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: September 30, 2007

Dana Corporation

Virginia		34-4361040
(State or other jurisdiction of		(IRS Employer Identification Number)
incorporation or organization)
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 October 31, 2007
Common stock, $1 par value		149,823,595

 

 

DANA CORPORATION — FORM 10-Q
FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 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 Nine Months Ended September 30, 2007 and 2006			5
		Condensed Consolidated Balance Sheet (Unaudited) at September 30, 2007 and December 31, 2006			6
		Condensed Consolidated Statement of Cash Flows (Unaudited) for the Nine Months Ended September 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			45
Item 3		Quantitative and Qualitative Disclosures About Market Risk			81
Item 4		Controls and Procedures			81
		PART II — OTHER INFORMATION
Item 1		Legal Proceedings			84
Item 1A		Risk Factors			84
Item 6		Exhibits			84
Signatures					85
Exhibit Index					86
EX-10-P
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), our quarterly reports on Form 10-Q for the quarterly periods ended March 31, 2007 and June 30, 2007 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 obtain confirmation of a plan of reorganization as required under the terms of: (a) the Investment Agreement dated as of July 26, 2007 between Centerbridge Capital Partners, L.P.(Centerbridge), CBP Parts Acquisition Co. LLC and Dana (the Investment Agreement) and (b) the Plan Support Agreement dated as of July 26, 2007 by and among Dana; United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (the USW); the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (the UAW); Centerbridge and certain creditors of Dana (the Plan Support Agreement). If a plan of reorganization does not become effective by February 28, 2008, certain individual supporting creditors may withdraw their support, and if one does not become effective by May 1, 2008, our Plan Support Agreement will expire.

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 Chrysler LLC (Chrysler);
	•		The ratification by Ford unionized employees of a tentative collective bargaining agreement thereby averting potential strike-related 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
(In millions, except per share amounts)

ITEM 1. FINANCIAL STATEMENTS

DANA CORPORATION
(DEBTOR IN POSSESSION)

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Net sales		$	2,130			$	2,009			$	6,564			$	6,506
Costs and expenses
Cost of sales			2,017				1,952				6,201				6,209
Selling, general and administrative expenses			79				85				263				315
Realignment charges, net			6				2				159				4
Impairment of assets							211								226
Other income, net			30				44				108				114
Income (loss) from continuing operations before interest, reorganization items and income taxes			58				(197	)			49				(134	)
Interest expense (contractual interest of $54 and $51 for the three months ended September 30, 2007 and 2006 and $159 and $151 for the nine months ended September 30, 2007 and 2006)			27				24				78				89
Reorganization items, net			98				25				173				114
Loss from continuing operations before income taxes			(67	)			(246	)			(202	)			(337	)
Income tax benefit (expense)			3				(20	)			(15	)			(78	)
Minority interest expense			(4	)			(2	)			(10	)			(5	)
Equity in earnings (loss) of affiliates			4				(4	)			22				12
Loss from continuing operations			(64	)			(272	)			(205	)			(408	)
Loss from discontinued operations			(5	)			(84	)			(89	)			(102	)
Net loss		$	(69	)		$	(356	)		$	(294	)		$	(510	)
Basic loss per common share
Loss from continuing operations		$	(0.42	)		$	(1.81	)		$	(1.36	)		$	(2.72	)
Loss from discontinued operations			(0.04	)			(0.56	)			(0.60	)			(0.68	)
Net loss		$	(0.46	)		$	(2.37	)		$	(1.96	)		$	(3.40	)
Diluted loss per common share
Loss from continuing operations		$	(0.42	)		$	(1.81	)		$	(1.36	)		$	(2.72	)
Loss from discontinued operations			(0.04	)			(0.56	)			(0.60	)			(0.68	)
Net loss		$	(0.46	)		$	(2.37	)		$	(1.96	)		$	(3.40	)
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)

		September 30,				December 31,
		2007				2006
Assets
Current assets
Cash and cash equivalents		$	1,035			$	704
Restricted cash			12				15
Accounts receivable
Trade, less allowance for doubtful accounts of $22 in 2007 and $23 in 2006			1,410				1,131
Other			290				235
Inventories
Raw materials			348				290
Work in process and finished goods			495				435
Assets of discontinued operations			52				392
Other current assets			157				122
Total current assets			3,799				3,324
Investments and other assets			1,099				1,079
Investments in equity affiliates			207				555
Property, plant and equipment, net			1,741				1,776
Total assets		$	6,846			$	6,734
Liabilities and shareholders’ deficit
Current liabilities
Notes payable, including current portion of long-term debt		$	192			$	293
Debtor-in-possession financing			900
Accounts payable			1,135				886
Liabilities of discontinued operations			21				195
Other accrued liabilities			838				712
Total current liabilities			3,086				2,086
Liabilities subject to compromise			3,687				4,175
Deferred employee benefits and other non-current liabilities			493				504
Long-term debt			21				22
Debtor-in-possession financing							700
Commitments and contingencies (Note 14)
Minority interest in consolidated subsidiaries			95				81
Total liabilities			7,382				7,568
Shareholders’ deficit			(536	)			(834	)
Total liabilities and shareholders’ deficit		$	6,846			$	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)

		Nine Months Ended
		September 30,
		2007				2006
Operating activities
Net loss		$	(294	)		$	(510	)
Depreciation and amortization			209				206
Impairment and divestiture-related charges			3				325
Non-cash portion of U.K. pension charge			60
Reorganization items, net of payments			59				49
Payments to VEBAs for postretirement benefits			(27	)
Changes in working capital			(183	)			29
Other			(68	)			(85	)
Net cash flows provided by (used in) operating activities			(241	)			14
Investing activities
Purchases of property, plant and equipment			(148	)			(239	)
Proceeds from sale of businesses			400
Proceeds from sale of DCC assets and partnership interests			104
Proceeds from sale of other assets			7				54
Acquisition of business, net of cash acquired							(17	)
Payments received on leases and loans			8				20
Decrease in restricted cash			3
Other			53				33
Net cash flows provided by (used in) investing activities			427				(149	)
Financing activities
Net change in short-term debt			(11	)			(553	)
Proceeds from debtor-in-possession facility			200				700
Proceeds from European Securitization Program			30
Reduction in DCC Medium Term Notes			(129	)
Net cash flows provided by financing activities			90				147
Net increase in cash and cash equivalents			276				12
Cash and cash equivalents — beginning of period			704				762
Effect of exchange rate changes on cash balances			61				6
Net change in cash of discontinued operations			(6	)			5
Cash and cash equivalents — end of period		$	1,035			$	785

