DONNELLY CORP, 10-K, 1997-09-26

DONNELLY CORP
10-K, 1997-09-26
GLASS PRODUCTS, MADE OF PURCHASED GLASS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the Fiscal Year ended June 28, 1997
OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from _____________ to _____________

Commission File Number: 1-9716

DONNELLY CORPORATION
(Exact name of registrant as specified in its charter)

Michigan 38-0493110
(State of other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)

414 East Fortieth Street, Holland, Michigan
49423
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code: (616) 786-7000

Securities registered pursuant to Section 12 (b) of the Act:

Title of each class Name of each exchange on which registered
Class A Common Stock New York Stock Exchange

Securities registered pursuant
to Section 12 (g) of the Act: None

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 __X__ No_____

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. __X__

The aggregate market value of voting stock held by non-affiliates of the
registrant was $167,187,001 as of August 29, 1997.

Number of shares outstanding of each of the registrant's classes of common
stock, as of August 29, 1997.

5,421,693 shares of Class A Common Stock par value, $.10 per share
4,462,433 shares of Class B Common Stock par value, $.10 per share

<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Annual Report to Shareholders for the fiscal year
ended June 28, 1997, are incorporated by reference into Part II of this report.
Portions of the registrant's proxy statement for its annual meeting of
shareholders to be held October 17, 1997, are incorporated by reference into
Part III of this report.

PART I.

ITEM 1. BUSINESS

ITEM 1 (a) GENERAL DEVELOPMENT OF BUSINESS

The Company's fiscal year ends on the Saturday nearest June 30, and its fiscal
quarters end on the Saturdays nearest September 30, December 31, March 31 and
June 30. All year and quarter references are relating to the Company's fiscal
years and quarters, unless otherwise noted.

The Company is primarily engaged in the design, manufacture, marketing and sale
of products for the automotive industry including one or more of the following
technologies; glass products, prisms, plastic molding, electronics,
electrochromic products, optics and metal diecasting. The Company also supplies
glass coatings for the transportation, electronics and computer industries
(either solely or through several joint ventures).

The Company is committed to improving shareholder value through focused
development of core automotive businesses and through technology ventures that
leverage and expand the core competencies of the Company. The strategy for the
core automotive business involves increasing dollar content per vehicle through
introduction of new technologies, increasing volume through penetration into new
and emerging markets, improving the cost, quality and delivery performance of
current operations and the effectiveness by which the Company launches new
products.

In line with the strategy, the Company has continued in the last few years to
build volume growth in all existing businesses; introduced products new to the
Company including exterior and interior door handles, modular window systems and
encapsulated sunroofs, electrochromic mirrors and interior trim and lighting;
completed the largest acquisition in the Company's history through the purchase
of Donnelly Hohe GmbH & Co. KG ("Donnelly Hohe"); expanded and built production
equipment and facilities; undertaken a major European restructuring program;
implemented various joint ventures in the Asian and South American emerging
markets and most recently enhancing the Company's position in the global market
for automotive overhead systems through a joint venture with Lear Corporation
involving various operations in North America and Europe.

During the past three years, the Company has significantly expanded its presence
in Europe by opening a modular window manufacturing facility in Langres, France
in 1996, through the acquisition of a controlling interest in Donnelly Hohe,
headquartered in Collenberg, Germany, in the second quarter of 1997, and in the
fourth quarter of 1997, beginning the start-up of Donnelly Eurotrim, Ltd., the
Company's Irish interior lighting and trim operation, located just outside
Dublin. Production at Donnelly Eurotrim is being ramped up to support the
Company's new business order, announced in the fourth quarter of 1997, from a
European customer that includes sophisticated trim and advanced lighting
products on a future European luxury vehicle. The Company believes that the
expansion of its European operations will play an important role in maintaining
the Company's position as a global leader in the market for automotive rearview
mirrors and will also offer significant opportunities for the Company to market
its modular windows, interior lighting, trim components and other products in
Europe and elsewhere. In the fourth quarter of 1997, the Company implemented a
restructuring plan in Europe to realign its manufacturing capacity, reduce the
number of non-production employees and achieve additional cost reductions in
operations.
<PAGE>
In September 1997, the Company announced that it had entered into an agreement
with Lear Corporation to form a joint venture to be named Lear Donnelly Overhead
Systems, L.L.C. ("Lear Donnelly") for the design, development, marketing and
production of interior trim overhead systems and components for the global
market. The Company believes that this joint venture enhances the Company's
competitive market position in the global market for automotive overhead
systems. See Item 1 (c) "Narrative Description of Business" under the
"Non-Consolidated Joint Ventures" heading for a more thorough discussion of this
joint venture.

The Company is committed to its core automotive businesses and during the last
half of 1997, the Company has structured its non-automotive businesses to be
operated independently. In the third quarter of 1997, the Company created
Donnelly Optics Corporation, a subsidiary based in Tucson, Arizona, to sell and
manufacture high-quality, injection molded, diffractive and hybrid optical
lenses and systems. Also, effective June 29, 1997, the Company created
Information Products, Inc., which the Company believes is the world's largest
producer of specialty coated and shaped glass for the computer touch screen
industry, a subsidiary based in Holland, Michigan that had previously operated
as the Company's Information Products Division. See Item 1 (c) "Narrative
Description of Business" under the "Non-Automotive Businesses" heading for a
more detailed discussion of these non-automotive businesses.

As part of the Company's strategy, the Company has entered into various joint
ventures in emerging automotive markets. The Company has established the Asian
and the South American markets as the top two emerging market priorities. In
addition to the fourth quarter 1996 formation of Shanghai Donnelly Fu Hua Window
Systems Company Ltd. ("Shanghai Donnelly Fu Hua"), the Company's joint venture
with Shanghai Fu Hua Glass Company, Ltd., during the second quarter of 1997, the
Company announced the formation of its second automotive joint venture in China,
Shunde Donnelly Zhen Hua Automotive Systems Co. Ltd. ("Shunde Donnelly Zhen
Hua"),which produces automotive mirror systems in the Chinese city of Shunde. In
August 1997, the Company also announced the formation of an automotive mirror
joint venture in Sao Paulo, Brazil, Donnelly/Arteb LTDA. See Item 1 (c)
"Narrative Description of Business" under the "Non-Consolidated Joint Ventures"
heading for a more thorough discussion of these joint ventures.

