against the Debtors were required to file proofs of claim in the Bankruptcy Cases by September 21, 2006. Proofs of claim alleging rights to payment for financing, trade debt, employee obligations, environmental matters, commercial damages and other litigation-based liabilities, tax liabilities and other matters in a total amount of approximately $26,600 (as well as certain unliquidated amounts) were filed by that date. In addition, another $51 in liabilities is listed in our schedules of assets and liabilities as undisputed, non-contingent and liquidated. Of the claims filed, the Debtors have so far identified claims totaling approximately $21,800 that they believe should be disallowed, primarily because they appear to be amended, duplicative, withdrawn by the creditor, without basis for claim, or solely equity-based. Of these claims, approximately $20,400 had been disallowed by the Bankruptcy Court, withdrawn by the creditors or eliminated by settlement through July 2007. The Debtors are continuing to evaluate the remaining filed claims and, as appropriate, to file and prosecute additional claim objections with the Bankruptcy Court or to address claims through settlement or alternate dispute resolution procedures. Asbestos-related personal injury claims will be addressed separately in the future in connection with our plan of reorganization.

     Filed proofs of claim are being reviewed and evaluated by the Debtors through reconciliation and other procedures. In connection therewith, claim adjustments of $9 were recorded as liabilities subject to compromise – $5 being charged to reorganization items, net, and $4 to cost of sales and selling, general and administrative expense (SG&A). These claims existed prior to the second quarter of 2007 but were recorded in the second quarter. This out-of-period adjustment was not considered material to the second quarter of 2007 or the earlier periods to which they related.

     Claims have been filed for matters such as contract disputes, litigation, and environmental remediation and related costs. The amounts recorded as liabilities subject to compromise for

these claims are, in most cases, significantly lower based on the Debtors’ assessment of the probable and estimable liabilities.

     Since receipt of the filed claims, the Debtors have been actively evaluating the merits of the claims and obtaining additional information to ascertain their validity. Upon completion of this evaluation, the Debtors in many cases have commenced settlement discussions with the claimants to reach a consensual resolution of the allowed claim amount. Based on such settlement activity, $21 was added to liabilities subject to compromise in the second quarter with corresponding charges of $11 to other income (expense), net, $9 to pre-tax loss from discontinued operations and $1 to cost of sales. Although certain of these settlements may be subject to Bankruptcy Court approval, the Debtors determined these settlements to be probable. As the Debtors continue to pursue settlement discussions to resolve these claims, additional agreements to allow claims subject to compromise are likely to be achieved at amounts in excess of that currently recorded for these claims. As of the present date, however, these additional amounts do not meet probable and estimable standards for recognition in the financial statements.

     In July 2007, we entered into a Settlement Agreement with Sypris Solutions, Inc. (Sypris) under which Sypris will obtain a general unsecured claim of $90 in the Bankruptcy Cases, subject to Bankruptcy Court approval. The settlement amount primarily covers damages alleged by Sypris in connection with the termination of existing supply agreements. As part of the settlement, Sypris and Dana will execute a new long-term supply agreement at prices more favorable to Dana than those in the existing agreements, and Sypris will release Dana from all filed and asserted claims. Of the total settlement amount, $3 has been attributed to events which occurred prior to June 30, 2007. Net of amounts previously recorded for these events, the impact of this settlement on the second quarter of 2007 was not material. The remaining $87 of the settlement, which is attributable to damages for lost future profits from termination of the existing agreements, will be recognized upon Bankruptcy Court approval (expected in the third quarter of 2007) in liabilities subject to compromise. The Bankruptcy Court approved this settlement on August 7, 2007.

Pre-petition Debt

     Our bankruptcy filing triggered the immediate acceleration of certain of the direct financial obligations of the Debtors, including, among others, an aggregate of $1,623 in principal and accrued interest on currently outstanding unsecured notes issued under our 1997, 2001, 2002 and 2004 indentures. Such amounts are characterized as unsecured debt for purposes of the reorganization proceedings and the related obligations are classified as liabilities subject to compromise in our consolidated balance sheet as of June 30, 2007. In accordance with SOP 90-7, following the Filing Date, we discontinued recording interest expense on debt classified as liabilities subject to compromise.

Reorganization Initiatives

     It is critical to the Debtors’ successful emergence from bankruptcy that they (i) achieve positive margins for their products by obtaining substantial price increases from their customers, (ii) recover or otherwise provide for increased material costs through renegotiation or rejection of various customer programs, (iii) restructure their wage and benefit programs to create an appropriate labor and benefit cost structure, (iv) address the excessive cash requirements of the legacy pension and other postretirement benefit liabilities that they have accumulated over the years, (v) optimize their manufacturing footprint by eliminating excess capacity, closing and consolidating facilities and repositioning operations in lower cost countries and (vi) achieve a

permanent reduction and realignment of their overhead costs. The steps that the Debtors are taking to accomplish these goals are discussed in Item 2 of Part I.

Plan of Reorganization

     Until September 3, 2007, the Debtors have the exclusive right to file a plan of reorganization in the Bankruptcy Cases. We anticipate that substantially all of the Debtors’ liabilities as of the Filing Date will be addressed and treated in accordance with such plan, which will be voted on by the creditors and equity holders in accordance with the provisions of the Bankruptcy Code. Although the Debtors intend to file such a plan by that date, there can be no assurance that they will be able to do so or that any plan that is filed will be confirmed by the Bankruptcy Court and consummated. The Debtors’ plan of reorganization could materially change the amounts and classification of items reported in our historical financial statements.

     On August 1, 2007, the Bankruptcy Court entered an order authorizing the Debtors to enter into a series of related agreements consisting of (i) settlement agreements with the UAW and USW providing terms for settling all outstanding issues between the Debtors and these unions related to the Bankruptcy Cases; (ii) a Plan Support Agreement with these unions, Centerbridge Capital Partners, L.P. (Centerbridge) and certain of Dana’s unsecured creditors setting out the terms under which these parties will support the Debtors’ plan of reorganization; and (iii) an Investment Agreement between Dana, Centerbridge, and a Centerbridge affiliate providing for Centerbridge to purchase $250 in Series A convertible preferred shares of reorganized Dana and qualified creditors of the Debtors (i.e., creditors who meet specified criteria) to have an opportunity to purchase $500 in Series B convertible preferred shares on a pro rata basis, with Centerbridge purchasing up to $250 in Series B preferred shares that are not purchased by the qualified creditors. The proceeds from the sale of the preferred shares will be used in part to fund the Voluntary Employee Benefit Association (VEBA) trusts that will be established under the union settlement agreements. We have agreed to file a plan of reorganization with the Bankruptcy Court incorporating the union settlement agreements and the foregoing equity investment commitments (or an alternative proposal acceptable to the UAW and USW) by September 3, 2007. If we fail to do so, Centerbridge may terminate the Investment Agreement and the unions may, under some circumstances, terminate the union settlement agreements or their collective bargaining agreements. In addition, if our plan of reorganization does not become effective by February 28, 2008, individual supporting creditors may withdraw their support and if it does not become effective by May 1, 2008, the Plan Support Agreement will expire. See Note 19 for additional details.

