UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the Quarterly Period Ended June 30, 2005 Commission File Number 1-1063

Dana Corporation

(Exact name of Registrant as Specified in its Charter)

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

(419) 535-4500

(Registrant’s telephone number, including area code)

     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 Noo

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ Noo

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

Class		Outstanding at July 22, 2005
Common stock, $1 par value		150,378,400

 

 

DANA CORPORATION
INDEX

		Page Number
Cover			1
Index			2
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet - June 30, 2005 and December 31, 2004			3
Condensed Consolidated Statement of Income - Three Months and Six Months Ended June 30, 2005 and 2004			4
Condensed Consolidated Statement of Cash Flows - Six Months Ended June 30, 2005 and 2004			5
Notes to Condensed Consolidated Financial Statements			6-20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21-37
Item 3. Quantitative and Qualitative Disclosures About Market Risk			38
Item 4. Controls and Procedures			38
Part II. Other Information
Item 1. Legal Proceedings			39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 6. Exhibits			39
Signature			40
Exhibit Index			41
EX-31-A Rule 13A-14(A)/15D-14(A) Certification by CEO
EX-31-B Rule 13A-14(A)/15D-14(A) Certification by CFO
EX-32 Section 1350 Certifications

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DANA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(in millions)

		June 30, 2005				December 31, 2004
Assets
Current assets
Cash and cash equivalents		$	666			$	634
Accounts receivable
Trade			1,478				1,266
Other			295				444
Inventories
Raw materials			360				416
Work in process and finished goods			560				491
Other current assets			276				217
Total current assets			3,635				3,468
Property, plant and equipment, net			1,998				2,153
Investments in leases			246				281
Investments and other assets			3,037				3,145
Total assets		$	8,916			$	9,047
Liabilities and Shareholders’ Equity
Current liabilities
Notes payable, including current portion of long-term debt		$	409			$	155
Accounts payable			1,356				1,317
Other current liabilities			1,006				1,217
Total current liabilities			2,771				2,689
Long-term debt			1,979				2,054
Deferred employee benefits and other noncurrent liabilities			1,677				1,746
Minority interest in consolidated subsidiaries			131				123
Shareholders’ equity			2,358				2,435
Total liabilities and shareholders’ equity		$	8,916			$	9,047

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

DANA CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(in millions, except per share amounts)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2005				2004				2005				2004
Net sales		$	2,632			$	2,331			$	5,120			$	4,642
Revenue from lease financing and other income			25				25				57				39
			2,657				2,356				5,177				4,681
Costs and expenses
Cost of sales			2,428				2,101				4,753				4,206
Selling, general and administrative expenses			136				124				274				258
Interest expense			40				51				83				102
			2,604				2,276				5,110				4,566
Income before income taxes			53				80				67				115
Income tax expense			(10	)			(6	)			(10	)			(3	)
Minority interest			(3	)			(3	)			(6	)			(6	)
Equity in earnings of affiliates			11				4				18				21
Income from continuing operations			51				75				69				127
Income from discontinued operations, net of tax							35								48
Net income		$	51			$	110			$	69			$	175
Basic earnings per common share
Income from continuing operations		$	0.34			$	0.51			$	0.46			$	0.86
Income from discontinued operations							0.23								0.32
Net income		$	0.34			$	0.74			$	0.46			$	1.18
Diluted earnings per common share
Income from continuing operations		$	0.34			$	0.50			$	0.46			$	0.84
Income from discontinued operations							0.23								0.32
Net income		$	0.34			$	0.73			$	0.46			$	1.16
Cash dividends declared and paid per common share		$	0.12			$	0.12			$	0.24			$	0.24
Average shares outstanding — Basic			150				149				150				148
Average shares outstanding — Diluted			151				151				151				150

The accompanying notes are an integral part of the condensed consolidated financial
statements. As explained in Note 1, the results of operations for the three months
and six months ended June 30, 2004 have been restated to reflect the adoption of Staff
Position FAS No. 106-2.

DANA CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in millions)

		Six Months Ended June 30,
		2005				2004
Net income		$	69			$	175
Depreciation and amortization			163				183
Gain on divestitures and asset sales			(5	)			(25	)
Working capital increase			(287	)			(164	)
Deferred taxes			(35	)			(41	)
Other			(72	)			(73	)
Net cash flows — operating activities			(167	)			55
Purchases of property, plant and equipment			(132	)			(142	)
Asset sales			137				155
Payments received from partnerships			64				15
Other			(11	)			(47	)
Net cash flows — investing activities			58				(19	)
Net change in short-term debt			225				153
Payments on long-term debt			(45	)			(304	)
Proceeds from long-term debt							5
Dividends paid			(36	)			(36	)
Other			(3	)			10
Net cash flows — financing activities			141				(172	)
Net change in cash and cash equivalents			32				(136	)
Net change in cash — discontinued operations							2
Cash and cash equivalents — beginning of period			634				731
Cash and cash equivalents — end of period		$	666			$	597

The accompanying notes are an integral part of the condensed consolidated financial
statements. As explained in Note 1, the results of operations for the six months ended June 30,
2004 have been restated to reflect the adoption of Staff Position FAS No. 106-2.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in millions)

     In our opinion, the accompanying condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of financial condition, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of full-year results. We have reclassified certain amounts in 2004 to conform to the 2005 presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2004.

     The results of operations for the three months and six months ended June 30, 2004 were restated in connection with the adoption in the third quarter of 2004 of Staff Position FAS No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” The adoption resulted in a $68 decrease in our accumulated postretirement benefit obligation and a corresponding actuarial gain. Our accounting policy related to postretirement benefit plans provides for the deferral of actuarial gains and losses. To the extent the net actuarial loss exceeds ten percent of the projected benefit obligation, we are amortizing the amount over the remaining service period of the active participants. Amortization of the actuarial gain related to adoption of the new guidance, along with a reduction in service and interest costs, increased net income for the three months and six months ended June 30, 2004 by $2 and $4, respectively, and diluted earnings per share by $0.01 and $0.02, respectively.