The Company was incorporated in Michigan in 1936. The Company's corporate
offices are located at 414 East Fortieth Street, Holland, Michigan, 49423, and
its telephone number is (616) 786-7000. Unless otherwise noted or indicated by
the context, the term "Company" includes Donnelly Corporation, its wholly owned
subsidiaries and Donnelly Export Corporation, a shareholder Domestic
International Sales Corporation under the Internal Revenue Code owned entirely
by the holders of the Company's Class B Common Stock.

ITEM 1 (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

The Company is an international supplier of high quality automotive parts and
component systems from manufacturing operations in North America, Europe and
Asia. The Company supplies automotive customers around the world with interior
and exterior mirror systems, window systems and interior lighting and trim
systems. The Company also provides products to several non-automotive markets,
none of which are reportable segments.

ITEM 1 (c) NARRATIVE DESCRIPTION OF BUSINESS

PRODUCTS, SERVICES, MARKETS AND METHODS OF DISTRIBUTION

Automotive Rearview Mirror Systems

The Company began producing prismatic day/night mirror glass in 1939, and today
manufactures a wide range
<PAGE>
of interior and exterior rearview mirror products and believes it is the world's
largest producer of automotive rearview mirror systems.

Interior Rearview Mirrors. The Company has a predominant share of the U.S.
market for interior rearview prismatic mirrors and in 1997 sold approximately
20.3 million units worldwide. The interior rearview mirror product line ranges
from the basic day/night flip mirror to rear-vision systems that incorporate a
variety of sophisticated electronic features into complex modular interior
rearview mirror assemblies. The Company continues to design and market
innovative value-added features integrated into the rearview mirror such as
lights and electronic compasses.

The Company manufactures and markets automotive interior rearview mirrors using
patented electrochromic technology that automatically dims the mirror when
headlights approach from the rear. Electrochromic rearview mirrors are a
value-added substitute for traditional prismatic base mirrors and are sold for a
higher dollar price per unit than prismatic base mirrors. The Company believes
that electrochromic rearview mirrors currently represent approximately 16% of
all interior rearview mirrors sold to original equipment manufactures in the
North American market for the 1997 model year. In 1997, electrochromic mirrors
were offered on approximately 46 new car models in North America, compared to
only approximately 19 models in 1991. The Company believes that electrochromic
mirrors will represent an increasing share of the rearview mirror market, both
in terms of number of units and dollar volume, and represent a significant
growth area for the Company.

The Company is in the process of developing electronic vision systems for
vehicles that make use of advanced sensors and video microchip technology to
control dimmable interior and exterior mirror systems. Although not yet
commercialized, the development of this technology is part of the Company's
strategy to be a technology leader in the market for automotive rearview vision
systems.

Exterior Rearview Mirrors. The Company has used its expertise and customer
relationships in the interior mirror market to develop its product line and
increase its share of the market for complete exterior mirror systems. The
recent expansion of the Company's European operations has substantially
increased the Company's production capacity and sales of exterior rearview
mirrors, particularly in the European market. The Company believes that its
increased presence in the European market will assist the Company in increasing
its sales of exterior rearview mirrors in North America and other markets. The
Company supplies exterior rearview mirror assemblies primarily to Honda, Ford
and Mazda in the United States and to major European automakers including BMW,
Volkswagen, SEAT, Renault and Audi in Europe. The Company also supplies exterior
rearview mirror systems to automakers throughout southern China through one of
it's Chinese joint ventures. Exterior rearview mirrors are combined with
automatic or manua adjusting mechanisms, wire harnesses and other hardware into
an injection-molded, color-matched housing and are more complex than base
interior rearview mirrors. The per vehicle sales price of exterior mirrors
substantially exceeds that of interior rearview mirrors due to the greater
complexity of exterior rearview mirrors and the fact that most new vehicles are
equipped with two exterior rearview mirrors.

The Company manufactures and markets dimmable electrochromic exterior rearview
mirrors. The Company believes that electrochromic rearview mirrors currently
represent only 4% of all exterior rearview mirrors in the North American market
for the 1997 model year. The Company believes that electrochromic exterior
rearview mirrors will represent an increasing share of the rearview mirror
market, both in terms of number of units and dollar volume, and that the
electrochromic mirror market presents a significant growth opportunity for the
Company.

In 1996, the Company introduced its patented IlluminatorTM ground illumination
mirror, the world's first commercial automotive outside mirror that includes
remote-control security lighting. The IlluminatorTM can also
<PAGE>
be equipped with electrochromic dimming and exterior turn indicators. The
IlluminatorTM was recognized as one of the "1996 100 Best of What's New
Products" by Popular Science magazine. The IlluminatorTM is initially being
offered as an option on the Lincoln Mark VIII. The Company is aggressively
marketing the IlluminatorTM to its customers.

Modular Windows

The Company pioneered and today is a leading supplier of modular windows.
Modular windows, which have continued to increase in popularity since their
introduction, are produced by molding glass, hardware, weather stripping and
other components into a single unit assembly and can be used for all automotive
windows and sunroofs. The Company believes its modular windows offer improved
quality and aerodynamics, greater design flexibility and lower production costs
for automakers than conventional automotive windows. A more recent technological
innovation by the Company is flush surface windows that involve single-sided
encapsulation, bonding of hardware directly to glass and the incorporation of
color-matched body hardware into the window system.

The Company's modular window assemblies are used for rear and liftgate windows,
quarter windows, aperture windows, fixed vent windows, roll-up windows, sun
roofs, and rear windows. The Company produces modular windows for Chrysler,
Ford, General Motors, Honda, Isuzu and Toyota in North America and Chrysler in
Europe. The Company's modular windows are used on many popular vehicles such as
the Chrysler Caravan/Voyager minivan, the Jeep Grand Cherokee, the Ford
Expedition, and the Ford Taurus/Sable. Modular window technology can also be
used for windshields, although the Company does not currently produce modular
windshields.

The Company believes that its materials technology and manufacturing
capabilities provide a significant competitive advantage in the market for
modular windows. Modular windows can be molded using polyvinyl chloride ("PVC")
or a urethane reaction injection molding process ("RIM"). The PVC process is
less expensive primarily because the material is less costly and does not
require painting. PVC, however, is more difficult to mold, particularly for
large windows. The Company believes that its ability to design and mold windows
in either process and its expertise in PVC molding are significant competitive
advantages.