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

Notes to Condensed Consolidated Financial Statements
(In millions, except per share amounts)

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 plan of reorganization are reported at the amounts expected to be allowed by the United States Bankruptcy Court for the Southern District of New York (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 defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States (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. Fresh start reporting would require that we adjust our balance sheet at the date of emergence to equal the reorganization value as determined in connection with the Bankruptcy Court approved plan of reorganization. Reorganization value is the estimated fair value of the assets available to satisfy the allowed bankruptcy claims and postpetition liabilities. Accumulated depreciation, accumulated deficit and accumulated other comprehensive income will be reset to zero. The reorganization value will be allocated to our individual assets and liabilities based on their fair value at the date of emergence. Items such as current liabilities, accounts receivable and cash will generally remain at the amounts reported prior to emergence. Items such as inventory; property, plant and equipment; long-term assets and long-term liabilities may be significantly adjusted from amounts currently reported. The variance between reorganization value and the fair value of assets and liabilities may be treated in accordance with FAS 141, “Business Combinations.” SOP 90-7 also requires that changes in accounting principles that the emerging entity must adopt within twelve months of 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 continue to trade on the OTC Bulletin Board under the symbol “DCNAQ,” the opportunity for any recovery by shareholders under a confirmed plan of reorganization is uncertain. If our Third Amended Plan of Reorganization of Debtors and Debtors in Possession (the Plan) which was filed with the Bankruptcy Court on October 23, 2007 is ultimately confirmed, Dana common shares will be cancelled and shareholders with allowed interests will be entitled to a pro rata share of the assets, if any, that remain after the holders of allowed unsecured claims have been paid in full, with interest. There is no assurance that the Plan will be confirmed or, if it is, that there will be any residual assets for the benefit of holders of Dana common shares. In fact, the Debtors do not currently anticipate that the holders of Dana common shares will receive any distribution under the 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 during the bankruptcy process 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 and subsequently disbanded.

     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. The Plan and certain procedures approved by the Bankruptcy Court address the proposed treatment of outstanding executory contracts and unexpired leases upon the Debtors’ emergence from bankruptcy.

     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 NOL 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 prior to 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. However, in accordance with the agreement with the new investors, the Plan contemplates utilizing tax benefits under Section 382(l)(6) of the Internal Revenue Code, rather than Section 382(I)(5). Accordingly, under the Plan, no sell-down of claims will be required.

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 in a total amount of approximately $27,215 (as well as certain unliquidated amounts) were filed by that date. In addition, another $48 in liabilities, for which no proof of claim was filed, is listed in our schedules of assets and liabilities as undisputed, non-contingent and liquidated, and thus is deemed to be asserted as claims under the Bankruptcy Code.

     Of the claims filed, the Debtors have identified claims totaling approximately $24,468 that they believe should be disallowed, primarily because they appear to be amended, duplicative, withdrawn by the creditor, without basis for the claim, late filed or are interests and solely equity-based. Of these claims (or portions of claims), approximately $22,244 had been disallowed by the Bankruptcy Court, withdrawn by the creditors or eliminated by settlement through October 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. The Plan addresses the proposed treatment of allowed claims and provides for the resolution of remaining claims after emergence from Chapter 11.

     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 the remaining claims are, in most cases, significantly lower than the amount claimed 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. The Debtors are in settlement discussions with substantially all of the remaining claimants and are seeking to reach agreement as to the allowed claim amounts. Agreements to settle these claims could be for amounts in excess of the liability currently recorded. The remaining claims to be settled are primarily EPA and other environmental claims in excess of our estimated liability. As of the present date, these additional amounts do not meet the probable and estimable standards for recognition in the financial statements.

     Under the Plan, the Debtors propose that asbestos-related personal injury claims be reinstated upon emergence and that the reorganized Debtors will defend, settle and resolve such pending and future claims in the ordinary course of business. In addition, certain pension liabilities will remain an obligation of the reorganized Debtors.

     In August 2007, the Bankruptcy Court approved a settlement agreement with Sypris Solutions, Inc. (Sypris) under which Sypris has been granted an allowed general unsecured claim of $90 in the Bankruptcy Cases. 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 have executed a new long-term supply agreement at prices more favorable to Dana than those in the prior agreements and Sypris has released Dana from all filed and asserted claims other than the general unsecured claim described above.

     In August 2007, we entered into a settlement agreement with the Toledo-Lucas County Port Authority (Port Authority) under which we intend to amend a lease on an office facility to market rate terms and grant a general unsecured claim to the Port Authority of $15. The Port Authority has received a secured claim on the property of $19 which, under the Plan, is proposed to be satisfied by our entry into an amended lease upon emergence.

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 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 September 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. The Plan addresses the proposed treatment of the claims of the holders of these notes upon our emergence.

Reorganization Initiatives

     It is critical to the Debtors’ successful emergence from bankruptcy that they: (i) maintain positive margins for their products through substantial price increases obtained from their customers, (ii) continue to recover or otherwise provide for increased material costs through renegotiation or rejection of various customer programs, (iii) realize the restructured wage and benefit programs from settlement agreements with two primary unions which eliminate the excessive cash requirements of the legacy pension and other postretirement benefit liabilities accumulated over the years, (iv) realize the benefits of changes in the manufacturing footprint that eliminated excess capacity, closed and consolidated facilities and repositioned operations in lower cost countries and (v) continue the permanent reduction and realignment of their overhead costs. The steps that the Debtors have taken to accomplish these goals are discussed in Item 2 of Part I.