     In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 replaces Accounting Principles Board Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and requires the direct effects of accounting principle changes to be retrospectively applied. The existing guidance with respect to accounting estimate changes and corrections of errors is carried forward in SFAS No. 154. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of SFAS No. 154 to have a material effect on our financial statements.

     In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) requires recognition of the cost of employee services provided in exchange for stock options and similar equity instruments based on the fair value of the instrument at the date of grant. The effective date for this guidance has been delayed for public companies until January 1, 2006. Accordingly, we will begin recognizing compensation expense related to stock options in the first quarter of 2006. The requirements of SFAS No. 123(R) will be applied to stock options granted subsequent to December 31, 2005 as well as the unvested portion of prior grants.

     The amount of expense will be affected by the valuation method (see Note 4), the volume of grants and exercises, forfeitures, our dividend rate and the volatility of our stock price. However, the impact of adopting SFAS No. 123(R) on our 2006 earnings is not expected to be significantly different from the pro forma expense included in our 2004 annual report.

     The following table reconciles our average shares outstanding for purposes of calculating basic and diluted net income per share:

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2005				2004				2005				2004
Average shares outstanding for the period — basic			149.5				148.6				149.5				148.5
Plus: Incremental shares from:
Deferred compensation units			0.7				0.5				0.6				0.3
Restricted stock			0.2				0.3				0.3				0.3
Stock options			0.4				1.2				0.5				1.3
Potentially dilutive shares			1.3				2.0				1.4				1.9
Average shares outstanding for the period — diluted			150.8				150.6				150.9				150.4

     In accordance with our accounting policy for stock-based compensation, we have not recognized any expense relating to our stock options. If we had used the fair value method of accounting, the alternative policy set out in SFAS No. 123, “Accounting for Stock-Based Compensation,” the after-tax expense relating to our stock options would have been $4 and $7, respectively, for the three months and six months ended June 30 of both 2005 and 2004.

     During the quarter ended March 31, 2005, we changed the method used to value stock options grants from the Black-Scholes method to a binomial method. The new method is being applied to stock options granted after December 31, 2004. The fair value of prior grants determined using the Black-Scholes method has been retained for those grants. Because the binomial method considers the possibility of early exercises of options, our historical exercise and termination experience, we believe it provides a fair value that is more representative of our experience.

     The weighted-average fair value of the 2,318,570 options granted in the first half of 2005 was $4.05 per share under the binomial method, using a weighted-average market value at date of grant of $14.94 and the following weighted-average assumptions: risk-free interest rate of 3.91%, a dividend yield of 2.68%, volatility of 30.71% to 31.5%, expected forfeitures of 17.3% and an expected life of 6.8 years.

     The following table presents stock compensation expense currently included in our financial statements related to restricted stock, restricted stock units, performance shares and stock awards, as well as the pro forma information showing results as if stock option expense had been recorded under the fair value method.

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2005				2004				2005				2004
Stock compensation expense, as reported		$	1			$	1			$	2			$	1
Stock option expense, pro forma			3				4				6				7
Stock compensation expense, pro forma		$	4			$	5			$	8			$	8
Net income, as reported		$	51			$	110			$	69			$	175
Net income, pro forma			48				106				63				168
Basic earnings per share
Net income, as reported		$	0.34			$	0.74			$	0.46			$	1.18
Net income, pro forma			0.32				0.71				0.42				1.13
Diluted earnings per share
Net income, as reported		$	0.34			$	0.73			$	0.46			$	1.16
Net income, pro forma			0.32				0.70				0.42				1.11

     As discussed in Note 1, the results of operations for the three months and six months ended June 30, 2004 were restated in connection with the adoption of Staff Position FAS No. 106-2 in the third quarter of 2004. The components of net periodic benefit costs for the three months and six months ended June 30, 2004 in the Other Benefits table below reflect these adjustments.

		Pension Benefits
		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2005				2004				2005				2004
Service cost		$	13			$	15			$	26			$	30
Interest cost			40				44				80				88
Expected return on plan assets			(52	)			(54	)			(104	)			(108	)
Amortization of prior service cost			1				2				2				4
Recognized net actuarial loss			6				4				12				8
Net periodic benefit cost		$	8			$	11			$	16			$	22

		Other Benefits
		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2005				2004				2005				2004
Service cost		$	3			$	3			$	6			$	6
Interest cost			25				27				50				54
Amortization of prior service cost			(3	)			(3	)			(6	)			(6	)
Recognized net actuarial loss			9				9				18				18
Net periodic benefit cost		$	34			$	36			$	68			$	72

     We made $25 in pension contributions to our defined benefit pension plans during the six months ended June 30, 2005 and expect to contribute approximately $55 during the last six months of the year.

     Comprehensive income includes net income and components of other comprehensive income, such as foreign currency translation and minimum pension liability adjustments that are charged or credited directly to shareholders’ equity.

     Our total comprehensive income (loss) for the three months and six months ended June 30, 2005 and 2004 was as follows:

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2005				2004				2005				2004
Net income		$	51			$	110			$	69			$	175
Other comprehensive income (loss):
Deferred translation loss			(58	)			(53	)			(118	)			(54	)
Other			1								5
Total comprehensive income (loss)		$	(6	)		$	57			$	(44	)		$	121

     The deferred translation loss reported for the three months ended June 30, 2005 of $58 resulted primarily from a weaker euro ($57), British pound ($10) and Swedish krona ($7), relative to the U.S. dollar, offset in part by the effect of a stronger Brazilian real ($31). The same currencies were primarily responsible for the $118 deferred loss for the six months ended June 30, 2005. The euro ($97), British pound ($49), Swedish krona ($12) and the Canadian dollar ($9) all weakened relative to the U.S. dollar. These effects were partially offset by the impact of a stronger Brazilian real ($30).

     The deferred translation loss reported for the three months ended June 30, 2004 was $53. The euro ($15), the Brazilian real ($11) and the Australian dollar ($11) accounted for the largest components of the quarterly change. The same currencies generated nearly all of the deferred loss for the six months ended June 30, 2004, as the effects related to the euro ($29), the Brazilian real ($13) and the Australian dollar ($9) combined for $51 of the $54 change.