     In addition, the Bankruptcy Court order authorizing our entry into these agreements established a schedule and procedures under which we will consider potential alternatives to the investments contemplated with Centerbridge under the Investment Agreement. The schedule contemplates that any alternate investment proposals will be received and considered by specific dates during August through October 2007.

Continuation as a Going Concern

     Our financial statements have been prepared on a going-concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. As a result of our bankruptcy filing, such realization of assets and liquidation of liabilities is subject to uncertainty. While operating as debtors in possession under the protection of Chapter 11, the Debtors may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those recorded in our financial statements, subject to Bankruptcy Court approval or as otherwise permitted in the ordinary course of business. Our

financial statements as of June 30, 2007 do not give effect to all the adjustments to the carrying value of assets and liabilities that may become necessary as a consequence of our reorganization.

     Our continuation as a going concern is contingent upon our ability to (i) comply with the terms and conditions of the Senior Secured Superpriority Debtor-In-Possession Credit Agreement to which Dana, as borrower, and our Debtor U.S. subsidiaries, as guarantors, are parties (the DIP Credit Agreement) (see Note 13), (ii) obtain confirmation of a plan of reorganization under the Bankruptcy Code, (iii) generate sufficient cash flow from operations, and (iv) obtain financing sources to meet our future obligations. Although we are taking steps to achieve these objectives, there is no assurance that we will be successful in doing so or that any measures that are achievable will result in sufficient improvement to our financial position. Accordingly, until such time as we emerge from bankruptcy, there is no certainty about our ability to continue as a going concern. If our reorganization is not completed successfully, we could be forced to sell a significant portion of our assets to retire debt outstanding or, under certain circumstances, to cease operations.

DCC Notes

     At the time of our bankruptcy filing, DCC had outstanding notes totaling approximately $399. In December 2006, DCC and most of its noteholders executed a Forbearance Agreement under which (i) the forbearing noteholders agreed not to exercise their rights or remedies with respect to the DCC notes for a period of 24 months (or until the effective date of Dana’s plan of reorganization), during which time DCC is endeavoring to sell its remaining asset portfolio in an orderly manner and use the proceeds to pay down the notes and (ii) DCC agreed to pay the forbearing noteholders their pro rata share of any cash it maintains in the U.S. greater than $7.5 on a quarterly basis. At June 30, 2007, the amount of principal outstanding under the DCC notes was $228. In July 2007, DCC made a $95 payment to the forbearing noteholders, consisting of $91 of principal and $4 of interest.

     Contemporaneously with the execution of the Forbearance Agreement, Dana and DCC executed a Settlement Agreement whereby they agreed to the discontinuance of a tax sharing agreement between them and to a stipulated amount of a general unsecured claim owed by Dana to DCC of $325. Payments to DCC relative to this obligation are expected to be addressed in our plan of reorganization, which may propose that distributions to DCC be limited to the amount required to satisfy DCC’s obligations.

Liabilities Subject to Compromise

     Liabilities subject to compromise in the consolidated balance sheet include those of our discontinued operations and consisted of the following at June 30, 2007 and December 31, 2006:

		June 30,				December 31,
		2007				2006
Accounts payable		$	291			$	290
Pension and other postretirement obligations			1,140				1,687
Debt (including accrued interest of $39)			1,623				1,623
Other			599				575
Consolidated liabilities subject to compromise			3,653				4,175
Payables to non-Debtor subsidiaries			401				402
Debtor liabilities subject to compromise		$	4,054			$	4,577

     Other includes accrued liabilities for environmental, asbestos-related and other product liabilities, income tax, deferred compensation, other postemployment benefits and lease rejection claims. Payables to non-Debtor subsidiaries include the $325 payable to DCC under the Settlement Agreement referred to above. As a result of the claims and settlement activity described elsewhere in Note 2, liabilities subject to compromise increased by $21 during the second quarter of 2007.

     As discussed in Note 10, the reduction in pension and postretirement obligations is attributed to the elimination of postretirement healthcare benefits for non-union employees and retirees and the freeze of service and benefit accruals for non-union employees.

     Debtors’ pre-petition debt of $1,623 is included in liabilities subject to compromise. As of the Filing Date, we discontinued recording interest expense on debt classified as liabilities subject to compromise. On a consolidated basis, contractual interest on all debt, including the portion classified as liabilities subject to compromise, amounted to $55 and $53 for the three months and $105 and $100 for the six months ended June 30, 2007 and 2006.

     As required by SOP 90-7, the amount of liabilities subject to compromise represents our estimate of known or potential pre-petition claims to be addressed in connection with the Bankruptcy Cases. Such claims are subject to future adjustments that may result from, among other things, negotiations with creditors, rejection of executory contracts and unexpired leases, and orders of the Bankruptcy Court. Liabilities subject to compromise may change due to reclassifications, settlements or reorganization activities that give rise to new claims or increases in existing claims.

Reorganization Items

     Professional advisory fees and other costs directly associated with our reorganization are reported separately as reorganization items pursuant to SOP 90-7. Reorganization items also include provisions and adjustments to record the carrying value of certain pre-petition liabilities at their estimated allowable claim amounts, as well as the costs of certain actions within the non-Debtor companies that have occurred as a result of the Debtors’ bankruptcy proceedings.

     The reorganization items in the consolidated statement of operations for the three and six months ended June 30, 2007 and 2006 consisted of the following items:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Debtor reorganization items
Professional fees		$	29			$	27			$	63			$	64
Debt valuation adjustments															17
Loss on settlements			8				7				9				8
Interest income			(4	)			(3	)			(7	)			(3	)
Debtor reorganization items			33				31				65				86
Non-Debtor reorganization items
Professional fees			5				3				10				3
Total reorganization items		$	38			$	34			$	75			$	89

     Claims resulting from contract rejections under the bankruptcy process are recorded as reorganization loss on settlements.

      Non-Debtor costs during the second quarter of 2007 related principally to services rendered in connection with the settlement of our pension obligations in the United Kingdom (U.K.) (see Note 6) and other organizational restructuring to facilitate future repatriations, financings and other actions.

Note 3. Debtor Financial Statements

Debtor In Possession Financial Information

     In accordance with SOP 90-7, the statement of operations and statement of cash flows of the Debtors are presented below for the three and six months ended June 30, 2007 and 2006, along with the balance sheet at June 30, 2007 and December 31, 2006. Intercompany balances between Debtors and non-Debtors are not eliminated. The investment in non-Debtor subsidiaries is accounted for on an equity basis and, accordingly, the net loss reported in the debtor in possession statement of operations is equal to the consolidated net loss.