Plan of Reorganization

     The Debtors filed the Plan and the related Third Amended Disclosure Statement with Respect to Joint Plan of Reorganization of Debtors and Debtors in Possession (the Disclosure Statement) with the Bankruptcy Court on October 23, 2007. On October 23, 2007, the Bankruptcy Court approved the Disclosure Statement authorizing the Debtors to begin soliciting votes from their creditors to accept or reject the Plan. By that order, the Bankruptcy Court determined that the Disclosure Statement contains adequate information for creditors who are entitled to vote on the Plan. The hearing at which the Bankruptcy Court will consider confirmation of the Plan is scheduled to commence on December 10, 2007. Copies of these documents are contained in a Current Report on Form 8-K that Dana filed with the SEC on November 2, 2007.

     The Plan and Disclosure Statement describe the anticipated organization, operations and financing of the reorganized Debtors if the Plan is confirmed by the Bankruptcy Court and becomes effective. Among other things, the Plan incorporates certain provisions of the following agreements that are discussed in Note 19 to our condensed consolidated financial statements in Item 1 of Part I of our second-quarter 2007 Form 10-Q as well as in the Current Report on Form 8-K that Dana filed with the SEC on October 25, 2007: (i) the settlement agreements with the USW and the UAW (Settlement Agreements); (ii) the Investment Agreement with Centerbridge and a Centerbridge affiliate that provides for the Centerbridge affiliate to purchase $250 in Series A convertible preferred shares of reorganized Dana, with qualified creditors of the Debtors (i.e., creditors who meet specified criteria) having an opportunity to purchase up to $540 in Series B convertible preferred shares on a pro rata basis and with Centerbridge agreeing to purchase up to $250 in any Series B convertible preferred shares that are not purchased by the qualified creditors; and (iii) a letter agreement dated October 18, 2007 with Dana, specified members of the ad hoc steering committee of bondholders and their affiliates (the Backstop Investors) (the Backstop Commitment Letter) who severally agreed to purchase up to $290 in Series B convertible preferred shares of reorganized Dana that are not subscribed for by qualified supporting creditors in the offering or purchased by Centerbridge in accordance with its obligations under the Investment Agreement. Through these arrangements, reorganized Dana has obtained contractual assurance that it will raise $790 through the offering to qualified investors and the commitments of Centerbridge and the Backstop Investors. Under the Plan Support Agreement, if a plan of reorganization does not become effective by February 28, 2008, certain individual supporting creditors may withdraw their support and if one does not become effective by May 1, 2008, our Plan Support Agreement will expire.

     The Disclosure Statement contains certain information about the Debtors’ pre-petition operating and financial history, the events leading up to the commencement of the Bankruptcy Cases and significant events that have occurred during the Bankruptcy Cases. The Disclosure Statement also describes the terms and provisions of the Plan, including certain effects of confirmation of the Plan, certain risk factors associated with securities to be issued under the Plan, certain alternatives to the Plan, the manner in which distributions will be made under the Plan and the confirmation process and the voting procedures that holders of claims and interests entitled to vote under the Plan must follow for their votes to be counted.

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 of the Bankruptcy Code, 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 September 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 September 30, 2007, the amount of principal outstanding under the DCC notes was $138. In October 2007, DCC made a $5 payment to the forbearing noteholders, consisting of $2 of principal and $3 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 (the DCC Claim). Under the Plan, upon emergence, the Debtors propose to satisfy DCC’s outstanding liability under the then-outstanding DCC notes in full satisfaction of the DCC Claim.

Liabilities Subject to Compromise

     As required by SOP 90-7, we have recorded liability amounts for the claims that can be reasonably estimated and which we believe are probable of being allowed by the Bankruptcy Court. Such claims are subject to future adjustments that may result from, among other things, negotiations with creditors, and rejection of executory contracts and unexpired leases. Liabilities subject to compromise may change due to reclassifications, settlements or reorganization activities that give rise to new claims or increases in existing claims.

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

		September 30, 2007				December 31, 2006
Accounts payable		$	290			$	290
Pension and other postretirement obligations			1,069				1,687
Debt (including accrued interest of $39)			1,623				1,623
Other			705				575
Consolidated liabilities subject to compromise			3,687				4,175
Payables to non-Debtor subsidiaries			401				402
Debtor liabilities subject to compromise		$	4,088			$	4,577

     Other includes accrued liabilities for environmental, asbestos-related and other product liabilities, income tax, deferred compensation, other postemployment benefits and contract rejection claims. Payables to non-Debtor subsidiaries include the DCC Claim. Claims and settlement activity described elsewhere in Note 2 added $108 to liabilities subject to compromise during the third quarter of 2007. This increase was partially offset by pension plan contributions and settlements, other postemployment benefits payments and other payments for a net increase of $41.

     As discussed in Note 10, the reduction in pension and postretirement obligations since the end of 2006 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 and benefit payments.

     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 $54 and $51 for the three months and $159 and $151 for the nine months ended September 30, 2007 and 2006.

     During the quarter ended September 30, 2007, the Bankruptcy Court approved a settlement agreement with one of our major suppliers, Sypris. Under the terms of the settlement, Dana and Sypris entered into a new long-term supply agreement, and Sypris received a general, unsecured non-priority claim against Dana of $90 for damages in connection with cancellation of the old supply agreement. Liabilities subject to compromise were increased by $90 to recognize the allowed contract claim. The portion of the claim attributable to price reductions on future products to be acquired from Sypris was estimated at $35 and recorded as a deferred charge in investments and other assets. This amount will be recognized as a component of cost of sales in the future. The remaining contract claim of $55 attributable to the economic effects of other modifications to the Sypris contract (primarily to exclude certain products) has been recorded as a charge to reorganization items, net.