The Company believes that the increasing use of modular windows reflects trends
in the automotive industry towards increased levels of outsourcing, demand for
integrated modules and systems and reliance on suppliers for design and
manufacturing. The Company expects continued growth in the global modular window
market, as evidenced by the number of modular windows that automakers have
specified for future models.

Interior Lighting and Trim

The Company manufactures various interior trim products including dome lights,
interior door lights, map lights, courtesy lamps, lighted and non-lighted grab
handles and trim components such as overhead consoles. The Company believes its
automotive lighting systems have been well received by the marketplace largely
because of the Company's expertise in developing precision optical lenses. The
Company's extensive capabilities in advanced optics technology, precision
plastic injection molding, glare management and automotive electronics provide a
competitive advantage for the Company's automotive interior lighting and
overhead trim products. These skills enable the Company to produce interior
lighting that is highly focused and directed within the vehicle which
significantly reduces unwanted spill-over glare.

The Company believes that automakers will increasingly seek suppliers who can
provide complete interior lighting and trim systems. In September 1997, the
Company announced that it had entered into an agreement
<PAGE>
with Lear Corporation to form Lear Donnelly, a joint venture for the design,
development, marketing and production of interior trim overhead systems and
components for the global market. The Company believes the formation of this
joint venture strengthens the Company position as a supplier in the global
automotive overhead systems market. See Item 1 (c) "Narrative Description of
Business" under the "Non-Consolidated Joint Ventures" heading for a more
thorough discussion of this joint venture.

Door Handles

A new product area for the Company, arising out of established skills in
automotive paint and plastic molding, is the manufacture of trim components. The
Company is now producing a wide variety of interior and exterior door handles
for Ford, Honda and Mazda.

Non-Automotive Businesses

The Company is committed to its core automotive businesses. However, the Company
has developed a number of non-automotive businesses and relationships over the
years, which arose from core technologies that had applications outside of the
automotive industry. The Company's non-automotive businesses have been
structured to be operated independently from the Company's core automotive
business.

In the third quarter of 1997, the Company created Donnelly Optics Corporation,
based in Tucson, Arizona, to sell and manufacture high-quality, injection
molded, diffractive and hybrid optical lenses and systems. Diffractive optics
have a wide variety of uses in such industries as computers, telecommunications,
aerospace, medical instruments and the auto industry. The Company has booked
development business with customers in key industry segments, including a major
electronics manufacturer, and contracts to produce highly specialized headlamps
for a North American auto manufacturer.

Effective June 29, 1997, the Company created Information Products, Inc., a
Holland based subsidiary that had previously operated as the Company's
Information Products Division. The Company believes that Information Products,
Inc. is the world's largest producer of specialty coated and shaped glass for
the computer touch screen industry. The glass is used in a wide variety of touch
screen applications such as information kiosks, cash registers, industrial
controls, personalized greeting card kiosks and others.

Non-Consolidated Joint Ventures

Lear Donnelly Overhead Systems, LLC ("Lear Donnelly"). In September 1997, the
Company announced that it had entered into an agreement with Lear Corporation to
form Lear Donnelly, a 50-50 joint venture for the design, development, marketing
and production of interior trim overhead systems and components, including
headliners, overhead consoles, visors, handles, lighting components and other
components for the global market. Under the terms of the agreement, Lear
Corporation and the Company will each contribute certain technologies, assets
and business operations. The Company will contribute its interior lighting and
trim facility in Holland, Michigan and its Irish lighting and trim operations,
based just outside Dublin. The consummation of the joint venture is contingent
upon regulatory approval.

Donnelly/Arteb LTDA. In August 1997, the Company announced the formation of a
50-50 automotive mirror joint venture in Sao Paulo, Brazil, Donnelly/Arteb LTDA.
The venture is expected to begin producing mirrors for the South American market
during the first half of 1998. Donnelly/Arteb LTDA provides the Company with a
presence in rapidly growing region.
<PAGE>
Shunde Donnelly Zhen Hua Automotive Systems Co. Ltd. ("Shunde Donnelly Zhen
Hua"). In the first quarter of 1997, the Company formed Shunde Donnelly Zhen
Hua, a joint venture with Shunde Zhen Hua Automotive Parts Co. Ltd. The Company
has a 30% interest in the Zhen Hua joint venture and has an option to purchase
an additional 30% interest. The Shunde Donnelly Zhen Hua joint venture, based in
the Chinese city of Shunde, manufactures interior and exterior mirror systems
for automakers throughout southern China, including the Chinese operations of
Volkswagen, Chrysler, and Isuzu.

Donnelly Electronics, LLC ("Donnelly Electronics"). In the first quarter of
1997, the Company created a new affiliate, Donnelly Electronics, that
specializes in the design and manufacture of electronic components and
sub-assemblies. The new company is a joint venture between the Company and an
individual with expertise in automotive technology. The Company owns 19% of
Donnelly Electronics with the option to acquire up to 27% of the company. Based
in Flint, Michigan, Donnelly Electronics produces the electronic components that
Donnelly uses for products such as electrochromic rearview mirrors and
electronic compass systems. The firm will also provide electronics for future
Donnelly products that may include rear-vision camera systems, lighting systems
and others. In addition to supporting the automotive electronic needs of the
Company, Donnelly Electronics pursues business with other automotive suppliers
that are not competitors of the Company as well as other business opportunities.

Shanghai Donnelly Fu Hua Window Systems Company Ltd. ("Shanghai Donnelly Fu
Hua"). In the fourth quarter of 1996, the Company formed Shanghai Donnelly Fu
Hua, a 50-50 joint venture with Shanghai Fu Hua Glass Company, Ltd., which will
produce window systems for automotive customers in Asia and Australia. Shanghai
Fu Hua Glass Company is itself a joint venture between Ford Motor Company and
Shanghai Yao Hua Glass Works. The joint venture is expected to begin
manufacturing encapsulated and framed glass products by the second quarter of
1998.