DANA CORPORATION
DEBTOR IN POSSESSION
STATEMENT OF OPERATIONS (Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Net sales
Customers		$	1,087			$	1,126			$	2,110			$	2,234
Non-Debtor subsidiaries			63				65				122				126
Total			1,150				1,191				2,232				2,360
Costs and expenses
Cost of sales			1,140				1,196				2,233				2,390
Selling, general and administrative expenses			54				75				115				152
Realignment and impairment			(9	)							(5	)
Other income, net			56				45				120				85
Income (loss) from continuing operations before interest, reorganization items and income taxes			21				(35	)			9				(97	)
Interest expense (contractual interest of $45 and $39 for the three months ended June 30, 2007 and 2006 and $89 and $78 for the six months ended June 30, 2007 and 2006)			18				12				35				43
Reorganization items, net			33				31				65				86
Loss from continuing operations before income taxes			(30	)			(78	)			(91	)			(226	)
Income tax benefit (expense)			30				(9	)			26				(10	)
Minority interest income											2
Equity in earnings (losses) of affiliates			(1	)			(4	)			3				(7	)
Loss from continuing operations			(1	)			(91	)			(60	)			(243	)
Loss from discontinued operations			(66	)			(14	)			(118	)			(43	)
Equity in earnings (losses) of non-Debtor subsidiaries			(66	)			77				(47	)			132
Net loss		$	(133	)		$	(28	)		$	(225	)		$	(154	)

DANA CORPORATION
DEBTOR IN POSSESSION
BALANCE SHEET (Unaudited)

		June 30,				December 31,
		2007				2006
Assets
Current assets
Cash and cash equivalents		$	378			$	216
Accounts receivable
Trade, less allowance for doubtful accounts of $23 in 2007 and 2006			580				460
Other			103				71
Inventories			227				243
Assets of discontinued operations			65				237
Other current assets			31				15
Total current assets			1,384				1,242
Investments and other assets			960				875
Investments in equity affiliates			119				110
Investments in non-debtor subsidiaries			2,124				2,193
Property, plant and equipment, net			744				788
Total assets		$	5,331			$	5,208
Liabilities and shareholders’ deficit
Current liabilities
Debtor-in-possession financing		$	900			$	—
Accounts payable			383				294
Liabilities of discontinued operations			22				50
Other accrued liabilities			412				343
Total current liabilities			1,717				687
Liabilities subject to compromise			4,054				4,577
Deferred employee benefits and other non-current liabilities			135				76
Debtor-in-possession financing							700
Commitments and contingencies (Note 14)
Minority interest in consolidated subsidiaries							2
Total liabilities			5,906				6,042
Shareholders’ deficit			(575	)			(834	)
Total liabilities and shareholders’ deficit		$	5,331			$	5,208

DANA CORPORATION
DEBTOR IN POSSESSION
STATEMENT OF CASH FLOWS (Unaudited)

		Six Months Ended
		June 30,
		2007				2006
Operating activities
Net loss		$	(225	)		$	(154	)
Depreciation and amortization			68				60
Loss on sale of businesses			23
Impairment and divestiture-related charges			1				31
Reorganization charges, net			2				44
Equity in losses (earnings) of non-Debtor subsidiaries, net of dividends			67				(132	)
Payments to VEBAs for postretirement benefits			(27	)
Working capital			69				85
Other			(44	)			(37	)
Net cash flows used for operating activities			(66	)			(103	)
Investing activities
Purchases of property, plant and equipment			(38	)			(45	)
Proceeds from sale of businesses			43
Other			23				(10	)
Net cash flows provided by (used for) investing activities			28				(55	)
Financing activities
Proceeds from debtor-in-possession facility			200				700
Net change in short-term debt							(546	)
Net cash flows provided by financing activities			200				154
Net increase (decrease) in cash and cash equivalents			162				(4	)
Cash and cash equivalents — beginning of period			216				286
Cash and cash equivalents — end of period		$	378			$	282

Note 4. Asset Disposals and Impairments, Divestitures and Acquisitions

DCC Asset Disposals and Impairments

     The carrying value of the remaining DCC portfolio assets was $83 at June 30, 2007, down from $178 at December 31, 2006. Where applicable, these assets are adjusted quarterly to estimated fair value less cost to sell. At June 30, 2007, we determined that no additional adjustments to carrying value were required.

     During the first six months of 2007 DCC continued to dispose of assets under the terms of the Forbearance Agreement discussed in Note 2. Cash proceeds from these asset sales totaled $120.

     Certain DCC assets with a net book value of $49 are equity investments. The assets underlying these equity investments have not been impaired by the investees and there is not a readily determinable market value for these investments. Based on internally estimated current

market value, DCC expects that the future sale of these assets will result in total losses of $20 to $30. We will recognize an impairment charge if DCC enters into agreements to sell these investments at values below the carrying values or if we obtain other evidence that there has been an other-than-temporary decline in the fair values of the assets.

Divestitures

     In January 2007, we sold our trailer axle business manufacturing assets for $28 in cash and recorded an after-tax gain of $14.

     In March 2007, the following events occurred:

-		We sold our engine hard parts business and received cash proceeds of $98. Of these proceeds, $5 was escrowed pending completion of closing conditions in certain countries and $20 was escrowed pending finalization of purchase price adjustments and satisfaction of certain of our indemnification obligations. We recorded a first quarter pre-tax loss of $26 in connection with this sale. In the second quarter, we received $5 of escrowed funds following completion of closing conditions in certain countries. $10 of the remaining escrow amounts is expected to be settled in the third quarter, with the remaining $10 settled in 2008.
-		We sold our 30% equity interest in GETRAG Getriebe-und Zahnradfabrik Hermann Hagenmeyer GmbH & Cie KG (GETRAG) to our joint venture partner for $207 in cash. We had recorded an impairment charge of $58 in the fourth quarter of 2006 to adjust this equity investment to fair value and we recorded an additional charge of $2 in the first quarter of 2007 based on value of the investment at the time of closing.
-		We signed an agreement with Orhan Holding A.S. and certain of its affiliates for the sale of our fluid products hose and tubing business. We subsequently completed the sale in two transactions in July and August and received aggregate cash proceeds of $85. We expect to record a third-quarter after-tax gain of $34 in connection with this sale.

     In May 2007, we signed an agreement with Coupled Products Acquisition LLC for the sale of our coupled fluid products business for the nominal price of one dollar, with the buyer to assume certain liabilities of the business at closing. We expect to complete this sale in the third quarter of 2007 and to record an after-tax loss of $25 at closing.

Acquisitions

     In June 2007, our subsidiary Dana Mauritius Limited (Dana Mauritius) purchased 4% of the registered capital of Dongfeng Dana Axle Co., Ltd. (a commercial vehicle axle manufacturer in China formerly known as Dongfeng Axle Co., Ltd.) from Dongfeng Motor Co., Ltd. and certain of its affiliates for $5. Dana Mauritius has agreed, subject to certain conditions, to purchase an additional 46% equity interest in Dongfeng Dana Axle Co., Ltd. within the next three years for approximately $55.

Note 5. Discontinued Operations

     The results of operations of the engine hard parts business that we sold in March 2007 and the fluid products and pump products businesses that we have divested or are divesting are aggregated and presented as discontinued operations.