     During the third quarter of 2007, the Bankruptcy Court also approved a settlement agreement relating to our lease of an office facility from the Port Authority. Under the terms of the settlement agreement, in exchange for modifying the terms of the existing lease, the Port Authority will receive a secured claim of $19 and a general, unsecured nonpriority claim of $15 under the Plan. The secured claim of $19 can be satisfied by execution of an amended lease substantially in the form of that agreed by the parties and included in the Bankruptcy Court’s settlement order. This settlement has been recognized as a lease modification. The lease’s classification as an operating lease was reevaluated at the modified terms and continued classification as an operating lease was determined to be appropriate. The unsecured claim of $15 has been recorded as prepaid rent in investments and other assets, with liabilities subject to compromise increasing by a like amount.

     If, as expected, the prices under the new supply agreement with Sypris and the rental payments under the amended lease with the Port Authority are determined to be at prevailing market rates at emergence, the deferred assets recognized in connection with the above settlement actions will be eliminated and charged against income as part of applying the fresh start accounting provisions at emergence.

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 nine months ended September 30, 2007 and 2006 consisted of the following items:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Debtor reorganization items
Professional fees		$	27			$	24			$	87			$	88
Debt valuation adjustments															17
Contract rejections and claim settlements			59				(1	)			68				7
Union agreement and other costs			16								19
Interest income			(4	)			(1	)			(11	)			(4	)
Debtor reorganization items			98				22				163				108
Non-Debtor reorganization items
Professional fees							3				10				6
Total reorganization items		$	98			$	25			$	173			$	114

     Contract rejections and claim settlement charges include costs associated with the above-mentioned Sypris settlement, other lease and contract rejections and other claims settlement activity.

     As a consequence of the settlement agreement with the unions that occurred during the third quarter of 2007, lump sum payments to union employees of approximately $9 that were paid upon ratification or pursuant to other provisions of the settlement agreement were recognized as a reorganization cost.

     Non-Debtor costs during 2007 related principally to 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 nine months ended September 30, 2007 and 2006, along with the balance sheet at September 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								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Net sales
Customers		$	947			$	971			$	3,057			$	3,205
Non-Debtor subsidiaries			65				67				187				193
Total			1,012				1,038				3,244				3,398
Costs and expenses
Cost of sales			1,022				1,093				3,255				3,483
Selling, general and administrative expenses			44				48				159				200
Realignment and impairment			(1	)			10				(6	)			10
Other income, net			69				51				189				136
Income (loss) from continuing operations before interest, reorganization items and income taxes			16				(62	)			25				(159	)
Interest expense (contractual interest of $46 and $43 for the three months ended September 30, 2007 and 2006 and $135 and $121 for the nine months ended September 30, 2007 and 2006)			19				16				54				59
Reorganization items, net			98				22				163				108
Loss from continuing operations before income taxes			(101	)			(100	)			(192	)			(326	)
Income tax benefit (expense)			28				(54	)			54				(64	)
Minority interest income											2
Equity in earnings (loss) of affiliates			(1	)			(100	)			2				(107	)
Loss from continuing operations			(74	)			(254	)			(134	)			(497	)
Loss from discontinued operations			(54	)			(27	)			(172	)			(70	)
Equity in earnings (loss) of non-Debtor subsidiaries			59				(75	)			12				57
Net loss		$	(69	)		$	(356	)		$	(294	)		$	(510	)

DANA CORPORATION
DEBTOR IN POSSESSION
BALANCE SHEET (Unaudited)

		September 30, 2007				December 31, 2006
Assets
Current assets
Cash and cash equivalents		$	381			$	216
Accounts receivable
Trade, less allowance for doubtful accounts of $22 in 2007 and $23 in 2006			567				460
Other			93				71
Inventories			245				243
Assets of discontinued operations			4				237
Other current assets			43				15
Total current assets			1,333				1,242
Investments and other assets			965				875
Investments in equity affiliates			131				110
Investments in non-Debtor subsidiaries			2,202				2,292
Property, plant and equipment, net			721				689
Total assets		$	5,352			$	5,208
Liabilities and shareholders’ deficit
Current liabilities
Debtor-in-possession financing		$	900			$	—
Accounts payable			374				294
Liabilities of discontinued operations							50
Other accrued liabilities			391				343
Total current liabilities			1,665				687
Liabilities subject to compromise			4,088				4,577
Other non-current liabilities			135				76
Debtor-in-possession financing							700
Commitments and contingencies (Note 14)
Minority interest in consolidated subsidiaries							2
Total liabilities			5,888				6,042
Shareholders’ deficit			(536	)			(834	)
Total liabilities and shareholders’ deficit		$	5,352			$	5,208

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

		Nine Months Ended
		September 30,
		2007				2006
Operating activities
Net loss		$	(294	)		$	(510	)
Depreciation and amortization			102				91
Loss on sale of assets			96
Impairment and divestiture-related charges			1				30
Reorganization items, net of payments			48				43
Equity in losses (earnings) of non-Debtor subsidiaries, net of dividends			19				(58	)
Payments to VEBAs for postretirement benefits			(27	)
Changes in working capital			88				199
Other			(93	)			114
Net cash flows used for operating activities			(60	)			(91	)
Investing activities
Purchases of property, plant and equipment			(53	)			(129	)
Proceeds from sale of businesses			41
Other			39				32
Net cash flows provided by (used for) investing activities			27				(97	)
Financing activities
Proceeds from debtor-in-possession facility			200				700
Net change in short-term debt			(2	)			(546	)
Net cash flows provided by financing activities			198				154
Net increase (decrease) in cash and cash equivalents			165				(34	)
Cash and cash equivalents — beginning of period			216				286
Cash and cash equivalents — end of period		$	381			$	252

Note 4. Asset Disposals and Impairments, Divestitures and Acquisitions

DCC Asset Disposals and Impairments

     The carrying value of the remaining DCC portfolio assets was $77 at September 30, 2007, down from $178 at December 31, 2006. Where applicable, these assets are adjusted quarterly to estimated fair value less cost to sell.

     During the first nine 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 $104.