     The effective tax rates for the three-month and six-month periods ended June 30, 2005 and 2004 were affected primarily by our profit mix, which included losses in the United States, and adjustments to the valuation allowance provided against deferred tax assets related to tax loss carryforwards. The June 30, 2005 enactment of new tax legislation in Ohio, which provides for the replacement of the state’s current income-based system with a new gross receipts-based system, adversely affected our effective tax rate for the three months ended June 30, 2005.

     We recognized tax expense of $10 on pre-tax profit of $53 for the three months ended June 30, 2005, which differs from the expected expense of $19 at a U.S. federal statutory tax rate of 35%. The primary reason for this difference was a $15 reduction in our valuation allowance against deferred tax assets related to the capital loss carryforward. During the second quarter, the completion of transactions generating capital gains permitted us to reduce the valuation allowance against the carryforward.

The impact of state tax benefits on losses in the United States, combined with the effect of our international operations (which in the aggregate have a lower tax rate than the U.S. operations), reduced tax expense by $4. Increasing tax expense by $11 in the quarter was the reduction in deferred tax assets resulting from enactment of the Ohio tax legislation noted previously and discussed in detail in the following paragraph.

     The new Ohio tax legislation phases out the current income-based tax and phases in a gross receipts-based tax over a period of five years. Applying this new approach, we determined that certain deferred tax assets related to our Ohio tax loss carryforwards would not be realized during the corresponding phase-out of the current income-based tax. The elimination of these deferred tax assets, net of the federal tax benefit, increased tax expense by $11 in the three months ended June 30, 2005. The legislation generally provides for the deferred tax assets eliminated due to the phase-out of the income-based tax to be recoverable as credits against taxes due under the new gross receipts-based tax. Taxes based on gross receipts, which are not subject to the same accounting rules that apply to income taxes, are recorded at their present value in selling, general and administrative expenses. The $9 discounted value (using a discount rate of 4%) of the amount we expect to recover as a credit under this provision was recognized as an asset at June 30, 2005. The corresponding credit to selling, general and administrative expense, net of federal tax, increased net income by $6. Combined with the $11 write-off of deferred tax assets, the net impact of the legislation was a $5 reduction in net income in the second quarter of 2005.

     For the six months ended June 30, 2005, tax expense of $10 on pre-tax income of $67 differed from the amount derived by applying a 35% U.S. federal statutory tax rate by $13. A primary factor in the reduced expense was the above-mentioned $15 adjustment to the valuation allowance against the capital loss carryforward in the second quarter. Lower rates on income from international operations and the state tax effects of losses in the U.S. provided an additional $11 reduction to tax expense. These two factors were partially offset by the $11 charge related to enactment of the new tax legislation in Ohio.

     The $6 of income tax expense recognized on pre-tax income of $80 for the three months ended June 30, 2004 differs significantly from an expected expense provision of $28 at a U.S. federal statutory tax rate of 35%. The primary reason for this difference was our determination that it was more likely than not that a portion of our capital loss carryforward would be utilized in connection with certain future sales of Dana Credit Corporation (DCC) assets, which enabled us to reduce our valuation allowance against deferred tax assets by $18. To the extent that asset sales or other transactional activities result in capital gains, the tax liability on the capital gains is offset by the release of a portion of the valuation allowance recorded against the deferred tax asset related to our existing capital loss carryforward. Any tax benefit recognized on this basis is limited to the lower of the expected overall net gain on the transaction or the expected amount of capital loss carryforward valuation allowances to be released in connection with the transaction. The release of the valuation allowance is recognized when sales of assets or other capital gain transactions are determined to be more likely than not to occur. The tax benefits recognized during the three months ended June 30, 2004 on DCC asset sales resulted primarily from applying this accounting treatment to these transactions, which we assessed as more likely than not to be completed. We also benefited from our forecasted utilization of net operating loss carryforwards in certain non-U.S. jurisdictions. For the six months ended June 30, 2004, a $28 reduction in the valuation allowance related to the capital loss carryforward was the primary reason that we recorded tax expense of $3 versus an expected provision of $40 derived by applying the 35% U.S. federal statutory tax rate.

     Our income from discontinued operations for the three months and six months ended June 30, 2004 included an anticipated $20 tax benefit related to the divestiture of substantially all of our automotive aftermarket businesses, which closed in November 2004. At June 30, 2004, we initially determined based on the expected outcome of the sale of these businesses that utilization of the capital loss carryforward, was more likely than not and, as such, we released $20 of the valuation allowance.

     Deferred tax assets at June 30, 2005, net of valuation allowances, approximated $895, including $741 of U.S. federal and state deferred income taxes. We evaluate the carrying value of deferred tax assets quarterly. Excluding the capital loss carryforward, the most significant portion of our deferred tax assets relates to the tax benefits recorded for U.S.-based other post-employment employee benefits (OPEB) and net operating loss (NOL) carryforwards in the U.S. Although full realization of our deferred tax assets is not assured, based on our current evaluation, we believe that realization is more likely than not achievable through a combination of improved operating results and changes in our business operating model. Failure to achieve expected profitability results in 2005 and beyond in the U.S. may change our assessment regarding the recoverability of these deferred U.S. tax assets and could result in a valuation allowance against such assets.

     Our segments for the three months and six months ended June 30, 2005 consisted of our two manufacturing business units — the Automotive Systems Group (ASG) and the Heavy Vehicle Technologies and Systems Group (HVTSG) — and Dana Credit Corporation (DCC).

     Management evaluates the operating segments and geographic regions as if DCC were accounted for on the equity method of accounting rather than on the fully consolidated basis used for external reporting. This is done because DCC is not homogeneous with our manufacturing operations, its financing activities do not support the sales of our other operating segments and its financial and performance measures are inconsistent with those of our other operating segments. Moreover, the financial covenants contained in Dana’s five-year revolving credit facility are measured with DCC accounted for on an equity basis.