VISION Group plc ("VISION"). The Company is working with VISION to produce
electronic vision systems for the world automotive industry using an innovative
video microchip developed by VISION. The Company and VISION have been
collaborating to produce "smart" chips that can perform a variety of functions
in a vehicle including control of advanced mirror systems, video displays,
lighting control and security devices. In the fourth quarter of 1997, VISION
completed a secondary offering of its stock, which is listed on the London Stock
Exchange. The Company owns 25.6% of VISION, which is located in Edinburgh,
Scotland.

KAM Truck Components, Inc. ("KAM"). The Company owns 19% of KAM which supplies
GLARESTOPPER(R) solid state electrochromic mirrors for large trucks. The mirror
permits truck drivers to manually adjust the glare of their mirrors by a range
of up to ten times.

Applied Films Corporation ("AFC"). AFC is a major manufacturer of thin-film
glass coatings and related production equipment used in the production of liquid
crystal displays (LCD's). LCD's are widely used in watches, games, calculators
and instrumentation. AFC is located in Boulder, Colorado. The Company is
currently a 50 % shareholder of AFC. AFC has recently filed a Registration
Statement for an initial public stock offering with the Securities and Exchange
Commission. The Company plans to sell all of its shares in AFC in this public
offering.

Donnelly Yantai Electronics Corporation Limited. This 50 % owned venture
produces glass coatings similar to those of AFC for use in the Chinese LCD
market. This operation is located in the Yantai Peninsula of the People's
Republic of China.
<PAGE>
MARKETING STAFF

In North America and Europe, the Company markets its automotive products by
combining the engineering product expertise of members of the Company's
engineering staff with a customer focused sales force, who work together with
the Company's customers' design teams early in the design process. The Company's
wholly owned European subsidiaries employ a sales force located in Europe and
Japan, and also sell through a trading company in Japan. Nearly all sales are
made directly to automakers with the exceptio of some interior and exterior
mirror glass components.

The Company markets its non-automotive products through a sales force who also
work in conjunction with the Company's engineers. The Company works with
potential customers on the development of new applications for electronic
information display products.

NEW PRODUCT OR INDUSTRY SEGMENT INFORMATION

The Company has made significant investments in the development of solid-state,
thin-film electrochromic technology that has potential for mirror and window
applications. Electrochromic coatings allow the user to darken glass to the
desired degree through the application of an electrical current to the coating.

The Company continues to market electrochromic day/night automotive mirror
systems that will automatically dim when headlights approach from the rear.
Electrochromic mirror systems are electrically dimmable to reduce the glare from
the headlights of other vehicles approaching from the rear. This system had been
the subject of litigation between the Company and Gentex Corporation until the
fourth quarter of 1996, when the Company reached a patent and licensing
settlement with Gentex Corporation. The Company has continued to actively
develop newer and more advanced electrochromic technologies for the automotive
marketplace. The Company has developed or licensed a number of promising
technologies and several are already available for commercial use.

The Company's GLAREFREETM electrochromic mirror technology offers several
advantages over competing technology. The technology has been purchased by Ford,
Jaguar, Range Rover, Audi, PSA, Mercedes-Benz, Volvo and Renault in Europe and
Honda in Asia. During 1996, the Company won a number of important new business
commitments for interior GLAREFREETM electrochromic mirrors. The commitments
include orders in North America and Europe, and they represent a major step
forward in the Company's positioning as a strong player in a global market for
electrochromic mirrors that industry sources expect to mature at $500 million.
With strong technologies to offer and having favorably settled the patent issues
that have hampered its ability to compete in recent years, the Company has set
ambitious goals for increasing its electrochromic mirror market share in the
years ahead.

New applications in electronics continue to play an increasing role in the
Company's future. As vehicles become more electronically sophisticated, auto
manufactures are looking for opportunities to pack value-added features into new
areas of the car. The Company is a leader in developing "plug and play" modules
that are flexible and allow vehicle manufacturers to offer different
configurations of features through the same module. At the end of April 1997,
the Company announced a new business order with a European customer that leads
in that trend. Included in the order are highly sophisticated overhead trim
components that are integrated with advanced optical lighting, all designed by
the Company, which are to be produced at Donnelly Eurotrim, Ltd., the Company's
Irish interior lighting and trim start-up operation located just outside Dublin.
The overhead consoles have four optically precise lights integrated into the
units that provide directed light with little or no spillover glare. Also
included in the order are interior electrochromic mirrors that function as a
communications node for a vehicle's electronics system, representing a
significant first in the automotive industry. In essence, the electronics that
control a number of different passenger comfort and safety functions have been
integrated into the rearview mirror.
<PAGE>
As discussed in Item 1 (c) "Narrative Description of Business" under the
"Non-Consolidated Joint Ventures" heading, in September 1997, the Company
announced that it had entered into an agreement with Lear Corporation to form
Lear Donnelly, a joint venture for the design, development, marketing and
production of interior trim overhead systems and components, including
headliners, overhead consoles, visors, handles, lighting components and other
components for the global market.

The Company has developed a number of non-automotive businesses and
relationships over the years, which arose from core technologies that had
applications outside of the automotive industry. The Company's non-automotive
businesses have been structured to be operated independently from the Company's
core automotive business. As discussed in Item 1 (c) "Narrative Description of
Business" under the "Non-Automotive Businesses" heading, in the third quarter of
1997, the Company created Donnelly Optics Corporation, a subsidiary based in
Tucson, Arizona, to sell and manufacture high-quality, injection molded,
diffractive and hybrid optical lenses and systems. Also, effective June 29,
1997, the Company created Information Products, Inc., which the Company believes
is the world's largest producer of specialty coated and shaped glass for the
computer touch screen industry, a subsidiary based in Holland, Michigan that had
previously operated as the Company's Information Products Division.

Also as part of the Company's strategy, the Company has implemented various
joint ventures in emerging automotive markets. The Company has established the
Asian and the South American markets as the top two emerging market priorities.
As discussed in Item 1 (c) "Narrative Description of Business" under the
"Non-Consolidated Joint Ventures" heading, in the fourth quarter of 1996, the
Company formed Shanghai Donnelly Fu Hua, a joint venture, which is expected to
begin manufacturing encapsulated and framed glass products by the second quarter
of 1998. In addition, during the second quarter of 1997, the Company announced
the formation of its second automotive mirror joint venture in China, Shunde
Donnelly Zhen Hua, which produces automotive mirror systems in the Chinese city
of Shunde. In August 1997, the Company announced the formation of
Donnelly/Arteb, LTDA, an automotive mirror joint venture in Sao Paulo, Brazil,
which is expected to begin producing mirrors for the South American market
during the first half of 1998.

