Financial overview

Contracts
In January 2006, Ford has extended its contract with the Company to supply the full-perimeter frame for the F-150 full-size pickup. The Company has supplied the full-perimeter frame for the F-150 for more than 30 years. Depending on the engine and transmission configuration, it also supplies the transmission oil cooler, piston rings, and various gaskets and fluid-transfer products for the Ford F-150.

In February 2006, the Company has been awarded a contract to continue supplying full-perimeter frames for the redesigned 2007 Ford Expedition and Lincoln Navigator, as well as the all-new Expedition EL and Navigator L. The Company has been supplying the frames for Expedition and Navigator since their introduction in 1997, and it also supplies the transmission oil cooler, various gaskets, and fluid-transfer products.

In July 2006, the Company begun supplying cylinder-head cover modules for the 3.0L Duratec V-6 engine appearing on the Ford Freestyle, Ford Five Hundred, and Mercury Montego vehicles.

Acquisition
In July 2006, the Company announced that it and Desc S.A. de C.V. have completed the dissolution of their Mexican joint venture. The closing of this transaction provides the Company with full ownership of several core operations based in Mexico, which will operate under Dana Holdings Mexico, S. de R.L. de C.V., a new Dana subsidiary. The Company and Desc dissolved their joint venture, Spicer S.A. de C.V., with the Company assuming 100-percent ownership of operations that manufacture and assemble axles, driveshafts, gears, forgings, and castings in which the Company previously held an indirect 49-percent interest. Desc, in turn, has assumed full ownership of the transmission and aftermarket gasket operations in which it previously held a 51-percent interest.

Restructuring
Consolidation, Divestitures and Realignment of Operation under the scheme of Reorganization under Chapter 11 of the Bankruptcy Code:

-The Company has committed to the closure of certain locations and consolidation of its operations into lower cost facilities in other countries or into U.S. facilities that currently have excess capacity. These actions included moving driveshaft machining operations from Bristol, Virginia, to its recently acquired operations in Mexico and moving axle assembly operations from Buena Vista, Virginia, to its Dry Ridge, Kentucky and Columbia, Missouri facilities. The Company also began the process of closing three Sealing and Thermal facilities in the U.S. and one in Canada, a Driveshaft facility in Charlotte, North Carolina, and a Structures plant in Canada.
During the fourth quarter of 2006, the Company announced additional closures of two Axle facilities in Syracuse, Indiana, and Cape Girardeau, Missouri, and two Structures facilities in Guelph and Thorold, Ontario. In the first quarter of 2007, the Company also announced closure of a Driveshaft plant in Renton, Washington, which will be integrated into its Louisville, Kentucky operation. The Company expects to close four additional facilities, with announcements expected later in 2007.

-In September 2006, the Company announced that it and two affiliates have entered into asset purchase agreements with Hendrickson USA, L.L.C., a subsidiary of The Boler Company, and its affiliates for the sale of Dana's trailer axle manufacturing business. Under terms of the agreements, the buyers will acquire certain assets located in Lugoff, S.C., USA; Barrie, Ontario, Canada; and Wuxi, China, which are used to manufacture heavy-duty trailer axles and suspensions for an aggregate price of approximately $38 million in cash. The buyer will also assume certain liabilities related to the business. The transactions are subject to the approval of the United States Bankruptcy Court for the Southern District of New York, which has jurisdiction over Dana's Chapter 11 reorganization proceedings.

-In December 2006, the Company announced that it has entered into a stock and asset purchase agreement with MAHLE GmbH, a leading supplier to the automotive and engine industries, for the sale of its non-core engine hard parts business. The agreement provides for MAHLE and certain of its affiliates to acquire the equity and tangible and intangible assets of the global operations comprising its engine hard parts business from the Company and certain of its affiliates for an aggregate price of approximately $157 million. Closing of the transaction is subject to the approval of the United States Bankruptcy Court for the Southern District of New York, which has jurisdiction over Dana's Chapter 11 reorganization proceedings.

R&D Expenditure

R&D Structure
- The Company is integrating related operations to create a more innovative environment, speed product development, maximize efficiency and improve communication and information sharing among its research and development operations.
-At December 31, 2006, ASG had four technical centers and HVTSG had one.

Technical Alliance
-The Company and Getrag have expanded their strategic alliance to jointly develop electronically controlled limited- slip differentials and electronic torque couplings. Under terms of the agreement, engineers from them will be working in both the United States and Europe to develop advanced torque- transfer products. The electronically activated devices will be used in Dana axles and Getrag axles, transaxles, and power-transfer units, which in turn will be applied in both light-truck and passenger-car platforms.

Product Development
Newly designed driver interface:
In January 2006, the Commercial Vehicle Systems group of the Company has enhanced its "Dana Spicer" Tire Pressure Control System (TPCS) with a new integrated Driver Display Module (DDM) that, in conjunction with new dash-mounted rocker switches, simplifies the selection of tire pressures to maximize vehicle mobility under varying load and terrain conditions. The newly designed driver interface supports two load modes - Loaded and unloaded - and three terrain selections - highway, off-highway and emergency. The highway mode permits high-speed travel on paved surfaces; off-highway allows for efficient operation on unpaved surfaces; while the emergency mode provides extremely low tire pressures to tackle exceptionally poor terrains and grades that might otherwise be impossible to negotiate without assistance. The six separate settings are designed to allow for smooth, trouble-free navigation over a wide variety of road surfaces and load conditions.

SmartWave TPMS
In February 2006, the Commercial Vehicle Systems group of the Company launched "SmartWave TPMS" tire pressure monitoring system, which resulted from last year's marketing agreement between the Company and SmarTire Systems Inc. The system provides real-time tire pressure monitoring, enabling the system to work on the road, not just when passing through a stationary gate-reader or when someone is using a hand-held device. The system communicates to off-board communication systems, sending real-time pressure and temperature data to provide proactive maintenance scheduling as required. The system alerts the driver via a warning lamp if a tire deviates from the tire manufacturer's recommended pressure settings. Each tire's condition can be graphically indicated on a dash display unit, allowing the driver to see the current pressure of each tire.

Higher level of safety control:
In May 2006, the Company has started the sales activities based on new technology proposals targeting at the next generation models of Japanese automakers as development of its unique technologies to achieve a higher level of safety control is in sight. They are powertrains and drivetrain units as sensor-equipped cylinder head gaskets and highly shock-absorbing propeller shafts. With these new technologies, the U.S. supplier plans to achieve its mid-term objective of increasing the sales ratio of Japanese automakers by three times to 30% and over, from the current level. Currently Japanese automakers account for a little over 10% of its sales with approx. 1 billion yen. The company will boost the sales activities based on the new products to expand business with globally growing Japanese automakers.

Advanced engine sealing technology:
In June 2006, the Company has begun production of an advanced engine sealing technology featuring value-added electronic features. The product, supplied to a major North American engine manufacturer, is a valve-cover gasket that is fitted to an inline six-cylinder diesel engine that powers Class 2 and 3 trucks. Additionally, the Company has been selected to supply the valve and breather cover for this engine beginning in 2007. The gasket is unique in that it provides "windows" to power circuits for the fuel injectors. Depending on the need, this type of gasket can also provide power connections for solenoids, sensors, actuators, and glow plugs. By using this technology with single or multiple connections, Dana's electronic "window" gasket simplifies production by reducing the number of components and lowering assembly time and costs. Other advantages include multiple conductor sizes, integrated wiring harnesses, and an increased resistance to heat extremes.