     We have been divesting DCC’s businesses and assets in accordance with plans announced in October 2001 and these activities continued during the second quarter of 2005. As a result of asset sales and the continuing collection of payments, DCC’s total portfolio assets were reduced by $115 during the quarter, leaving assets of approximately $640 at June 30, 2005. While we are continuing to pursue the sale of the remaining DCC assets, we expect to retain certain assets for varying periods of time because tax attributes and/or market conditions make disposal uneconomical at this time. As of June 30, 2005, our expectation was that we would retain approximately $325 of the $640 of DCC assets held at that date; however, changes in market conditions may result in a change in our expectation. DCC’s retained liabilities include certain asset-specific financing and general obligations that are uneconomical to pay off in advance of their scheduled maturities. We expect that the cash flow generated from DCC assets, including proceeds from asset sales, will be sufficient to service DCC’s debt.

     Information used to evaluate the segments and geographic regions is as follows:

		Three Months Ended June 30,
						Inter-												Net
		External				Segment								Operating				Profit
		Sales				Sales				EBIT				PAT				(Loss)
2005
ASG		$	1,914			$	34			$	85			$	61			$	25
HVTSG			711				1				59				37				20
DCC															3				3
Other			7				16				(61	)			(48	)			5
Total operations			2,632				51				83				53				53
Unusual items excluded from performance measures											9				(2	)			(2	)
Consolidated		$	2,632			$	51			$	92			$	51			$	51
North America		$	1,635			$	27			$	32			$	21			$	(8	)
Europe			553				34				54				38				29
South America			245				66				34				21				17
Asia Pacific			199				2				18				11				7
DCC															3				3
Other											(55	)			(41	)			5
Total operations			2,632				129				83				53				53
Unusual items excluded from performance measures											9				(2	)			(2	)
Consolidated		$	2,632			$	129			$	92			$	51			$	51
2004
ASG		$	1,719			$	47			$	109			$	72			$	44
HVTSG			588				1				51				31				18
DCC															5				5
Other			24				16				(46	)			(49	)			(8	)
Total continuing operations			2,331				64				114				59				59
Discontinued operations											30				18				18
Total operations			2,331				64				144				77				77
Unusual items excluded from performance measures											(8	)			33				33
Consolidated		$	2,331			$	64			$	136			$	110			$	110
North America		$	1,577			$	25			$	80			$	48			$	24
Europe			442				31				37				26				19
South America			153				50				27				17				14
Asia Pacific			159				13				10				7				3
DCC															5				5
Other											(40	)			(44	)			(6	)
Total continuing operations			2,331				119				114				59				59
Discontinued operations											30				18				18
Total operations			2,331				119				144				77				77
Unusual items excluded from performance measures											(8	)			33				33
Consolidated		$	2,331			$	119			$	136			$	110			$	110

		Six Months Ended June 30,
						Inter-												Net
		External				Segment								Operating				Profit
		Sales				Sales				EBIT				PAT				(Loss)
2005
ASG		$	3,724			$	71			$	144			$	101			$	30
HVTSG			1,381				2				99				62				28
DCC															9				9
Other			15				30				(120	)			(101	)			4
Total operations			5,120				103				123				71				71
Unusual items excluded from performance measures											7				(2	)			(2	)
Consolidated		$	5,120			$	103			$	130			$	69			$	69
North America		$	3,221			$	54			$	56			$	33			$	(24	)
Europe			1,085				76				92				64				45
South America			454				125				56				35				27
Asia Pacific			360				7				28				18				10
DCC															9				9
Other											(109	)			(88	)			4
Total operations			5,120				262				123				71				71
Unusual items excluded from performance measures											7				(2	)			(2	)
Consolidated		$	5,120			$	262			$	130			$	69			$	69
2004
ASG		$	3,431			$	92			$	212			$	143			$	84
HVTSG			1,161				2				91				55				28
DCC															12				12
Other			50				32				(106	)			(101	)			(15	)
Total continuing operations			4,642				126				197				109				109
Discontinued operations											55				31				31
Total operations			4,642				126				252				140				140
Unusual items excluded from performance measures											(9	)			35				35
Consolidated		$	4,642			$	126			$	243			$	175			$	175
North America		$	3,171			$	52			$	163			$	102			$	49
Europe			880				61				67				48				33
South America			283				94				45				28				23
Asia Pacific			308				14				18				12				5
DCC															12				12
Other											(96	)			(93	)			(13	)
Total continuing operations			4,642				221				197				109				109
Discontinued operations											55				31				31
Total operations			4,642				221				252				140				140
Unusual items excluded from performance measures											(9	)			35				35
Consolidated		$	4,642			$	221			$	243			$	175			$	175

     Operating profit after tax (PAT) is the key internal measure of performance used by management, including our chief operating decision maker, as a measure of segment profitability. With the exception of DCC, Operating PAT represents earnings before interest and taxes (EBIT), tax-effected at 39% (our estimated long-term effective rate), plus equity in earnings of affiliates. Net Profit (Loss), which is Operating PAT less allocated corporate expenses and net interest expense, provides a secondary measure of profitability for our segments that is more comparable to that for a free-standing entity. The allocation is based on segment sales because it is readily calculable, easily understood and, we believe, provides a reasonable distribution of the various components of our corporate expenses among our business units.

     The Other category includes businesses unrelated to the segments, trailing liabilities for certain closed plants and the expense of corporate administrative functions. For purposes of presenting Operating PAT, Other also includes interest expense net of interest income, elimination of inter-segment income and adjustments to reflect the actual effective tax rate. In the Net Profit (Loss) column, Other includes the net profit or loss of businesses not assigned to the segments and closed plants (but not discontinued operations), minority interest in earnings and the tax differential.

     The following table reconciles the EBIT amount reported for our segments, excluding DCC, to our consolidated income before income taxes as presented in the condensed consolidated statement of income.

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2005				2004				2005				2004
EBIT from continuing operations		$	83			$	114			$	123			$	197
Unusual items excluded from performance measures
Total operations			9				(8	)			7				(9	)
Discontinued operations							4								4
Interest expense, excluding DCC			(34	)			(39	)			(68	)			(77	)
Interest income, excluding DCC			8				3				15				5
DCC pre-tax income (loss)			(13	)			6				(10	)			(5	)
Income before income taxes		$	53			$	80			$	67			$	115

     Our presentation of segment information includes separate reporting of Unusual items excluded from performance measures. These items include, among other things, gains and losses on divestitures and related expenses and restructuring expenses such as severance, lease continuation and asset impairment charges.