     Two remaining DCC assets with a net book value of $44 are equity investments. An agreement has been reached to sell one of the equity investments. In connection therewith, we recognized a loss in other income of $5 during the third quarter of 2007. The assets underlying the one remaining equity investment have not been impaired by the investee and there is no readily determinable market value for this investment. We will recognize an impairment charge if DCC enters into an agreement to sell the remaining investment at a value below its carrying value or if we obtain other evidence that there has been an other-than-temporary decline in the fair value of the asset. Based on internally estimated current market value, DCC expects that the future sale of the remaining asset may result in a loss of $13 to $16.

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:

	–		We sold our engine hard parts business and received cash proceeds of $98, of which $12 remains escrowed pending finalization of purchase price adjustments and satisfaction of certain of our indemnification obligations. We recorded a first quarter after-tax loss of $43 in connection with this sale.
	–		We sold our 30% equity interest in GETRAG Getriebe-und Zahnradfabrik Hermann Hagenmeyer GmbH & Cie KG (GETRAG) to our joint venture partner, an affiliate of GETRAG, 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 after tax in the first quarter of 2007 based on the value of the investment at the time of closing.

     In July and August 2007, we completed the sale of our fluid products hose and tubing business to Orhan Holding A.S. and certain of its affiliates under agreements signed in March 2007. We received aggregate cash proceeds of $84 from these transactions and recorded an aggregate third quarter after-tax gain of $32 in connection with the sale of this business.

     In August 2007, Dana and certain of our affiliates executed an axle agreement and related transaction documents providing for a series of transactions relating to our rights and obligations under two joint ventures with GETRAG and certain of its affiliates. These agreements provide for relief from non-compete provisions in various agreements restricting our ability to participate in certain markets for axle products other than through participation in the joint ventures; the grant of a call option to GETRAG to acquire Dana’s ownership interests in the two joint ventures for a purchase price of $75; Dana’s payment to GETRAG of $11 under certain conditions; the withdrawal, with prejudice, of bankruptcy claims aggregating approximately $66 filed by GETRAG and one of the joint venture entities relating to Dana’s alleged breach of certain non-compete provisions; the amendment, assumption, rejection and/or termination of certain other agreements between the parties; and the grant of certain mutual releases by Dana and various other parties. In connection with these agreements, we had recorded $11 as liabilities subject to compromise and as a charge to other income, net in the second quarter based on our determination that the liability was probable. These agreements have been approved by the Bankruptcy Court, and the agreements are expected to close in the fourth quarter.

     In September 2007, we completed the sale of our coupled fluid products business to Coupled Products Acquisition LLC for the nominal price of one dollar, with the buyer assuming certain liabilities of the business at closing, pursuant to agreements signed in May 2007. We recorded a third quarter after-tax loss of $23 in connection with the sale of this business.

     We completed the sale of a portion of the pump products business in October 2007, generating proceeds of $7 and a nominal after-tax gain, which will be recorded in the fourth quarter.

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, fluid products and pump products businesses that we have divested or are divesting are aggregated and presented as discontinued operations through their respective dates of divestiture.

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Sales		$	61			$	334			$	477			$	987
Cost of sales			73				331				479				938
Selling, general and administrative expenses			2				18				24				51
Impairment charges							87				4				115
Realignment and other expense (income), net			(6	)			(4	)			44
Loss before income taxes			(8	)			(98	)			(74	)			(117	)
Income tax benefit (expense)			3				14				(15	)			15
Loss from discontinued operations		$	(5	)		$	(84	)		$	(89	)		$	(102	)

     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 were recorded in the discontinued operations results as impairment charges. For the three months ended September 30, 2007, realignment and other expense (income), net includes a pre-tax gain of $13 in connection with the sale of the fluid products businesses and a charge of $4 for a bankruptcy claim settlement. Realignment and other expense, net for the nine months ended September 30, 2007 included a charge of $17 for settlement of pension obligations in the U.K. (see Note 6) relating to discontinued operations, $13 for estimated bankruptcy claim settlements and $14 of pre-tax losses associated with the sale of the engine hard parts and fluid products businesses. The impairment charges in 2006 primarily represent adjustments to the net assets of the businesses being sold to record their fair value less cost to sell. At September 30, 2007, we had reduced the assets of the pump products businesses to the extent permitted by GAAP. At the current expected selling prices, additional charges of $2 are expected when the sales are finalized.

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

		September 30,				December 31,
		2007				2006
Assets of discontinued operations
Accounts receivable		$	34			$	223
Inventories			6				123
Cash and other assets			12				40
Investments in leases							6
Total assets		$	52			$	392
Liabilities of discontinued operations
Accounts payable		$	10			$	95
Accrued payroll and employee benefits			3				41
Other current liabilities			8				51
Other noncurrent liabilities							8
Total liabilities		$	21			$	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 have declined due to the sale of the engine hard parts business during the first quarter and the sale of the fluid products business during the third quarter of 2007.

Note 6. Realignment of Operations

     The following tables show the realignment charges and related payments, exclusive of the U.K. pension charges discussed below, recorded in our continuing operations during the three and nine months ended September 30, 2007.

		Employee				Long-Lived
		Termination				Asset				Exit
		Benefits				Impairment				Costs				Total
Balance at June 30, 2007		$	28			$	—			$	11			$	39
Activity during the period
Charges to expense			(3	)			3				7				7
Adjustments of accruals			(1	)											(1	)
Non-cash write-off							(3	)							(3	)
Cash payments			(3	)							(13	)			(16	)
Balance at September 30, 2007		$	21			$	—			$	5			$	26

		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			8				9				31				48
Adjustments of accruals			(25	)											(25	)
Non-cash write-off							(9	)							(9	)
Cash payments			(26	)							(36	)			(62	)
Balance at September 30, 2007		$	21			$	—			$	5			$	26

     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 as a realignment expense of $128 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 Note 10), we modified certain of our manufacturing footprint optimization plans. A facility that we previously planned to close will remain open, 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 realignment charges expensed during the three months ended September 30, 2007 related primarily to the ongoing facility closure activities associated with previously announced manufacturing footprint actions, including the recognition of a post-retirement medical benefit curtailment gain of $8.