     The results of the discontinued operations for the three and six months ended June 30, 2007 and 2006 were as follows:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Sales		$	167			$	328			$	416			$	653
Cost of sales			136				307				406				607
Selling, general and administrative expenses			7				15				22				33
Impairment charges			3								4				28
Restructuring and other expense, net			52				3				50				4
Income (loss) before income taxes			(32	)			3				(66	)			(19	)
Income tax benefit (expense)			4								(18	)			1
Income (loss) from discontinued operations		$	(28	)		$	3			$	(84	)		$	(18	)

     Since the fourth quarter of 2005, we have adjusted the underlying assets of the discontinued operations to their net fair value less cost to sell based on the profit outlook for these businesses, discussions with potential buyers and other factors impacting expected sale proceeds. These valuation adjustments are reflected in the discontinued operations results as impairment charges. Restructuring & other expense, net for the three months ended June 30, 2007 included a charge of $17 for settlement of pension obligations in the U.K. (see Note 6) relating to discontinued operations and $9 for estimated bankruptcy claim settlements. Other expense for the six months ended June 30, 2007 included pre-tax losses of $26 recognized during the first quarter in connection with the sale of the engine hard parts business. At June 30, 2007, we had reduced the assets of the fluid products and pump products businesses to the extent permitted by GAAP. At the current expected selling prices, additional charges of $27 will be recorded as the sales are finalized.

     The assets and liabilities of discontinued operations reported in the consolidated balance sheet at June 30, 2007 and December 31, 2006 consisted of the following:

		2007				2006
Assets of discontinued operations
Accounts receivable		$	128			$	223
Inventories			38				123
Cash and other current assets			23				11
Investments and other assets			5				29
Investments in leases							6
Total assets		$	194			$	392
Liabilities of discontinued operations
Accounts payable		$	62			$	95
Accrued payroll and employee benefits			14				41
Other current liabilities			20				51
Other noncurrent liabilities							8
Total liabilities		$	96			$	195

     In the consolidated statement of cash flows, the cash flows of discontinued operations are reported in the respective categories of cash flows, along with those of our continuing operations.

Liabilities subject to compromise of discontinued operations and certain other accounts are not included in the liabilities of discontinued operations. The assets and liabilities of discontinued operations declined due to the sale of the engine hard parts business during the first quarter of 2007.

Note 6. Realignment of Operations

     The following table shows the realignment charges and related payments, exclusive of the U.K. pension charges discussed below, recorded in our continuing operations during the six months ended June 30, 2007.

		Employee				Long-Lived
		Termination				Asset				Exit
		Benefits				Impairment				Costs				Total
Balance at December 31, 2006		$	64			$	—			$	10			$	74
Activity during the period
Charges to expense			11				6				24				41
Adjustments of accruals			(24	)											(24	)
Non-cash write-off							(6	)							(6	)
Cash payments			(23	)							(23	)			(46	)
Balance at June 30, 2007		$	28			$	—			$	11			$	39

     In February 2007, we announced the restructuring of pension liabilities in the U.K. As a result of the underlying agreement, we recorded $8 of pension curtailment cost as a realignment charge in the first quarter of 2007. In April 2007 our U.K. subsidiaries settled their pension plan obligations to the plan participants through a cash payment of $93 and the transfer of a 33% equity interest in our remaining U.K. axle and driveshaft operating businesses to the plans. Concurrent with the cash payment and equity transfer, we recorded a pension settlement charge of $128 as a realignment charge in continuing operations and $17 in discontinued operations.

     As a consequence of the negotiations that resulted in the agreements reached with the UAW and the USW in July 2007 (see Notes 10 and 19), we modified certain of our manufacturing footprint optimization plans. A facility that we previously planned to close will remain operative, but we will implement work force reductions at that facility and other facilities in the affected business segment. As a result of these modifications, realignment charges for the second quarter of 2007 included a credit adjustment of $17 to record reduced contractual employee separation cost.

     The remainder of the realignment charges expensed during the three months and six months ended June 30, 2007 related primarily to the ongoing facility closure activities associated with previously announced manufacturing footprint actions.

     At June 30, 2007, $39 of restructuring charges remained in accrued liabilities, including $28 for the reduction of approximately 1,600 employees to be completed over the next two years and $11 for lease terminations and other exit costs. The estimated cash expenditures related to these liabilities are projected to approximate $26 in the remainder of 2007 and $13 thereafter. In addition to the $39 accrued at June 30, 2007, we estimate that another $101 will be expensed in relation to pending initiatives. Our liquidity and cash flows will be impacted by these expenditures.

     Realignment initiatives generally occur over multiple reporting periods. The following table provides project-to-date and estimated future expenses for completion of our pending realignment initiatives for the Automotive Systems Group (ASG) and the Heavy Vehicle Technology Systems Group (HVTSG) business units and the underlying segments.

		Expense Recognized
						Year-to-								Estimated
		Prior to				Date								Cost to
		2007				2007				Total				Complete
ASG
Axle		$	42			$	4			$	46			$	(2	)
Driveshaft			31				(9	)			22				38
Sealing			3				1				4				1
Thermal			4				1				5
Structures			45				10				55				64
Total ASG			125				7				132				101
HVTSG
Commercial Vehicles			5				6				11
Off-Highway			31				2				33
Total HVTSG			36				8				44
Other			17				2				18
Total continuing operations		$	178			$	17			$	194			$	101

Note 7. Common Shares

     In addition to average shares outstanding of 149.8 for the three and six months ended June 30, 2007 and 2006, there were 0.6 shares that satisfy the definition of potentially dilutive shares for these periods. These potentially dilutive shares have been excluded from the computation of earnings per share for the three and six months ended June 30, 2007 and 2006 as the loss from continuing operations for these periods caused the shares to have an anti-dilutive effect.

     In addition, we have excluded 11.5 common shares for each of these periods from the computation of earnings per share as these shares represent stock options with exercise prices higher than the average per share trading price of our stock during the respective periods and the effect of including them would also be anti-dilutive.

Note 8. Goodwill

     Changes in goodwill during the six months ended June 30, 2007 for the affected segments were as follows:

						Effect of
		December 31,				Currency				June 30,
		2006				and Other				2007
ASG
Driveshaft		$	158			$	5			$	163
Sealing			24								24
Thermal			119				1				120
Total			301				6				307
HVTSG
Off-Highway			115				1				116
Total		$	416			$	7			$	423

Note 9. Equity-Based Compensation

     During the second quarter of 2007, there were no stock options, restricted shares or units or other stock-based awards granted under our equity compensation plans. Also, no options were exercised.

     The following chart shows the number of options that vested or were forfeited during the first six months of 2007:

		Number				Weighted Average
		of				Grant Date Fair
		Options				Values (in $ per share)
Non-vested at December 31, 2006			617,026			$	3.39
Vested			(353,260	)			3.42
Forfeited			(52,757	)			3.47
Non-vested at June 30, 2007			211,009				3.33

     As of June 30, 2007, the total unrecognized compensation expense for non-vested options was $1, which will be amortized over a period of approximately one year. The total fair value of options that vested during the three and six months ended June 30, 2007 was $1 and $1. During the three and six months ended June 30, 2007 we recognized nominal equity-based compensation expense. For the three and six months ended June 30, 2006, we recognized $1 of expense.