     The following table describes the Unusual items excluded from performance measures for the three months and six months ended June 30, 2005 and 2004.

		Three Months Ended								Three Months Ended
		June 30, 2005								June 30, 2004
		EBIT				OPAT				EBIT				OPAT
Expenses related to DCC asset sales		$				$				$	(4	)		$	(2	)
Charge related to Ohio tax legislation			9				(5	)
Anticipated tax benefit related to sale of automotive aftermarket business															20
Charge related to sale of discontinued operations											(4	)			(3	)
Gain on DCC asset sales							3								18
		$	9			$	(2	)		$	(8	)		$	33

		Six Months Ended								Six Months Ended
		June 30, 2005								June 30, 2004
		EBIT				OPAT				EBIT				OPAT
Expenses related to DCC asset sales		$	(2	)		$	(1	)		$	(5	)		$	(3	)
Charge related to Ohio tax legislation			9				(5	)
Anticipated tax benefit related to sale of automotive aftermarket business															20
Charge related to sale of discontinued operations											(4	)			(3	)
Gain on DCC asset sales							4								21
		$	7			$	(2	)		$	(9	)		$	35

     See “Note 7. Income Taxes” for a discussion of the charge related to the enactment of new tax legislation in the State of Ohio.

     The gains and losses recorded by DCC are not presented as Unusual items excluded from performance measures in the preceding EBIT reconciliation table since we do not include DCC’s results in EBIT for segment reporting. However, the pre-tax portion of such amounts is included within DCC’s pre-tax loss in the table.

Note 9. Discontinued Operations

     In December 2003, we announced our intention to sell substantially all of the former Automotive Aftermarket Group. The divestiture was completed in November 2004. Income from these discontinued operations for the three months and six months ended June 30, 2004 consisted of the following:

		Three Months				Six Months
		Ended June 30,				Ended June 30,
		2004				2004
Income before taxes		$	25			$	49
Income tax benefit (expense)			10				(1	)
Income from discontinued operations		$	35			$	48

Note 10. Cash Deposits

     At June 30, 2005, we maintained cash deposits of $71 to provide credit enhancement for certain lease agreements and to support surety bonds that allow us to self-insure our workers compensation obligations. These financial instruments are expected to be renewed each year. A total of $66 of the deposits may not be withdrawn.

Note 11. Goodwill

     The changes in goodwill during the six months ended June 30, 2005, by segment, were as follows:

		Balance at				Effect of				Balance at
		December 31,				Currency				June 30,
		2004				and Other				2005
ASG		$	463			$	(19	)		$	444
HVTSG			123				(3	)			120
Other			7								7
		$	593			$	(22	)		$	571

     Goodwill is included in Investments and other assets in our condensed consolidated balance sheet.

Note 12. Realignment of Operations

     The following summarizes the activity in accrued realignment expenses during the first six months of 2005:

		Employee
		Termination				Exit
		Benefits				Costs				Total
Balance at December 31, 2004		$	55			$	15			$	70
Activity during the quarter:
Cash payments			(5	)			(3	)			(8	)
Charges to expense			1				2				3
Balance at March 31, 2005		$	51			$	14			$	65
Activity during the quarter:
Cash payments			(12	)			(3	)			(15	)
Charges to expense							3				3
Adjustments of accruals			(5	)							(5	)
Balance at June 30, 2005		$	34			$	14			$	48

     The above amounts include charges included in operating performance that are related to the continuation of previously announced actions.

     During the second quarter of 2005, we reviewed the status of our plans to reduce the workforce within our off-highway operations. We concluded that completion of the plan was no longer probable within the required timeframe due to recent changes in the markets they serve; accordingly, we reversed $4 (of the total adjustment of $5) of the accrual for employee termination benefits. At June 30, 2005, $48 of restructuring charges remained in accrued liabilities. This balance was comprised of $34 for benefits to terminated employees, including the termination of approximately 700 employees scheduled for the remainder of 2005, and $14 for lease terminations and other exit costs. At June 30, 2005, we estimated the related cash expenditures will be approximately $23 in the remainder of 2005, $16 in 2006 and $9 thereafter. The amount of estimated cash expenditures for each period approximates the midpoint of the estimated range of cash expenditures for such period. We believe that our liquidity and future cash flows will be more than adequate to satisfy these obligations related to our restructuring plans.

Note 13. Contingencies

     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 our pending legal proceedings, including the probable outcomes, our reasonably anticipated costs and expenses, the availability and limits of our insurance coverage, and our established reserves for uninsured liabilities. 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, financial condition or results of operations.

     Asbestos-Related Product Liabilities. We had approximately 115,000 active pending asbestos-related product liability claims at June 30, 2005, compared to 116,000 at December 31, 2004. Included in the active claims were claims that are settled but awaiting final documentation and payment of 11,000 at June 30, 2005 and 10,000 at December 31, 2004. We had accrued $143 for indemnity and defense costs for these claims at June 30, 2005, compared to $139 at December 31, 2004. The amounts accrued are based on our assumptions and estimates about the values of the claims and the likelihood of recoveries against us derived from our historical experience and current information. We cannot estimate possible losses in excess of those for which we have accrued because we cannot predict how many additional claims may be brought against us in the future, the allegations in such claims or their probable outcomes.

     At June 30, 2005, we had recorded $41 as an asset for probable recovery from our insurers for these pending claims, compared to $118 at December 31, 2004. The reduction in this asset resulted from our receipt in the second quarter of the final payment due us under the previously reported insurance settlement agreement that we entered into with some of our carriers in December 2004. Our remaining insurance agreements, along with the proceeds from this insurance settlement, provide significant resources for the payment of anticipated defense and indemnity costs for pending claims, as well as claims which may be filed against us in the future.

     In addition to amounts related to pending claims, we had a net amount recoverable from our insurers and others of $28 at June 30, 2005, compared to $26 at December 31, 2004. This recoverable represents reimbursements for settled asbestos-related product liability claims and related defense costs, including billings in progress and amounts subject to alternate dispute resolution proceedings with some of our insurers.