     At September 30, 2007, $26 of realignment accruals remained in accrued liabilities, including $21 for the reduction of approximately 1,500 employees to be completed over the next two years and $5 for lease terminations and other exit costs. The estimated cash expenditures related to these liabilities are projected to approximate $20 in the remainder of 2007 and $6 thereafter. In addition to the $26 accrued at September 30, 2007, we estimate that another $101 will be expensed in relation to pending initiatives.

     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 Technologies and 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			$	1			$	43			$	1
Driveshaft			31				(12	)			19				41
Sealing			3				1				4				1
Thermal			4				2				6
Structures			45				14				59				58
Total ASG			125				6				131				101
HVTSG
Commercial Vehicles			5				8				13
Off-Highway			31				2				33
Total HVTSG			36				10				46
Other			17				7				24
Total continuing operations		$	178			$	23			$	201			$	101

Note 7. Common Shares

     In addition to average shares outstanding of 149.8 for the three and nine months ended September 30, 2007 and 2006, there were 0.5 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 nine months ended September 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 10.9 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.

     Under the Plan, our common shares will be cancelled and shareholders with allowed interests will be entitled to a pro rata share of the assets, if any, that remain in a reserve after the holders of certain allowed unsecured claims have been paid in full, with interest, from such reserve. There is no assurance that the Plan will be confirmed or, if it is, that there will be any residual assets left in the reserve for the benefit of holders of Dana common shares. In fact, the Debtors do not currently anticipate that the holders of Dana common shares will receive any distribution under the Plan.

Note 8. Goodwill

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

						Effect of
		December 31,				Currency				September 30,
		2006				and Other				2007
ASG
Driveshaft		$	158			$	13			$	171
Sealing			24				1				25
Thermal			119				2				121
Total			301				16				317
HVTSG
Off-Highway			115				3				118
Total		$	416			$	19			$	435

Note 9. Equity-Based Compensation

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

     The following chart shows the number of options that vested or were forfeited during the first nine 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			(367,289	)			3.42
Forfeited			(54,750	)			3.46
Non-vested at September 30, 2007			194,987				3.31

     As of September 30, 2007, the total unrecognized compensation expense for non-vested options was less than $1, which is being amortized over a period of approximately one year. Upon emergence, common shares of the predecessor will be cancelled and shares of a new successor company will be issued. Outstanding stock options in the predecessor will be cancelled at that time. The total fair value of options that vested during the three and nine months ended September 30, 2007 was $0 and $1. During the three and nine months ended September 30, 2007, we recognized nominal equity-based compensation expense. For the three and nine months ended September 30, 2006, we recognized $0 and $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 nine months ended September 30, 2007 and 2006 were as follows:

		Three Months Ended
		September 30,
		Pension Benefits								Other Benefits
		2007				2006				2007				2006
Service cost		$	5			$	11			$	2			$	2
Interest cost			34				42				16				23
Expected return on plan assets			(40	)			(50	)
Amortization of prior service cost															(3	)
Recognized net actuarial loss			7				8				1				10
Net periodic benefit cost		$	6			$	11			$	19			$	32
Curtailment (gain) loss			6								(8	)
Settlement loss			13				3
Net periodic benefit cost after curtailment and settlements		$	25			$	14			$	11			$	32

		Nine Months Ended
		September 30,
		Pension Benefits								Other Benefits
		2007				2006				2007				2006
Service cost		$	30			$	34			$	5			$	8
Interest cost			116				124				58				68
Expected return on plan assets			(138	)			(151	)
Amortization of prior service cost							2				(6	)			(10	)
Recognized net actuarial loss			21				24				15				30
Net periodic benefit cost		$	29			$	33			$	72			$	96
Curtailment (gain) loss			6								(8	)
Settlement (gain) loss			158				14				(12	)
Net periodic benefit cost after curtailment and settlements		$	193			$	47			$	52			$	96

     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 other comprehensive income (OCI) which is being amortized to income as an offset to pension expense.

     During the first quarter of 2007, the sale of the engine hard parts business resulted in a postretirement medical plan settlement gain of $12. As described in Note 6, the restructuring of pension liabilities in the U.K. generated a pension curtailment charge of $8 in the first quarter of 2007 and a settlement charge of $145 during the second quarter of 2007.

     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 OCI.

     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. postretirement medical 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 settlement agreements with the UAW and USW. Some provisions of the agreements, such as wage structure modifications and buyouts for certain eligible employees represented by the UAW and the USW (the union-represented employees), were effective upon the Bankruptcy Court’s approval of the settlement agreements in August.

     Other provisions will be implemented on January 1, 2008 or on the date of emergence from bankruptcy, whichever is later. Under these provisions, we have agreed to:

	—		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 incurred between July 1, 2007 and January 1, 2008 or the date of emergence, if later) 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 on the later of January 1, 2008 or on the date of our emergence from bankruptcy, are expected to eliminate our remaining APBO for non-pension retiree benefits in the U.S. ($953 as of September 30, 2007). Although we expect to implement these actions, under certain circumstances (such as termination of the Centerbridge investment commitments) they may not be implemented as currently contemplated or at all. Accordingly, no recognition has been given to the effects of the benefit actions referenced in the preceding paragraph as of September 30, 2007.

     During the third quarter of 2007, lump sum distributions from one of the pension plans reached a level requiring recognition of $12 as pension settlement expense. The portions attributable to divested operations and manufacturing footprint actions amounted to $4 and $5 and were included in discontinued operations and realignment charges. The exercise of employee early retirement incentives, resulting from the settlement agreements with the unions, generated pension plan curtailment losses of $5 which are included in reorganization items, net. The lump sum distributions and the reversal of the decision to close a facility required a remeasurement of two plans which reduced our pension obligation by $42 resulting in a credit to OCI. Completion of a facility closure in the third quarter of 2007 resulted in recognition of a postretirement medical plan curtailment gain of $8 in realignment charges.