Note 10. Pension and Postretirement Benefit Plans

     We provide defined contribution and defined benefit, qualified and nonqualified, pension plans for certain employees. We also provide other postretirement benefits, including medical and life insurance, for certain employees following retirement.

     Components of net periodic benefit costs for the three and six months ended June 30, 2007 and 2006 were as follows:

		Three months ended June 30,
		Pension Benefits								Other Benefits
		2007				2006				2007				2006
Service cost		$	12			$	11			$	1			$	3
Interest cost			41				41				20				23
Expected return on plan assets			(48	)			(50	)
Amortization of prior service cost							1				(3	)			(3	)
Recognized net actuarial loss (gain)			8				8				5				10
Net periodic benefit cost		$	13			$	11			$	23			$	33
Curtailment loss			3
Settlement loss			128				7
Net periodic benefit cost after curtailment and settlements		$	144			$	18			$	23			$	33

		Six months ended June 30,
		Pension Benefits								Other Benefits
		2007				2006				2007				2006
Service cost		$	25			$	23			$	3			$	6
Interest cost			82				82				42				45
Expected return on plan assets			(98	)			(101	)
Amortization of prior service cost							2				(6	)			(7	)
Recognized net actuarial loss (gain)			14				16				14				20
Net periodic benefit cost		$	23			$	22			$	53			$	64
Curtailment loss			11
Settlement loss (gain)			128				11				(12	)
Net periodic benefit cost after curtailment and settlements		$	162			$	33			$	41			$	64

     In March 2007, the Bankruptcy Court approved the elimination of postretirement healthcare benefits for active non-union employees in the U.S. This action reduced our accumulated postretirement benefit obligation (APBO) for postretirement healthcare by $115 in the first quarter. Because the elimination of these benefits reduced benefits previously earned, it was considered a negative plan amendment. Accordingly, the reduction in the APBO was offset by a credit to accumulated other comprehensive income (AOCI) which is being amortized to income.

     In May 2007, we reached an agreement with the Retiree Committee to make cash contributions of $78 to a VEBA trust for non-pension retiree benefits in exchange for release of the Debtors from obligations for postretirement health and welfare benefits for non-union retirees in the U.S. A payment of $25 was made in June 2007. In May 2007 we also made a $2.25 payment to the International Association of Machinists (IAM) to resolve all claims for non-pension retiree benefits after June 30, 2007 for retirees and active employees represented by the IAM. As a result of these actions, we reduced our APBO by $303, with $80 being offset by the payment obligation to the VEBAs and $223 being credited to AOCI.

     The elimination of retiree medical benefits for non-union employees in March 2007 and the agreement with the Retiree Committee on behalf of such employees in May 2007 necessitated the remeasurement of U.S. pension benefits as of June 30, 2007. The discount rate used for remeasurement was 6.29% versus 5.88% used at December 31, 2006.

     In June 2007, we amended our U.S. pension plans for non-union employees to freeze service credits and benefit accruals effective July 1, 2007. In connection with this action, we recorded a curtailment charge of $3 during the second quarter of 2007 and certain plan assets

and liabilities were remeasured. The resulting funded status of all our U.S. pension plans (non-union and union) at June 30, 2007 was a net liability of $19, as compared to a net liability of $103 at December 31, 2006. Unamortized pension loss in AOCI was reduced to $335 at June 30, 2007 from $433 at December 31, 2006 and continues to be amortized to income over an actuarially determined period.

     In July 2007, we entered into the settlement agreements with the UAW and USW that are discussed in Note 19. Some provisions of the agreements, such as wage structure modifications and buyouts for certain eligible employees represented by the UAW and the USW (union-represented employees), were effective upon Bankruptcy Court approval of the settlement agreements.

     Other provisions will be implemented on January 1, 2008 or upon our emergence from bankruptcy. Under these provisions, we will:

	--		modify healthcare, long-term and short-term disability and life insurance benefits for covered union-represented employees;
	--		freeze credited service and benefit accruals under our defined benefit pension plans for union-represented employees;
	--		make contributions, based on an allowed hours formula, to a USW pension trust, which will provide future pension benefits for covered union-represented employees;
	--		eliminate non-pension retiree benefits (postretirement healthcare and life insurance benefits) for union-represented employees and retirees;
	--		contribute an aggregate of $722 in cash (less certain offsets, including amounts paid for non-pension retiree benefit claims of union-represented retirees after June 30, 2007) to separate UAW- and USW-administered VEBAs to provide non-pension retiree benefits, as determined by the VEBA trustees, to eligible union-represented retirees after our emergence from bankruptcy;
	--		eliminate long-term disability and related healthcare benefits for union-represented employees receiving, or entitled to receive, disability benefits; and
	--		contribute an aggregate of $42 in cash (less certain offsets, including amounts paid for long-term disability and related healthcare benefit claims of eligible union-represented employees after June 30, 2007) to the VEBAs to provide disability benefits, as determined by the VEBA trustees, to such employees after our emergence from bankruptcy.

     These actions, when implemented, are expected to eliminate our remaining APBO for non-pension retiree benefits in the U.S. ($1,033 as of June 30, 2007). Although we expect to implement these actions, under certain circumstances involving termination of the Centerbridge investment commitments, they may not be implemented as currently contemplated or at all.

Note 11. Comprehensive Income (Loss)

     Comprehensive income (loss) includes our net loss and components of other comprehensive income (loss) (OCI) such as deferred currency translation gains and losses that are charged or credited directly to shareholders’ deficit.

     The components of our total comprehensive income (loss) for the three and six months ended June 30, 2007 and 2006 were as follows:

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2007				2006				2007				2006
Net loss		$	(133	)		$	(28	)		$	(225	)		$	(154	)
Other comprehensive income (loss):
Deferred translation gain			51				57				67				90
Postretirement healthcare plan revisions			223								338
Pension plan revisions			63								63
Reclassification to net loss of:
Benefit plan amortization			7								18
UK pension settlement			144								144
GETRAG deferred translation and pension											(93	)
Income tax provision			(73	)							(73	)
Other			4				(2	)			17
Total comprehensive income (loss)		$	286			$	27			$	256			$	(64	)

     The $51 deferred translation gain reported for the three months ended June 30, 2007 was due largely to the continued weakening of the U.S. dollar relative to a number of currencies including the Brazilian real ($21), Canadian dollar ($8), euro ($6), and Australian dollar ($5).

The Brazilian real ($34), euro ($13), Canadian dollar ($9) and Australian dollar ($8) all gained value against the U.S. dollar over the six months ended June 30, 2007, contributing to a deferred translation gain of $67.

     For the three months ended June 30, 2007, OCI included credits of $63 related to the modification of pension plans and $223 resulting from the settlements reached with the Retiree Committee and the IAM (see Note 10). OCI also reflects the reclassification to net loss of the amortization of unamortized benefit plan losses of $7 and a loss of $144 related to the April settlement of U.K. pension liabilities. The settlement was effected through a cash payment and transfer of an equity interest in our U.K. axle and driveshaft operating businesses (see Note 6).