     Other Product Liabilities – We had accrued $9 for contingent non-asbestos product liability costs at June 30, 2005, compared to $11 at December 31, 2004, with no recovery expected from third parties at either date. The difference between our minimum and maximum estimates for these liabilities was $10 at June 30, 2005 and December 31, 2004. 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. If there is a range of equally probable outcomes, we accrue the lower end of the range.

     Environmental Liabilities – We had accrued $66 for contingent environmental liabilities at June 30, 2005, compared to $71 at December 31, 2004, with an estimated recovery of $10 from other parties recorded at December 31, 2004. The $10 was received in June 2005. The difference between our minimum and maximum estimates for these liabilities was $1 at both dates. We estimate these liabilities based on the most probable method of remediation, current laws and regulations and existing technology. 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.

     Included in these accruals are amounts relating to the Hamilton Avenue Industrial Park Superfund site in New Jersey, where we are now one of four potentially responsible parties (PRPs). We estimate our liability for this site quarterly. There have been no material changes in the facts underlying these estimates to report since December 31, 2004; accordingly, our estimated liabilities for each of the site’s three Operable Units at June 30, 2005 were as follows:

     Unit 1: $1 — for future remedial work and past costs incurred by the United States Environmental Protection Agency (EPA) relating to off-site soil contamination, based on the remediation performed at this Unit to date and our assessment of the likely allocation of costs among the PRPs.

     Unit 2: $14 — for future remedial work relating to on-site soil contamination, taking into consideration the $69 remedy proposed by the EPA in a Record of Decision issued in September 2004 and our assessment of the most likely remedial activities and allocation of costs among the PRPs.

     Unit 3: less than $1 — for the costs of a remedial investigation and feasibility study pertaining to groundwater contamination, based on our expectations about the study that is likely to be performed and the likely allocation of costs among the PRPs.

     Other Liabilities – Until 2001, most of our asbestos-related claims were administered, defended and settled by the Center for Claims Resolution (CCR), which settled claims for its member companies on a shared settlement cost basis. In that year, the CCR was reorganized and discontinued negotiating shared settlements. Since then, we have independently controlled our legal strategy and settlements, using Peterson Asbestos Consulting Enterprise (PACE), a unit of Navigant Consulting, Inc., to administer our claims, bill our insurance carriers and assist us in claims negotiation and resolution. Some former CCR members defaulted on the payment of their shares of some of the CCR-negotiated settlements and some of the settling claimants have sought payment of the unpaid shares from Dana and the other companies that were members of the CCR at the time of the settlements. We have been working with the CCR, other former CCR members, our insurers and the claimants over a period of several years in an effort to resolve these issues. Through June 30, 2005, we had paid $47 and collected $29 from insurance carriers. At June 30, 2005, we had a net receivable of $10 that is expected to be recoverable from available insurance and surety bonds relating to this matter.

     Assumptions — The amounts we have recorded for contingent 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 Dana could differ materially from our current expectations if our assumptions about the nature of the pending unresolved bodily injury claims and the claims relating to the CCR-negotiated settlements, the costs to resolve those claims and the amount of available insurance and surety bonds prove to be incorrect, or if currently proposed U.S. federal legislation impacting asbestos personal injury claims is enacted.

Note 14. Financing Agreements

     On March 4, 2005, we entered into a $400, five-year revolving credit facility maturing March 4, 2010, which replaced the prior credit facility ahead of its November 2005 maturity. The interest rates under this new facility equal the London interbank offered rate (LIBOR) or the prime rate, plus a spread that varies depending on our credit ratings. The facility requires us to meet specified financial ratios as of the end of calendar quarters, including the ratio of net senior debt to tangible net worth; the ratio of earnings before interest, taxes and depreciation and amortization (EBITDA) less capital spend to interest expense; and the ratio of net senior debt to EBITDA with all terms as defined in the five-year revolving credit facility. The facility was amended during June 2005 to modify two of the ratio requirements for the remainder of 2005. Specifically, the ratios are: (i) net senior debt to tangible net worth of not more than 1.1:1; (ii) EBITDA (as defined in the facility) minus capital expenditures to interest expense of not less than 1.25:1 at June 30 and September 30, 2005, 2.25:1 at December 31, 2005 and 2.50:1 thereafter; and (iii) net senior debt to EBITDA of not greater than 3.25:1 at June 30 and September 30, 2005, 2.75:1 at December 31, 2005 and 2.50:1 thereafter. The ratio calculations are based on Dana’s consolidated financial statements with DCC accounted for on an equity basis. We were in compliance with all ratio requirements at June 30, 2005.

     We also have an accounts receivable securitization program to help meet our periodic demands for short-term financing. The program provides up to a maximum of $275 in borrowings. The amounts available under the program are subject to reduction based on adverse changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the underlying accounts receivable.

     At June 30, 2005, borrowings outstanding under the various Dana lines consisted of $36 drawn by non-U.S. subsidiaries against uncommitted lines, $110 outstanding under the accounts receivable securitization program and $175 under the revolving credit facility.

     We are party to two interest rate swap agreements under which we have agreed to exchange the difference between fixed rate and floating rate interest amounts on notional amounts corresponding with our August 2011 notes. Converting the fixed interest rate to a variable rate is intended to provide a better balance of fixed and variable rate debt. Our current fixed-for-variable swap agreements have both been designated as fair value hedges of the August 2011 notes. Based on the aggregate fair value of these agreements, we recorded a nominal non-current liability at June 30, 2005, which was offset by a decrease in the carrying value of long-term debt. This adjustment of long-term debt, which does not affect the scheduled principal payments, will fluctuate with the fair value of the agreements and will not be amortized if the swap agreements remain open. Additional adjustments to the carrying value of long-term debt resulted from the modification or replacement of swap agreements, which generated cash receipts prior to 2004. These valuation adjustments, which are being amortized as a

reduction of interest expense over the remaining life of the notes, totaled $9 at June 30, 2005.