Note 11. Comprehensive Income (Loss)

     Comprehensive income (loss) includes our net loss and components of 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 nine months ended September 30, 2007 and 2006 were as follows:

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2007				2006				2007				2006
Net loss		$	(69	)		$	(356	)		$	(294	)		$	(510	)
Other comprehensive income (loss):
Deferred translation gain			61				(6	)			128				84
Postretirement healthcare plan revisions											338
Pension plan revisions			51								114
Reclassification to net loss of:
Benefit plan amortization			10								28
U.K. pension settlement											144
GETRAG deferred translation and pension											(93	)
Income tax provision			(4	)							(77	)
Other			(10	)							10
Total comprehensive income (loss)		$	39			$	(362	)		$	298			$	(426	)

     The $61 deferred translation gain reported for the three months ended September 30, 2007 resulted primarily from a further weakening of the U.S. dollar in relation to the euro ($20), the Brazilian real ($16), the Canadian dollar ($13) and the Australian dollar ($5). For the nine months ended September 30, 2007, the Brazilian real ($50), the euro ($33), the Canadian dollar ($22) and the Australian dollar ($13) all strengthened relative to the U.S. dollar, contributing to a deferred translation gain of $128.

     OCI for the three months ended September 30, 2007 includes the reclassification to net income of $9 for settlements relating to lump sum distributions from a salaried pension plan and $10 for the amortization of unamortized benefit plan losses. The plan remeasurement resulting from the lump sum distributions in the salaried plan reduced our pension obligations and increased OCI for the quarter ended September 30, 2007 by $35. In addition, OCI for the quarter includes a $7 credit related to the remeasurement of a plan affected by our decision in the second quarter of 2007 to retain a facility that had been identified in 2006 for closure. The plan remeasurement was not completed until the third quarter and reporting the $7 in the current period does not have a material effect on OCI for either the current or the previous quarter. OCI for the nine months ended September 30, 2007 includes an additional credit of $63 related to pension plan modifications, $223 resulting from settlements reached with the Retiree Committee and the IAM (see Note 10) and $115 from the termination of postretirement healthcare coverage for active non-union employees (see Note 10). Amortization of benefit plan losses for the nine months totals $28. OCI for the nine months ended September 30, 2007 also includes an increase of $144 related to the April settlement of U.K. pension liabilities, effected through a cash payment and transfer of an equity interest in our U.K. axle and driveshaft operating businesses (see Note 6). The reclassification of $93 to net loss related to a deferred translation gain and unamortized pension expense associated with our equity investment in GETRAG, which we sold in March 2007.

     See Note 16 for a discussion of the tax provision.

     The $6 deferred translation loss reported for the three months ended September 30, 2006 was due to a weaker euro ($7) and South African rand ($3), offset in part by a stronger British pound ($3). The $84 deferred gain for the nine months ended September 30, 2006 was due to a stronger euro ($53), Brazilian real ($22) and British pound ($18), partially offset by a weaker rand ($9).

Note 12. Cash Deposits

     At September 30, 2007, cash and cash equivalents held in the U.S. amounted to $381. 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 $12 is restricted under the terms of the Forbearance Agreement discussed in Note 2 and is reported separately as restricted cash.

     At September 30, 2007, cash and cash equivalents held outside the U.S. amounted to $654. Included in this amount was $23 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 available under our DIP Credit Agreement (discussed in Note 13). Availability at September 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 September 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 September 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 $249 after deducting the $100 minimum availability requirement and $230 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 September 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 September 30, 2007, it had availability under the Canadian Credit Agreement of $65 after deducting the $20 minimum availability requirement and $2 for outstanding letters of credit. Dana Canada had no borrowing under this agreement at September 30, 2007.

European Receivables Loan Facility

     In July 2007, certain of Dana’s European subsidiaries established a five-year accounts receivable securitization facility under which the euro equivalent of up to $225 in financing will be available to those subsidiaries when the securitization processes are completed in all countries. For a discussion of this facility and the receivables program, see Note 13 to our condensed consolidated financial statements in Item 1 of Part I of our second quarter 2007 Form 10-Q. At September 30, 2007, there was availability of $37 in countries that have started securitization and there were borrowings under this facility equivalent to $30 recorded as notes payable. The proceeds from the borrowings were used for operations and 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 under an interim bank loan which has an October 31, 2007 maturity date. As of September 30, 2007, this bank loan had been repaid.

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

     A securities class action entitled Howard Frank v. Michael J. Burns and Robert C. Richter was originally filed in October 2005 in the U.S. District Court for the Northern District of Ohio, naming Dana’s Chief Executive Officer, Michael J. Burns, and former Chief Financial Officer, Robert C. Richter, as defendants. In a consolidated complaint filed in August 2006, the lead plaintiff alleged violations of the U.S. securities laws and claimed that the price at which Dana’s shares traded at various times between April 2004 and October 2005 was artificially inflated as a result of the defendants’ alleged wrongdoing. In June 2007, the District Court denied the lead plaintiff’s motion 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. By order dated August 21, 2007, the District Court granted the defendants’ motion to dismiss the consolidated complaint and entered a judgment closing the case. In September 2007, the plaintiff filed a notice of appeal from the District Court’s order and judgment.

     A shareholder derivative action entitled Roberta Casden v. Michael J. Burns, et al. was originally filed in the U.S. District Court for the Northern District of Ohio in March 2006 on behalf of Dana. An amended complaint filed in August 2006 added non-derivative class claims on behalf of holders of Dana shares on the day of its bankruptcy filing alleging, among other things, that Dana’s bankruptcy filing had been made in bad faith. In June 2006, the District Court stayed the derivative claims, deferring to the Bankruptcy Court on those claims. In July 2007, the District Court dismissed the non-derivative class claims asserted in the amended complaint and entered a judgment closing the case. In August 2007, the plaintiff filed a notice of appeal from the District Court’s order and judgment. A second shareholder derivative action, Steven Staehr v. Michael J. Burns, et al., remains stayed in the U.S. District Court for the Northern District of Ohio.