Other than the aforementioned items, the Company has not otherwise made any
public announcements of, or otherwise made public information about, a new
product or industry segment which would require the investment of a material
amount of the Company's assets or which otherwise would be material.

SOURCES AND AVAILABILITY OF RAW MATERIALS

The Company's primary raw materials are glass, resins and adhesives. Glass is
supplied by third party glass manufacturers such as PPG Industries, Inc., and by
glass manufacturers affiliated with automakers. For modular windows, the
automakers contract directly with the glass manufacturers and the Company passes
the cost of the glass through to its automotive customers. Resins and adhesives
are another important raw material. Most of the resins and adhesives the Company
uses are supplied by Condea Vista Company and Dow Chemical, although the Company
believes that alternative suppliers are available. Generally, the Company has
multiple sources of supply for the important materials and components used in
its products. An adhesive for one of the Company's principal products is
supplied solely by Dow Chemical and the Company believes that an alternative
source of supply is not currently available. Because of the commodity nature of
common materials such as glass and plastics, the Company is somewhat vulnerable
to price fluctuations in many of its material purchases.

PATENTS, LICENSES, ETC.

While the Company owns approximately 228 patents and considers them important,
the Company as a whole is not dependent to any material extent upon any single
patent or group of patents. The Company believes its
<PAGE>
manufacturing know-how, design of its own manufacturing equipment and
development of manufacturing processes are more important than its patents.
Certain technology of the Company had been the subject of patent litigation. See
Item 3.

The Company has licensed certain of its own patents and technology and has
licenses under certain third party patents and technology.

SEASONAL NATURE OF BUSINESS

The Company's net sales and net income are subject to significant quarterly
fluctuations. These fluctuations are attributable primarily to the production
schedules of the Company's major automotive customers. The Company generally
reports lower net sales and net income in the first half of its fiscal year than
in the second half because domestic automotive production is generally lower
during the first two quarters of the Company's fiscal year.

WORKING CAPITAL

In September 1997, the Company entered into a new unsecured $160 million
multi-currency global revolving credit agreement to meet the financing needs of
Donnelly Corporation and its majority owned, controlled subsidiaries. This
multi-currency revolving credit agreement replaces the Company's previous
unsecured $80 million domestic credit agreement and its 75 million Deutsch Mark
revolving Eurocredit loan agreement. Borrowings under this agreement bear
interest, at the election of the Company at a floatin rate equal to (i) the
Federal Funds Funding rate plus .385% to .875% or (ii) the Eurodollar rate plus
.185% to .0675% based on specific financial ratios of the Company. The Company
expects the initial borrowings under the agreement to bear interest at a
floating rate of approximately 3.5-6.0% per annum. This new revolving credit
agreement terminates in September, 2004, with opportunity for the Company to
extend for one year periods with the consent of all the revolver banks.

In November 1996, the Company entered into a three-year agreement to sell, on a
revolving basis, an interest in a defined pool of trade accounts receivable of
up to $50 million. At June 28, 1997, a $40.0 million interest had been sold
under this agreement with proceeds used to reduce revolving lines of credit. The
sale is reflected as a reduction of accounts receivable and as operating cash
flows. As collections reduce previously sold interests, new accounts receivable
are customarily sold. The proceeds of sales are less than the face amount of
accounts receivable sold by an amount that approximates the purchaser's
financing cost of issuing its own commercial paper backed by these accounts
receivable. The discount fees were $1.1 million in 1997, and are included in
administrative and general expense. The Company, as agent for the purchaser,
retains collection and administrative responsibilities for the participating
interests of the defined pool.

Other than the item summarized above, the Company does not believe that it, or
industries which it serves in general, have any special practices or special
conditions affecting working capital items that are significant for an
understanding of the Company's business.

IMPORTANCE OF LIMITED NUMBER OF CUSTOMERS

In 1997, approximately 74% of the Company's net sales were to the following
major automobile manufacturers:

Ford Motor Company 25%
Chrysler Corporation 20%
Honda of America Mfg., Inc. 11%
BMW 7%
VW 6%
General Motors Corporation 5%
Total 74%
<PAGE>
The loss of any one of these customers would have a material adverse effect on
the Company.

BACKLOG OF ORDERS

As of June 28, 1997, and June 29, 1996, the Company's backlog of orders was
approximately $150 million and $93 million, respectively. The Company believes
that all of its existing backlog will be delivered during the current fiscal
year. The Company generally sells to automakers on the basis of long-term
purchase contracts or one-year purchase orders, which generally provide for
releases for approximately 30 to 90 days of production. Unshipped products under
these releases and short-term purchase order constitute the Company's backlog.

GOVERNMENT CONTRACTS

The Company does not believe that any portion of its business is subject to
renegotiation of profits or termination of contracts or sub-contracts at the
election of the government.

COMPETITION

Competition in the markets for the Company's automotive products is based
primarily on manufacturing capabilities, design, quality, cost and delivery. A
number of the Company's competitors are divisions or subsidiaries of larger
corporations, including vertically integrated glass companies, with greater
financial resources than the Company and with well-established relationships
with automakers. The level and nature of competition involving the Company's
automotive products are varied.

Interior Rearview Mirrors. The Company knows of three principal competitors in
the U.S. market: one in the market for base interior rearview mirror assemblies,
one in the electrochromic market and one in the lighted mirror market. The
Company has several worldwide competitors for interior mirror glass sales in
Japan and Europe, although the Company believes each interior mirror glass
competitor has a smaller market share than the Company. In Europe, the Company
competes with several other manufacturers of complete interior rearview mirror
assemblies.

The Company's principal competitor for automatic electrochromic rearview mirrors
is Gentex Corporation, which currently has a dominant share of the market for
electrochromic mirrors. The Company and Gentex Corporation had been involved in
patent litigation with respect to certain aspects of electrochromic technology.
The litigation has previously had an adverse impact on the Company's ability to
market interior electrochromic mirrors in the United States and Europe. During
the fourth quarter of 1996, the Company reached a patent and licensing
settlement with Gentex Corporation, and management believes that this settlement
will facilitate its efforts to market electrochromic mirrors.