     As of June 30, 2005, the interest rate swap agreements provided for us to receive a fixed rate of 9.0% on a notional amount of $114 and pay variable rates based on the London interbank offered rate (LIBOR), plus a spread. The average variable rate under these contracts approximated 8.4% as of June 30, 2005. The agreements expire in August 2011.

Note 15. Warranty Obligations

     We record a liability for estimated warranty obligations at the date products are sold. Adjustments are made as new information becomes available. During the second quarter of 2005, HVTSG reduced the liability by $6 to reflect lower average claim costs. Other adjustments in 2005 generally reflect favorable claims experience. Changes in our warranty liability for the three months and six months ended June 30, 2005 and 2004 follow.

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2005				2004				2005				2004
Balance, beginning of period		$	78			$	90			$	80			$	90
Amounts accrued for current period sales			7				8				15				16
Adjustments of prior accrual estimates			(9	)			1				(9	)			2
Settlements of warranty claims			(10	)			(10	)			(19	)			(19	)
Foreign currency translation			(1	)							(2	)
Balance, end of period		$	65			$	89			$	65			$	89

     Warranty obligations are reported as current liabilities in the condensed consolidated balance sheet.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Market Outlook

     Our industry is prone to fluctuations in demand over the business cycle. Production levels in our key markets for the past three years, along with our outlook for 2005, are shown below.

		Production in Units
														Dana’s
		Actual												Outlook
		2002				2003				2004				2005
Light vehicle (in millions):
North America			16.4				15.9				15.8				15.5
Europe			20.8				19.6				20.5				20.7
Asia Pacific			18.1				20.5				21.8				22.7
South America			1.9				1.9				2.4				2.6
North American commercial vehicle (in thousands):
Medium-duty (Class 5-7)			189				196				240				256
Heavy-duty (Class 8)			181				177				269				310
Off-Highway (in thousands)*
North America			260				281				335				360
Western Europe			466				452				464				466
Asia-Pacific			443				480				549				551
South America			55				61				73				59

     Although North American light-duty production levels have been relatively stable in recent years (ranging between 15.8 million and 16.4 million units), a number of factors are negatively impacting our activity in this market – and thus creating uncertainty.

     Second-quarter 2005 production levels in North America were down 1.1% when compared to the same period last year. During the quarter, light truck production was down 3.4%, while passenger car production was up 2.4%.

     Year over year, light vehicle production in the United States and Canada for the first six months of 2005 was down about 2.7% in total, with light truck production being down 4.2% and passenger car production down 0.3%.

     Light trucks comprise our primary segment within the light vehicle market. In recent years, light truck sales have generally been stronger than those of passenger cars, as consumer interest in sport utility and crossover vehicles increased. More recently, however, the higher price of gasoline has negatively impacted the light truck segment. The larger sport utility vehicles, full-size pick-up trucks and minivans in particular have experienced a significant drop in demand, which is largely attributed to rising fuel prices.

     We have also been negatively impacted by the continuing market share decline experienced by our two biggest customers – Ford and GM. Whereas total light truck production in 2005 is down 4.2%, light truck production of Ford and GM vehicles is down about 10.8% and 10.9 %, respectively.

     Throughout most of the first half of this year, inventories of light trucks and passenger cars have been higher than normal, raising the possibility of additional production cutbacks over the remainder of 2005. In an effort to minimize continued loss of market share, Ford, GM and DaimlerChrysler have continued to use incentives to stimulate sales. In June of 2005, General Motors launched an even more aggressive incentive campaign, extending its employee discount program to all consumers. As a result, June sales were extremely strong, eliminating GM’s excess inventory for both passenger cars and light trucks.

     At June 30, 2005, inventories of light-duty vehicles stood at 67 days of supply, 1% below the five-year average and down from 10% above average just last quarter. As a result of General Motors’ newest incentive program, its inventory is now 14% below normal. Ford inventories are at 85 days of supply, while DaimlerChrysler’s inventories have climbed to 83 days of supply. The historical averages for Ford and DaimlerChrysler are 77 and 73 days of supply, respectively. Both continue to struggle with excess inventory primarily related to light trucks more so than passenger cars. As a result, both Ford and DaimlerChrysler began to offer employee discount programs to the consumer in July of 2005, while General Motors continued to offer its employee discount program.

     As light trucks have been important to the profitability of Ford and GM, the decline in production and use of incentives has exerted increasing pressure on their financial performance. As a result of their declining profitability, we and others in the light vehicle market face the challenge of continued price reduction pressure from our customers. Our realignment, divestitures and outsourcing initiatives have helped position us for this increasingly competitive landscape. As such, ongoing cost reduction programs, like our lean manufacturing, value engineering activities and standardization of administrative processes, will continue to be important to improving our margins.

     Although North American light-duty vehicle inventories declined in June to more normal levels, the decrease was driven by increased incentives to consumers in the months of May and June. The higher sales stimulated by these incentives was satisfied in part with existing inventories as production levels were largely unchanged. To the extent that such incentives pulled sales forward from later in the year, a reduction in the incentives could result in lower sales, and consequent lower production. Continued high energy prices also pose a risk to future production levels, primarily in the light truck segment. Given the current environment – high gas prices, higher than normal light truck inventories, unprecedented incentive programs and the erosion of market share of our biggest customers – there is considerable uncertainty surrounding production levels in this market for the remainder of the year. As a result, we have lowered our 2005 North American production outlook to 15.5 million units from 15.7 million units.

     The commercial vehicle market, on the other hand, is relatively strong. In North America – our biggest market – Class 8 production approximated 80,000 units in the second quarter of 2005, up about 27% from the 63,000 units produced in the same period last year. The North American medium-duty commercial vehicle market has similarly been strong, with 2005 production up about 6% from a year ago. With inventories relatively stable and a strong order backlog, production for the remainder of the year in this market is expected to continue to be strong. Given the current fundamentals in the North American Class 8 market, we increased our full-year 2005 production estimate from 293,000 units to 310,000 units.

     In our other markets – off highway, European commercial and light vehicles and light vehicles in the Asia Pacific and South American regions – we expect either stable or improving production demand in the remainder of 2005.