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 Personal Injury Liabilities

     We had approximately 55,000 active pending asbestos-related product liability claims at September 30, 2007, including approximately 6,000 claims that were settled but awaiting final documentation and payment. The number of active pending claims was reduced as tort reform and other initiatives in the State of Mississippi resulted in the dismissal of 17,000 claims. Due to the nature of these dismissed claims, the impact on the estimated liability was not significant. On October 26, 2007, Dana filed a motion with the Bankruptcy Court seeking approval to resolve an additional 7,500 pending cases. The estimated total payments for these settlements, if all claimants are able to submit the required proof to support their claims, would approximate $2. 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 September 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 three quarters of 2007. At September 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 September 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 September 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.

     Under the Plan, the Debtors propose that their asbestos-related personal injury claims be reinstated upon emergence and that the reorganized Debtors will defend, settle and resolve such pending claims and future demands in the ordinary course of business.

Other Product Liabilities

     We had accrued $11 for non-asbestos product liabilities at September 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 $60 for environmental liabilities at September 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 September 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). The Debtors are pursuing a final estimation of this claim through a court proceeding in the Bankruptcy Court. Previously, the Bankruptcy Court entered an order approving an estimation process and scheduling a hearing for January 2008 to determine the amount of the Debtors’ liability relating to the Hamilton Avenue Industrial Park site and certain other sites. However, the United States Environmental Protection Agency (EPA) filed and is prosecuting a motion in the United States District Court for the Southern District of New York seeking to have the estimation proceeding conducted in the District Court instead of the Bankruptcy Court. The EPA also has sought a 60-day extension of the estimation schedule established by the Bankruptcy Court. At this time, the court that will hear the estimation proceeding has not been determined. The Debtors do not expect this issue to delay their emergence from bankruptcy.

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 September 30, 2007, we had paid $47 to such claimants and collected $29 from our insurance carriers with respect to these claims. At September 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 nine months ended September 30, 2007 and 2006 was as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Balance, beginning of period		$	89			$	95			$	90			$	91
Amounts accrued for current period sales			16				12				47				37
Adjustments of prior accrual estimates			(2	)			(3	)							(2	)
Settlements of warranty claims			(11	)			(14	)			(46	)			(38	)
Foreign currency translation and other			2				(1	)			3				1
Balance, end of period		$	94			$	89			$	94			$	89

     We have been notified by a European customer that a quality matter relating to a specific product supplied by Dana could potentially result in warranty claims. Our customer has advised us of alleged vehicle performance issues which may be potentially attributable to our product. We are currently investigating the information provided by our customer and performing product testing to ascertain whether the reported performance failures are attributable to our product. At September 30, 2007, no liability had been recorded for this matter as the information currently available to us is insufficient to assess our liability, if any.

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, our operations in the U.S. reported OCI of $444 for the nine months ended September 30, 2007, primarily as a result of amending its pension and other postretirement benefit plans. The exception described in the preceding paragraph resulted in a year-to-date charge to OCI of $77. An offsetting tax benefit was attributed to continuing operations; however, the benefits recorded in continuing operations for the three months and nine months ended September 30, 2007 were limited to $34 and $60 due to interperiod tax allocation rules, leaving a deferred credit balance of $17 in other accrued liabilities as of September 30, 2007. The amount to be recognized in the fourth quarter of 2007 will be affected by the OCI and pre-tax loss from continuing operations reported for the period by our operations in the U.S.

     With the exception of the $60 of income tax benefits recorded in continuing operations for the nine months ended September 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 benefit of $3 for the three months and the tax expense of $15 for the nine months ended September 30, 2007 to differ from expected tax benefits of $23 and $71 at the U.S. federal statutory rate of 35%. This is also the primary factor which causes the tax expense of $20 and $78 for the three and nine months ended September 30, 2006 to differ from the expected tax benefits of $86 and $118 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 (NOL) 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 multiple jurisdictions and 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 foreign income tax examinations for years before 1999. The 1999 — 2002 U.S. federal audits are closed except for a determination of the treatment of certain leasing transactions. The closing agreement on this transaction is expected to be finalized by the end of 2007, and the effect, if any, on the financial statements is not expected to be material. We are currently under audit by the U.S. Internal Revenue Service for the 2003 to 2005 tax years. The examination phase of this audit is expected to be completed early in 2008.

     As of September 30, 2007, the total amount of gross unrecognized tax benefits was $51, of which $30, if recognized, would impact the effective tax rate. The gross unrecognized tax benefits decrease of $86 from January 1, 2007 was caused by our continuing assessment of certain and uncertain tax positions. If matters for 1999 through 2005 are settled with the U.S. Internal Revenue Service within the next 12 months, the total amounts of unrecognized tax benefits for all open tax years may be modified. 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. As discussed in Note 2, we have included accrued liabilities for income taxes of the Debtors in liabilities subject to compromise. These tax liabilities will be settled on emergence from bankruptcy.

     German tax laws enacted in July 2007 will limit the future utilization of NOLs for companies that change ownership after December 31, 2007. If our emergence from bankruptcy occurs after December 31, this law would have an adverse impact on our ability to realize our deferred tax assets in Germany related to NOL’s. We are currently reviewing tax planning strategies to utilize some or all of these NOL’s prior to December 31, 2007. The deferred tax asset at risk due to this law change is approximately $5. Tax reforms in Mexico enacted in October 2007 will reduce our tax rate beginning on January 1, 2008, and we will reduce our deferred tax liability during the fourth quarter. The lower rate will have a favorable impact on the taxation of our operations in Mexico beginning in 2008. Tax legislation enacted in other jurisdictions, including the U.K. and State of Michigan, during the third quarter of 2007 did not have a material effect on our financial statements.

Note 17. Other Income, Net

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2007				2006				2007				2006
Interest income		$	12			$	8			$	29			$	28
DCC income, net			(4	)			10				14				33
Divestiture gains							15				12				15
Foreign exchange gain (loss),net			17				(1	)			36				2
Claim settlement											(11	)
Government grants			4				3				10				7
Rental income			2				2				5				3
Other, net			(1	)			7				13				26
Other income, net		$	30			$	44			$	108			$	114