     In addition to the second quarter activity, OCI for the six months ended June 30, 2007 included a $115 credit that resulted from the termination of postretirement healthcare coverage for active non-union employees (see Note 10) and a charge of $93 to reclassify to net loss for the period the deferred translation gain and unamortized pension expense related to our equity investment in GETRAG, which we sold in March 2007.

     See Note 16 for a discussion of the tax provision.

     The $57 deferred translation gain reported for the three months ended June 30, 2006 was primarily the result of the strengthening of the euro ($44), Canadian dollar ($16) and British pound ($14) relative to the U.S. dollar. These gains were partially offset by the effects of a weaker South African rand ($7) and Mexican peso ($4). The $90 deferred gain for the six months ended June 30, 2006 was due largely to a stronger euro ($60), Brazilian real ($23), British pound ($15) and Canadian dollar ($14). The South African rand ($6) and Mexican peso ($4) both lost value relative to the U.S. dollar, partially offsetting the gains.

Note 12. Cash Deposits

     At June 30, 2007, cash and cash equivalents held in the U.S. amounted to $378. Included in this amount was $72 of cash deposits that provide credit enhancement for certain lease agreements and support surety bonds that enable us to self-insure our workers’ compensation obligations in certain states and fund an escrow account required to appeal a judgment rendered in Texas. Cash held by DCC of $103 is restricted under the terms of the Forbearance Agreement discussed in Note 2 and is reported separately as restricted cash.

     At June 30, 2007, cash and cash equivalents held outside the U.S. amounted to $623. Included in this amount was $22 of cash deposits that provide credit enhancement for certain lease agreements and support surety bonds that enable us to self-insure certain employee benefit obligations.

     The cash deposits other than DCC’s cash are not considered restricted as they could be replaced by letters of credit under our DIP Credit Agreement (discussed in Note 13). Availability at June 30, 2007 was adequate to cover the deposits for which replacement by letters of credit is permitted.

     A substantial portion of our non- U.S. cash and cash equivalents is needed for working capital and other operating purposes. Several countries have local regulatory requirements that significantly restrict the ability of the Debtors to access this cash. In addition, at June 30, 2007, $78 was held by consolidated entities that have minority interests with varying levels of participation rights involving cash withdrawals. Beyond these restrictions, there are practical limitations on repatriation of cash from certain countries because of the resulting tax cost.

Note 13. Financing Agreements

DIP Credit Agreement

     Dana Corporation, as borrower, and its Debtor subsidiaries, as guarantors, are parties to the DIP Credit Agreement that was approved by the Bankruptcy Court in March 2006. Under the DIP Credit Agreement, we currently have a $650 revolving credit facility and a $900 term loan facility. In the first quarter of 2007, the original term loan facility was increased by $200 and we reduced the original revolving credit facility by $100 to correspond with the lower availability in our collateral base. For a discussion of the terms of the DIP Credit Agreement, see Note 10 to our consolidated financial statements in Item 8 of our 2006 Form 10-K.

     At June 30, 2007, we had borrowed $900 under the DIP Credit Agreement. Based on our borrowing base collateral, we had availability at that date under the DIP Credit Agreement of $236 after deducting the $100 minimum availability requirement and $237 for outstanding letters of credit. All obligations under the DIP Credit Agreement will become due and payable no later than March 2008. We expect to refinance these obligations as part of our plan of reorganization. However, since refinancing these obligations on a long-term basis is not presently assured, we have classified the borrowings under the DIP Credit Agreement as a current liability at June 30, 2007.

Canadian Credit Agreement

     Dana Canada Corporation (Dana Canada) as borrower, and certain of its Canadian affiliates, as guarantors, are parties to a credit agreement (the Canadian Credit Agreement) that provides Dana Canada with a $100 revolving credit facility, of which $5 is available for the issuance of letters of credit. For a discussion of the terms of the Canadian Credit Agreement, see Note 10 to our consolidated financial statements in Item 8 of our 2006 Form 10-K. Based on Dana Canada’s borrowing base collateral at June 30, 2007, it had availability under the Canadian Credit Agreement of $58 after deducting the $20 minimum availability requirement and $2 for currently outstanding letters of credit. Dana Canada had no borrowing under this agreement at June 30, 2007.

European Receivables Loan Facility

     In July 2007, certain European subsidiaries of Dana entered into definitive agreements to establish a receivable securitization program. The agreements include a Receivables Loan Agreement (the Loan Agreement) with GE Leveraged Loans Limited (GE) that provides for a five-year accounts receivable securitization facility under which up to the euro equivalent of approximately $225 in financing will be available to those European subsidiaries (collectively, the Sellers).

     Ancillary to the Loan Agreement, the Sellers will enter into receivables purchase agreements and related agreements, as applicable, under which they will, directly or indirectly, sell certain receivables to Dana Europe Financing (Ireland) Limited (the Purchaser). The Purchaser is a limited liability company incorporated under the laws of Ireland as a special purpose entity to purchase the transferred receivables. The Purchaser will pay the purchase price of the transferred receivables in part from the proceeds of loans from GE and other lenders under the Loan Agreement and in part from the proceeds of certain subordinated loans from Dana Europe S.A., a Dana subsidiary. The Purchaser’s obligations under the Loan Agreement will be secured by a lien on and security interest in all of its rights to the transferred

receivables, as well as collection accounts and items related to the receivables. The accounts receivable purchased will be included in our consolidated financial statements because the Purchaser does not meet certain accounting requirements for treatment as a “qualifying special purpose entity” under GAAP and the Sellers will retain control of the assets. Accordingly, the sale of the accounts receivable and the subordinated loans from Dana Europe S.A. will be eliminated in consolidation and any loans to the Purchaser from GE and the participating lenders will be reflected in our consolidated financial statements.

     Advances to the Purchaser under the Loan Agreement will be determined based on advance rates relating to the value of the transferred receivables. Advances will bear interest based on the London Interbank Offered Rate (LIBOR) applicable to the currency in which each advance is denominated, plus a margin as specified in the Loan Agreement. Advances are to be repaid in full by July 2012. The Purchaser will also pay a fee to the lenders based on any unused amount of the receivables facility. The Loan Agreement contains representations and warranties, affirmative and negative covenants and events of default that are customary for financings of this type.

     The Sellers and Dana International Luxembourg SARL, a subsidiary of Dana (Dana Luxembourg) and certain of its subsidiaries (collectively, the Dana European Group) also entered into a Performance and Indemnity Deed (the Performance Guaranty) with GE under which Dana Luxembourg has, among other things, guaranteed the Sellers’ obligations to perform under their respective purchase agreements. The Performance Guaranty contains representations and warranties, affirmative and negative covenants, and events of default that are customary for financings of this type, including certain restrictions on the ability of members of the Dana European Group to incur additional indebtedness, grant liens on their assets, make acquisitions and investments, and pay dividends and make other distributions. Dana Luxembourg has agreed to act as the master servicer for the transferred receivables under the terms of a servicing agreement with GE and each Seller has agreed to act as a sub-servicer under the servicing agreement for the transferred receivables it sells.

     The proceeds from the sales of the transferred receivables will principally be reinvested in our European businesses, including the repayment of intercompany debt.