Exterior Rearview Mirrors. The Company has many competitors in the worldwide
exterior rearview mirror market. With the Company's recent acquisition of a
controlling interest in Donnelly Hohe, the Company believes that it is now a
leading producer of automotive exterior rearview mirrors. The Company has one
competitor in the U.S. market for automatic exterior electrochromic mirrors.

Modular Windows. The Company has many competitors in the worldwide modular
window market. Certain competitors are major automotive glass manufacturers or
are closely associated with automobile or glass
<PAGE>
manufacturers. The Company believes that the glass manufacturers could further
vertically integrate into glass molding and that these companies would be
significant competitors due to their size. However, the Company believes that it
is still a technology leader for glass encapsulation and metal bonding of
attachments to glass.

Other Products. There are many competitors in the market for interior lighting
and trim products, many of whom have greater resources and market share than the
Company. With respect to its information products business, the Company believes
it is the world's leading producer of coated bent glass for the CRT-based
electronic display and interactive systems market. Competition in both of these
segments is based on price, service and quality.

RESEARCH AND DEVELOPMENT

Continued emphasis on effective research and product development is a key part
of the Company's strategy for future growth. The Company believes that its
technological and product development capabilities will enable the Company to
provide sophisticated integrated modules and systems and to perform the
increased responsibilities automotive suppliers are expected to manage.

In 1997, 1996 and 1995, research and development expenditures were $32.5
million, $27.7million and $22.7 million, respectively, or 4.8%, 6.3% and 5.9% of
the Company's total net sales for those years. The Company expects to spend
approximately 5% of its net sales each year on research and development.
Approximately 80% of the Company's research and development expenditures are
product specific and conducted by the Company's product engineers. The Company
has a corporate applied research group, including several Ph.D's, located at
research facilities in Holland, Michigan, and at a separate applied research
center in Tucson, Arizona. The Company owns numerous U.S. and foreign patents
and has licenses for other patents and technology. The Company also licenses
certain of its own patents and technology to others. The Company believes its
manufacturing know-how, design of its own manufacturing equipment and
development of manufacturing processes are other important competitive
advantages.

HUMAN RESOURCES

The Company believes its human resources are one of its fundamental strengths.
The Company has operated for 45 years under a team-based, participative
management system. The Company believes that this approach has increased
productivity by emphasizing employee opportunity and participation aimed at
continuous improvement. The Company believes this emphasis has resulted in
enhanced long-term productivity, cost control and product quality and has helped
the Company attract and retain capable employees. The Company was rated one of
the 10 best companies to work for in America in the most recent edition (1993)
of the publication "100 Best Companies to Work for in America."

The Company currently has approximately 5,000 employees worldwide and
approximately 2,700 work in the Company's North American operations in the U.S.
and Mexico. The Company's non-North American employees are primarily located in
Germany, Ireland, France and Spain. The Company considers its relationship with
its employees to be good.

The Company's United States workforce is non-union. The Company's workforces in
Ireland, Mexico and France are unionized, as are the workforces of most
companies in these countries. The Company's workforce in Germany is represented
by a works council which has employee representation. The workforces of most
companies in Germany are required to be represented by works councils. The
Company's workforce in Spain is non-union. The Company has no collective
bargaining agreements in Ireland or Mexico, where non-economic terms of
employment are governed by statute. The Company negotiates wages and benefits
approximately annually with its German, Spanish and Irish workforce. The Company
negotiates wages approximately
<PAGE>
annually and benefits approximately bi-annually with its workforce in Mexico.
The Company's French subsidiary is subject to the salary schedule and conditions
collectively agreed to on a national and regional basis between employers and
employees in the plastics industry. The Company is currently reducing its
European workforce as part of its European restructuring plan. See Item 7,
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations."

ENVIRONMENTAL MATTERS

Like similar companies, the Company's operations and properties are subject to a
wide variety of increasingly complex and stringent federal, state, local and
international laws and regulations, including those governing the use, storage,
handling, generation, treatment, emission, release, discharge and disposal of
certain materials, substances and wastes, the remediation of contaminated soil
and groundwater, and the health and safety of employees (collectively,
"Environmental Laws"). As such, the nature of the Company's operations exposes
it to the risk of claims with respect to such matters and there can be no
assurances that material costs or liabilities will not be incurred in connection
with such claims.

Certain Environmental Laws regulate air emissions, water discharges, hazardous
materials and wastes and require public disclosure related to the use of various
hazardous or toxic materials. The Company's operations are also governed by
Environmental Laws relating to workplace safety and worker health. Compliance
with Environmental Laws may require the acquisition of permits or other
authorizations for certain activities and compliance with various standards or
procedural requirements.

Based upon its experience to date, the Company believes that the future cost of
compliance with existing Environmental Laws, and liability for known
environmental claims pursuant to such Environmental Laws, will not have a
material adverse effect on the Company's financial position or results of
operations and cash flows. However, future events, such as new information,
changes in existing Environmental Laws or their interpretation, and more
vigorous enforcement policies of regulatory authorities, may give rise to
additional expenditures or liabilities that could be material.

"SAFE HARBOR" PROVISIONS

This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
any forward-looking statements, including statements regarding the intent,
belief, or current expectations of the Company or its management, are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in forward-looking statements as
a result of various factors including, but not limited to (i) general economic
conditions in the markets in which the Company operates, (ii) fluctuation in
worldwide or regional automobile and light truck production, (iii) changes in
practices and/or policies of the Company's significant customers and (iv) other
risks and uncertainties. The Company does not intend to update these
forward-looking statements.

ITEM 1 (d) INFORMATION ABOUT FOREIGN OPERATIONS

During 1996, approximately 33% of combined consolidated net sales were derived
from the operations of the Company's wholly-owned European subsidiaries.
Approximately 9% of combined consolidated net sales were derived from export
shipments from the Company's United States operations to customers in foreign
countries. The Company has licensed major automotive glass companies in Europe
and Japan to manufacture modular windows for sale in foreign markets using the
Company's technology.
<PAGE>
In the second quarter of 1997, the Company began consolidating the financial
statements of Donnelly Hohe, a subsidiary based in Collenberg, Germany. For the
Company's year ended June 28, 1997, financial statements are consolidated using
Donnelly Hohe's year end balance sheet at May 31, 1997, and the nine month
operating results ended May 31, 1997. See Notes l and 3 to the combined
consolidated financial statements in Item 8 for a more thorough discussion.