Commodity Costs

     Steel and other raw material costs have had a significant impact on our results and those of others in our industry this year. With steel particularly, suppliers began assessing price surcharges and increasing base prices during the first quarter of 2004, and these have continued throughout the current year. The surcharges, as well as base prices, which increased over most of 2004, have leveled off in the past three quarters. A frequently used indicator for steel cost trends is the Tri-Cities #1 bundles scrap steel price index. Prices on this index more than doubled over the course of 2004 – peaking at $431 per ton in the fourth quarter. The spot price of scrap steel on this index has declined during the first half of this year to $246 per ton at the end of the first quarter and to around $150 per ton at June 30, 2005. With this decline in market scrap prices and some moderation of demand for steel, we expect that steel costs will come down as we move through the year. However, the situation continues to be volatile and uncertain. As well, a substantial portion of our steel cost impact relates to purchased components which are not directly affected by the spot prices of scrap steel. As such, our forecast for the remainder of the year assumes some drop in steel costs.

     Only about 30% of our annual steel purchases are in the form of raw steel from mills and processors, with the balance contained in components or products containing steel. While leverage is clearly on the side of the steel suppliers at the present time, we are managing the situation by consolidating purchases and taking advantage of OE manufacturers’ resale programs where possible. We are also working with our customers to recover the cost of steel increases, either in the form of increased selling prices or reductions in price-downs that they expect from us.

     Steel cost surcharges and base price increases, net of recoveries from our customers, reduced our net income by approximately $37 and $71 for the three months and six months ended June 30, 2005, respectively. In 2004, three-month and six-month income from continuing operations was reduced by $8 and $10 and net income by $10 and $13, respectively, with the inclusion of discontinued operations. The impacts of higher steel cost disclosed herein were determined by comparing current pricing to base steel prices in effect at the beginning of 2004. The higher impact of steel cost during the first six months of 2005 included the cost of finalizing contract settlements with certain suppliers.

Other Key Factors

     Given the margin pressure from today’s higher raw material costs and the continued pricing demands of our customers, an area of critical focus for us is reducing our cost structure. Actions underway today include global purchasing initiatives, deployment of lean manufacturing techniques, standardizing administrative processes and pursuing value engineering activities by working with our customers to redesign existing components.

     In our markets, concentration of business with certain customers is common, so our efforts to achieve additional diversification are important. In the light vehicle market, we have been successful in gaining new business with several manufacturers based outside the U.S. over the past few years. We expect greater customer diversity as more of this business comes on stream and we gain additional business with these customers.

     Broadening our global presence is also increasingly important. Global sourcing presents opportunities to improve our competitive cost position, as well as to take advantage of the higher expected growth in emerging markets such as China and India.

     Another key factor in our future success is technology. We are continuing to invest in advanced product (for example, modular heavy axle housings and integrated light weight trailer axle modules) and process (such as laser and robotic welding) technologies as we believe that they, as much as any factor, are critical to improving our competitive position and profitability. In keeping with these efforts, our recent moves to focus even more on our core OE markets will enable us to capitalize on the continuing trends toward modularity and systems integration in these markets.

New Business

     Another major focus for us today is growing our top line – revenue – faster and profitably.

     In the OE vehicular business, new programs are generally awarded to suppliers well in advance of the expected start of production. The amount of lead time varies based on the nature of the product, size of the program and required start-up investment. The awarding of new business usually coincides with model changes on the part of vehicle manufacturers. Given the cost and service concerns associated with changing suppliers, we expect to retain any awarded business over the vehicle life, which is typically several years.

     Based upon contracts awarded to date, we expect net new business to contribute approximately $505 to our 2005 sales and a total of $1,345 in the years 2005 through 2007. Approximately 70% of this net new business is outside North America with 80% being with non-Big Three customers. Our efforts continued during this year’s second quarter, as we added $215 to our net new business coming on stream in the future. We are currently pursuing a number of additional opportunities which could further increase new business for 2005, 2006 and later years.

Liquidity and Capital Resources

Cash Flows (First Six Months 2005 versus First Six Months 2004)

		Six Months
		Ended June 30,								Dollar
		2005				2004				Change
Cash Flows — Operating Activities:
Net income		$	69			$	175			$	(106	)
Depreciation and amortization			163				183				(20	)
Gains on divestitures and asset sales			(5	)			(25	)			20
Increase in operating working capital			(287	)			(164	)			(123	)
Deferred taxes			(35	)			(41	)			6
Other			(72	)			(73	)			1
Net cash flows from (used in) operating activities		$	(167	)		$	55			$	(222	)

     Overall, operating activities used cash of $167 in the first half of 2005, while $55 was generated in the same period in 2004, a decline of $222.

     Net income for the first half of 2005 dropped significantly when compared to the same period in 2004. The automotive aftermarket businesses – treated as discontinued operations in 2004 – had contributed earnings of $48 in the first half of 2004. The effect of steel price increases accounted for another $62. Depreciation and amortization was $20 lower in the first half of 2005, primarily the result of the divestiture of our automotive aftermarket businesses. Working capital increased as seasonal factors and year-on-year sales

growth pushed trade receivables higher. Other is comprised of unremitted equity earnings and a decrease in deferred compensation.

     Our estimate of cash outlays related to realignment activities is approximately $23 for the remainder of 2005. Exclusive of our realignment activities, we expect to reduce working capital by $100 for the year. The actual increase for the first half of 2005 was $262, requiring a $362 decrease in the second half in order to attain our goal. We expect to achieve $200 of the reduction in accounts receivables, as outstanding receivables are expected to decline dramatically from the peak level at June 30 to a seasonal low at December 31. Inventory improvement is anticipated to be $150 as raw and purchased finished component inventories are consumed through production and are not replenished to the same levels.

		Six Months
		Ended June 30,								Dollar
		2005				2004				Change
Cash Flows — Investing Activities:
Purchases of property, plant and equipment		$	(132	)		$	(142	)		$	10
Payments received from partnerships			64				15				49
Proceeds from sales of other assets			137				155				(18	)
Other			(11	)			(47	)			36
Net cash flows from (used in) investing activities		$	58			$	(19	)		$	77