DCC Notes

     See Note 2 for information about DCC’s outstanding notes and the Forbearance Agreement among DCC and most of its noteholders.

United Kingdom Financing

     During the first quarter of 2007, in connection with the restructuring and settlement of our U.K. pension obligations (see Note 6), we borrowed GBP 35 ($67) under an interim bank loan which has an October 31, 2007 maturity date. As of June 30, 2007, a balance of GBP 5 ($10) remained outstanding under this loan.

Note 14. Commitments and Contingencies

Impact of Our Bankruptcy Filing

     During our Chapter 11 reorganization proceedings, most actions against us relating to pre-petition liabilities are automatically stayed. Substantially all of our pre-petition liabilities will be addressed under our plan of reorganization or pursuant to orders of the Bankruptcy Court.

Class Action Lawsuit and Derivative Actions

     By order dated June 14, 2007 (as amended on June 18, 2007), the U.S. District Court for the Northern District of Ohio denied lead plaintiff’s motion in the consolidated securities class action Howard Frank v. Michael J. Burns and Robert C. Richter for an order partially lifting the statutory discovery stay which would have enabled the plaintiff to obtain copies of certain documents produced to the SEC. The Court still has under consideration the defendants’ motion to dismiss the Frank action. By order dated July 13, 2007, the Court dismissed the class action claims asserted by the plaintiff in the shareholder derivative action Roberta Casden v. Michael J. Burns, et al. and entered a judgment closing the case.

SEC Investigation

     We are continuing to cooperate with the SEC in its investigation with respect to matters related to the restatement of our financial statements for the first two quarters of 2005 and fiscal years 2002 through 2004.

Legal Proceedings Arising in the Ordinary Course of Business

     We are a party to various pending judicial and administrative proceedings arising in the ordinary course of business. These include, among others, proceedings based on product liability claims and alleged violations of environmental laws. We have reviewed these pending legal proceedings, including the probable outcomes, our reasonably anticipated costs and expenses, the availability and limits of our insurance coverage and surety bonds and our established reserves for uninsured liabilities.

     Further information about these legal proceedings follows, including information about our accruals for the liabilities that may arise from such proceedings. We accrue for contingent liabilities at the time when we believe they are both probable and estimable. We review our assessments of probability and estimability as new information becomes available and adjust our accruals quarterly, if appropriate. With respect to liabilities subject to compromise in the bankruptcy proceedings, we consider the potential settlement outcomes in determining whether the liabilities are probable and estimable. Since we do not accrue for contingent liabilities that we believe are probable unless we can reasonably estimate the amounts of such liabilities, our actual liabilities may exceed the amounts we have recorded.

     We do not believe that any liabilities that may result from these proceedings are reasonably likely to have a material adverse effect on our liquidity, or financial condition; however, bankruptcy claim settlements could result in charges materially impacting results of operations.

Asbestos-Related Product Liabilities

     We had approximately 72,000 active pending asbestos-related product liability claims at June 30, 2007, including approximately 6,000 claims that were settled but awaiting final documentation and payment. We project costs for asbestos-related product liability claims using the methodology that is discussed in Note 17 to our consolidated financial statements in Item 8 of our 2006 Form 10-K. We had accrued $138 for indemnity and defense costs for pending and future claims at June 30, 2007.

     Prior to 2006, we reached agreements with some of our insurers to commute policies covering asbestos-related product liability claims. There were no commutations of insurance in the first half of 2007. At June 30, 2007, our liability for future demands under prior commutations was $11, bringing our total recorded liability for asbestos-related product liability claims to $149.

     At June 30, 2007, we had recorded $71 as an asset for probable recovery from our insurers for pending and projected asbestos-related product liability claims. The recorded asset does not represent the limits of our insurance coverage, but rather the amount we would expect to recover if we paid the accrued indemnity and defense costs.

     In addition, we had a net amount recoverable from our insurers and others of $17 at June 30, 2007. The recoverable represents reimbursements for settled asbestos-related product liability claims, including billings in progress and amounts subject to alternate dispute resolution proceedings with some of our insurers.

Other Product Liabilities

     We had accrued $10 for non-asbestos product liabilities at June 30, 2007, with no recovery expected from third parties. We estimate these liabilities based on assumptions about the value of the claims and about the likelihood of recoveries against us derived from our historical experience and current information.

Environmental Liabilities

     We had accrued $59 for environmental liabilities at June 30, 2007. We estimate these liabilities based on the most probable method of remediation, current laws and regulations and existing technology. Our estimates are made on an undiscounted basis and exclude the effects of inflation. If there is a range of equally probable remediation methods or outcomes, we accrue the lower end of the range. The difference between our minimum and maximum estimates for these liabilities was $1 at June 30, 2007. Included in this accrual are amounts relating to the Hamilton Avenue Industrial Park site in New Jersey, where we are one of four potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund).

Other Liabilities Related to Asbestos Claims

     After the Center for Claims Resolution (CCR) discontinued negotiating shared settlements for asbestos claims for its member companies in 2001, some former CCR members defaulted on the payment of their shares of some settlements and some settling claimants sought payment of the unpaid shares from other members of the CCR at the time of the settlements, including Dana. Through June 30, 2007, we had paid $47 to such claimants and collected $29 from our insurance carriers with respect to these claims. At June 30, 2007, we had a net receivable of $13 for the amount that we expect to recover from available insurance and surety bonds relating to these claims. We are continuing to pursue insurance collections with respect to such claims paid prior to the Filing Date.

Assumptions Regarding Asbestos-Related Liabilities

     The amounts we have recorded for asbestos-related liabilities and recoveries are based on assumptions and estimates reasonably derived from our historical experience and current information. The actual amount of our liability for asbestos-related claims and the effect on us could differ materially from our current expectations if our assumptions about the outcome of the pending unresolved asbestos-related product liability claims, the volume and outcome of projected future asbestos-related product liability claims, the outcome of claims relating to the CCR-negotiated settlements, the costs to resolve these claims, or the amount of available insurance and surety bonds prove to be incorrect, or if U.S. federal legislation impacting

asbestos personal injury claims is enacted. Although we have projected our liability for future asbestos-related product liability claims based upon historical trend data that we consider to be reliable, there is no assurance that our actual liability will not differ from what we currently project.

Note 15. Warranty Obligations

     We record a liability for estimated warranty obligations at the dates our products are sold. Adjustments are made as new information becomes available. Our warranty activity for the three months and six months ended June 30, 2007 and 2006 was as follows:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Balance, beginning of period		$	84			$	95			$	90			$	91
Amounts accrued for current period sales			20				10				31				25
Adjustments of prior accrual estimates			(1	)			1				2				1
Settlements of warranty claims			(15	)			(12	)			(35	)			(24	)
Foreign currency translation and other			1				1				1				2
Balance, end of period		$	89			$	95			$	89			$	95

Note 16. Income Taxes

     Income taxes are accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” Current and deferred income tax assets and liabilities are recognized based on events which have occurred and are measured under enacted tax laws. Based on our history of losses and our near-term profit outlook, we have established 100% valuation allowances against our U.S. deferred tax assets. Similar valuation allowances are recorded in other countries such as the U.K. where, based on the profit outlook, realization of the deferred taxes does not satisfy the more likely than not recognition criterion.