Operating Income (Loss):

North American ......... $ 25,528 $ 17,208 $ 18,572
European ............... (7,847) (3,717) (1,539)
$ 17,681 $ 13,491 $ 17,033

Identifiable Assets:

North American ......... $ 200,100 $ 232,370 $ 193,545
European ............... 158,193 39,122 30,243
$ 358,293 $ 271,492 $ 223,788
</TABLE>
Fluctuating exchange rates and other factors beyond the control of the Company,
such as tariff and foreign economic policies, may affect future results of the
Company's foreign operations

ITEM 2. PROPERTIES

The Company and its consolidated subsidiaries own or lease facilities which are
located throughout the United States, Germany, Ireland, Spain, France and
Mexico. The location, square footage and use of the most
<PAGE>
significant facilities at August 29, 1997, were as follows:

LOCATION

Location of Facility Square Footage Use
Holland, Michigan (10)* 887,000 Manufacturing, Warehouse and Office
Grand Haven, Michigan 135,000 Manufacturing, Warehouse and Office
Newaygo, Michigan* 177,000 Manufacturing, Warehouse and Office
Detroit, Michigan* 4,000 Sales and Marketing Office
Mt. Sterling, Kentucky 37,000 Manufacturing, Warehouse and Office
Tucson, Arizona (2)* 49,000 Research and Sales Office
Naas, Ireland 84,000 Manufacturing, Warehouse and Office
Manorhamilton, Ireland 25,000 Manufacturing, Warehouse and Office
Dublin, Ireland 31,000 Manufacturing, Warehouse and Office
Langres, France* 40,000 Manufacturing, Warehouse and Office
Collenberg, Germany(2)* 228,000 Manufacturing, Warehouse and Office
Dorfprozelten, Germany* 319,000 Manufacturing, Warehouse and Office
Schleiz, Germany (2)* 94,000 Manufacturing, Warehouse and Office
Monterrey, Mexico 40,000 Manufacturing, Warehouse and Office
Barcelona, Spain 34,000 Manufacturing, Warehouse and Office
Palmela, Portugal 17,000 Warehouse and Office
Shunde City, China (3)** 74,000 Manufacturing, Warehouse and Office
Shanghai, China** 11,000 Manufacturing and Office
Tokyo, Japan* 4,000 Sales and Marketing Office
Goteborg, Sweden* 4,000 Design Office

*Leased facilities. Three of the ten Holland, Michigan facilities are
leased. Approximately 165,000 square feet of the Dorfprozelten, Germany
facility is leased. One of the two Schleiz, Germany facilities is leased.
One of the two Collenberg, Germany facilities is leased.
**Owned or leased by a joint venture.

The Company believes its facilities are modern, well-maintained and adequately
insured and are primarily utilized. Because of its rapid growth in sales, the
Company is continually evaluating the need for additional office, manufacturing
and warehouse space.

As of June 28, 1997, the Company had capital expenditures purchase commitments
outstanding of approximately $6.5 million.

ITEM 3. LEGAL PROCEEDINGS

On January 21, 1997, Midwest Manufacturing Holdings, L.L.C. ("Midwest") filed a
lawsuit against the Company in Cook County, Illinois Circuit Court with respect
to terminated discussions regarding the possibility of Midwest's acquisition of
the Company's Information Products division. The litigation has been removed to
the Federal District Court for the Northern District of Illinois. Midwest
alleges that a verbal agreement to purchase the Information Products division
had been reached, and has filed its lawsuit in an attempt to compel the Company
to proceed with the sale or to pay Midwest damages. Management believes that the
claim by Midwest will be resolved without a material effect on the Company's
financial condition or results of operations and
<PAGE>
liquidity. The Company has filed a motion with the court requesting summary
judgment in favor of the Company.

In April 1996, the Company reached a patent and licensing settlement with Gentex
Corporation that resolved patent litigation between the two companies relating
to automotive electrochromic rearview mirrors. In the settlement, the Company
and Gentex Corporation agreed to cross-license certain patents, which each
company may practice within its own core technology. The Company's core
electrochromic technology achieves dimming by electrochromic coloration of a
solid film, and the Company manufactures and markets electrochromic mirrors
using the Company's solid film electrochromic technology. In the settlement, the
parties also agreed not to pursue litigation against each other on certain other
patents for a period of four years. In addition, Gentex Corporation agreed to
pay the Company a settlement of $6.0 million in patent settlement fees. The
Company used the settlement proceeds primarily to offset related patent
litigation costs that had previously been capitalized and recognized a gain of
$2.3 million, net of those costs.

In June, 1994, the Company entered into a joint venture with Happich
Fahrzeug-InnausstaHung GmbH of Germany ("Happich") to produce sun visors, grab
handles and other interior parts in North America. In July, 1995, when the joint
venture was at an early stage of its development, Happich expressed its desire
to terminate the joint venture. The parties have been engaged in arbitration
over the terms of the joint venture termination since July 29, 1996. On July 31,
1997 the Company was granted an interim arbitration award favorable to the
Company and indicating that the arbitration will be concluded without a material
effect on the Company's financial condition or results of operation and
liquidity, with the final award yet to be determined.

Other Litigation. The Company and its subsidiaries are involved in certain other
legal actions and claims, including environmental claims, arising in the
ordinary course of business. Management believes that such litigation and claims
will be resolved without material effect on the Company's financial position,
results of operations and liquidity, individually and in the aggregate.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 28, 1997.

ADDITIONAL ITEM - EXECUTIVE OFFICERS OF THE REGISTRANT

Senior Corporate and Executive Officers of Registrant. The Senior Corporate and
Executive Officers of the Company are as follows:

Positions and Year First Elected
Name Age Offices Held Executive Officer

J. Dwane Baumgardner, Ph.D. 57 Chairman, Director, 1978
CEO, President
Hans W. Huber 49 COO of Europe 1997
Donn J. Viola 52 COO of North America 1996
John F. Donnelly, Jr. 45 Senior Vice President 1986
Maryam Komejan 46 Senior Vice President,
Corporate Secretary 1993
Niall R. Lynam, Ph.D. 43 Senior Vice President 1992
William R. Jellison 39 Vice President, Corporate
Controller, Treasurer 1991
<PAGE>
John F. Donnelly, Jr., is a descendant of Bernard P. Donnelly, Sr., the
Company's founder, and is the brother of Joan E. Donnelly, a director of the
Company. B. Patrick Donnelly, III, Joan E. Donnelly, Thomas E. Leonard, Gerald
T. McNeive, Jr. and Rudolph B. Pruden, all Directors of the Company, are
descendants of, or are married to descendants of Bernard P. Donnelly. There are
no other family relationships between or among the above-named executive
officers. There are no arrangements or understandings between any of the
above-named officers pursuant to which any of them was named an officer.