     The tax expense or benefit recorded in continuing operations is generally determined without regard to other categories of earnings, such as a loss from discontinued operations or OCI. An exception is provided if there is aggregate pre-tax income from other categories and a pre-tax loss from continuing operations, even if a valuation allowance has been established against deferred tax assets as of the beginning of the year. The tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expense recorded with respect to the other categories of earnings.

     Prior to considering the effect of income taxes, Dana reported U.S. OCI of $401 for the six months ended June 30, 2007, primarily as a result of amending its pension and other postretirement benefit plans. The exception described in the preceding paragraph resulted in reducing OCI for the quarter ended June 30, 2007 by $73. An offsetting tax benefit was attributed to continuing operations; however, the benefit recorded in continuing operations for the quarter was limited to $26 due to interperiod tax allocation rules, resulting in a deferred credit of $47 being recorded in other accrued liabilities as of June 30, 2007. The amount to be recognized in the second half of 2007 will be affected by the OCI and pre-tax loss from continuing operations reported for the period.

     Our tax provision for the three months ended June 30, 2007 included incremental net tax expense of $3 for items that should have been recorded in prior periods, including an $8 reduction for the March 2007 divestiture of our engine hard parts business and $11 of additional tax expense relating to the fourth quarter of 2006 modification of our plans to repatriate 2007 divestiture proceeds to the U.S. These items did not have a material effect on net loss for any of the affected periods.

     With the exception of this $26 of income tax benefits recorded in continuing operations for the three and six months ended June 30, 2007, we have not recognized tax benefits on losses generated since 2005 in several countries, including the U.S. and the U.K., where the recent history of operating losses does not allow us to satisfy the “more likely than not” criterion for realization of deferred tax assets. This is the primary factor which causes the tax expense of $3 and $18 for the three and six months ended June 30, 2007 to differ from expected tax benefits of $37 and $47 at the U.S. federal statutory rate of 35%. This is also the primary factor which causes the tax expense of $36 and $58 for the three and six months ended June 30, 2006 to differ from the expected tax benefits of $0 and $32 using the 35% rate.

     We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48), on January 1, 2007, and credited retained earnings for the initial impact of approximately $3. As of the adoption date, we had gross unrecognized tax benefits of $137, of which $112 can be reduced by net operating loss carryforwards, and other timing adjustments. The net amount of $25, if recognized, would affect our effective tax rate. Unrecognized tax benefits are the difference between a tax position taken, or expected to be taken, in a tax return and the benefit recognized for accounting purposes pursuant to FIN 48. We recognize interest and penalties related to unrecognized tax benefits in income tax expense.

     We conduct business globally and, as a result, file income tax returns in the U.S. and various non-U.S. jurisdictions. In the normal course of business we are subject to examination

by taxing authorities throughout the world. With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations for years before 1999. We are currently under audit by the U.S. Internal Revenue Service for the 2003 to 2005 tax years. It is likely that the examination phase of this audit will conclude in 2007.

     As of June 30, 2007, the total amount of gross unrecognized tax benefits was $49, of which $31, if recognized, would impact the effective tax rate. The gross unrecognized tax benefits decrease of $88 from January 1, 2007 was caused by our assessment that an uncertain tax position had become a certain tax position. The certain position was related to years in which we had incurred net operating losses. As a result of this change we reduced the deferred benefit of our net operating loss carryforwards and our valuation allowance. This adjustment did not impact the effective tax rate or result in cash taxes. If matters for 1999 through 2002 that are currently under discussion with the U.S. Internal Revenue Service ultimately settle within the next 12 months, the total amounts of unrecognized tax benefits may increase or decrease for all open tax years. Audit outcomes and the timing of the audit settlements are subject to significant uncertainty; therefore, we cannot make an estimate of the impact on earnings at this time.

Note 17. Other Income, Net

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2007				2006				2007				2006
Interest income		$	9			$	11			$	17			$	20
DCC income			19				14				25				23
Divestiture gains											12
Foreign exchange gain, net			14								19				3
Claim settlement			(11	)							(11	)
Government grants			3				3				6				4
Rental income							1				3				1
Other, net			(2	)			10				7				19
Other income, net		$	32			$	39			$	78			$	70

     Foreign currency denominated intercompany loans valued at $197 at June 30, 2007 by the Debtors to certain non-U.S. operations have been determined to no longer be permanently invested. As such, the foreign exchange gains or losses on these loans are now recorded in other income rather than as translation gain or loss in other comprehensive income. The bankruptcy claim settlement charge of $11 represents the estimated costs to settle a contractual matter with an investor in one of our equity investments.

Note 18. Segments

     SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS No. 131), establishes standards for reporting information about operating segments and related disclosures about products and services and geographic locations. SFAS No. 131 requires reporting on a single basis of segmentation. The components that management establishes for purposes of making decisions about an enterprise’s operating matters are referred to as “operating segments.” We currently have seven operating segments within two manufacturing business units (ASG and HVTSG). ASG consists of five operating segments: Axle, Driveshaft, Sealing, Thermal and Structures. HVTSG consists of two operating segments: Commercial Vehicle and Off-Highway.

     Management also monitors shared services, operations that are not part of the operating segments, trailing liabilities of closed operations and other administrative costs.

     Management evaluates DCC as if it were accounted for under the equity method of accounting rather than on the fully consolidated basis used for external reporting. DCC is included as a reconciling item between the segment results and our income (loss) from continuing operations before income taxes.

     At the start of 2007, we modified the methodology underlying the transfer pricing on certain sales from the Axle and Driveshaft segments to the Commercial Vehicle segment. For comparability purposes, segment profits in 2006 have been adjusted to be consistent with the new profit allocation used by management to evaluate segment performance.

     Earnings before interest and taxes (EBIT) is the key internal measure of performance used by management as a measure of profitability for our segments. EBIT, a non-GAAP financial measure, excludes equity in earnings of affiliates. It includes sales, cost of sales, SG&A and certain reorganization items and other income (expense) items, net. Certain nonrecurring and unusual items like goodwill impairment, certain realignment charges and divestiture gains and losses are excluded from segment EBIT. EBIT is a critical component of earnings before interest, taxes, depreciation, amortization, restructuring and reorganization charges (EBITDAR), which is a measure used to determine compliance with our DIP Credit Agreement financial covenants.

     We used the following information to evaluate our operating segments for the three months ended June 30, 2007 and 2006:

						Inter-
		External				Segment				Segment
2007		Sales				Sales				EBIT
ASG
Axle		$	716			$	26			$	13
Driveshaft			307				59				22
Sealing			190				6				16
Thermal			79				2				5
Structures			279				5				21
Eliminations and other			7				(69	)			(10)
Total ASG			1,578				29				67
HVTSG
Commercial Vehicle			307				2				4
Off-Highway			403				12				41
Eliminations and other							(11	)			(2	)
Total HVTSG			710				3				43
Other Operations			1				8
Eliminations							(40	)
Total Segments		$	2,289			$	—			$	110