Dr. Baumgardner has been Chief Executive Officer and a director since 1982,
Chairman of the Board since 1986 and President since 1994. Hans Huber joined the
Company as Chief Operating Officer of the Company's European operations in
September of 1997. Prior to joining the Company, he served as Vice President and
General Manager of Framatome Connectors Automotive from 1992 to 1997, where he
was responsible for business growth, budgets and operations throughout Europe
and North America. Donn Viola joined the Company as Chief Operating Officer of
the Company's North America operations in August 1996. Prior to joining the
Company, he was Senior Executive Vice President, Chief Operating Officer and
member of the Board of Directors for Mack Trucks Incorporated from 1994 to 1996
and was Executive Vice President of Manufacturing, Purchasing and Quality from
1990 to 1994. John F. Donnelly, Jr. was elected Senior Vice President in 1993.
Prior to that time he was Vice President from 1986 through 1993. Maryam Komejan
has been Senior Vice President since 1995, Vice President since 1993 and
Corporate Secretary since 1989. Niall Lynam was elected Senior Vice President
and Chief Technical Officer in 1996. Prior to that time he was Vice President
from 1992 through 1996. William R. Jellison has been Vice President since 1991,
Corporate Controller since 1992 and Treasurer since 1988.

Officers are elected annually.

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

The Common Shares are traded on the New York Stock Exchange under the symbol
DON. Prior to March 10, 1997, the Common Shares were traded on the American
Stock Exchange under the symbol DON. The following table sets forth for the
fiscal periods indicating the high and low sale prices of the Common Shares, as
reported by the New York Stock Exchange, beginning on March 10, 1997, and by the
American Stock Exchange prior to March 10, 1997, and dividends declared per
share.
<TABLE>

Fiscal 1997 Dividends
Quarter High Low Declared
<S> <C> <C> <C>
First $14.70 $ 11.80 $ .08
Second 17.90 14.10 .08
Third 20.00 16.00 .10
Fourth 17.38 14.38 .10

Fiscal 1996 Dividends
Quarter High Low Declared

First $13.40 $11.60 $ .08
Second 12.50 11.00 .08
Third 11.90 10.40 .08
Fourth 12.90 11.00 .08
</TABLE>
As of August 29, 1997, the Company had approximately 1,000 holders of record of
shares of Class A Common Stock.

ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net sales ............. $ 671,297 $ 439,571 $ 383,340 $ 337,262 $ 300,927

Gross profit .......... $ 126,668 $ 81,741 $ 82,568 $ 73,632 $ 68,910
Restructuring charges
(gain) .............. $ 9,965 $ 2,399 $ (2,265) $ 1,184 $ --
Operating income ...... $ 17,681 $ 13,491 $ 17,033 $ 13,121 $ 12,458
Income before taxes on
income ............... $ 12,005 $ 12,349 $ 16,823 $ 11,008 $ 10,936
Income from continuing
operations ........... $ 10,020 $ 8,454 $ 11,009 $ 7,258 $ 7,852

1997 1996 1995 1994 1993
Income from continuing
operations per common
share ............... $ 1.01 $ 0.86 $ 1.14 $ 0.75 $ 0.82
Dividends declared per
common share ........ $ 0.36 $ 0.32 $ 0.26 $ 0.26 $ 0.22
Total assets .......... $ 358,293 $ 271,492 $ 223,788 $ 183,801 $ 139,840
Debt including current
maturities .......... $ 122,901 $ 101,916 $ 66,802 $ 53,485 $ 33,765
Preferred stock ....... $ 531 $ 531 $ 531 $ 531 $ 531
Shareholders' equity
(total) ............. $ 93,827 $ 88,852 $ 82,900 $ 70,826 $ 65,546
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

Incorporated by reference from the 1997 Annual Report, see "Management
Discussion and Analysis of Results of Operations and Financial Condition" at
pages 19-25, which is filed as Exhibit 13 to this Form 10-K report.

ITEM 7(a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not required to include disclosure with respect to this item for
the fiscal year ended June 28, 1997.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following combined consolidated financial statements which appear in the
1997 Annual Report are incorporated by reference:

Combined Consolidated Statements of Income - Page 26.

Combined Consolidated Balance Sheets - Page 27.

Combined Consolidated Statements of Cash Flows - Page 28.

Combined Consolidated Statements of Shareholders' Equity - Page 29.

Notes to the Combined Consolidated Financial Statements - Pages 30-40.

Management's Responsibility for Financial Reporting - Page 41.

Report of Independent Certified Public Accountants - Page 41.

Quarterly financial data relating to the results of operations for the years
ended June 28, 1997, and June 29, 1996, appears in the 1997 Annual Report in
Note 17 of the Notes to the Combined Consolidated Financial Statements at Page
40 and is incorporated herein by reference.

ITEM 9 CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

Not applicable.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors of Registrant. Information relating to the directors and director
nominees of the Registrant contained in the Registrant's definitive Proxy
Statement for its Annual Meeting of Shareholders to be held October 17, 1997,
and filed pursuant to Regulation 14A, is incorporated by reference.

Executive Officers of the Registrant. Information relating to the executive
officers of the Company is included in Item 4 of Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Information relating to executive compensation is contained under the caption
"Executive Compensation" in the Company's definitive Proxy Statement for its
Annual Meeting of Shareholders to be held October 17, 1997 and the information
within those sections is incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The sections entitled "Voting Securities and Principal Holders Thereof",
"Nominees for Election as Directors"
<PAGE>
and "Securities Ownership of Management" in the definitive Proxy Statement for
the Company's Annual Meeting of Shareholders to be held October 17, 1997, and
the information within those sections are incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The section entitled "Certain Transactions" in the definitive Proxy Statement
for the Company's Annual Meeting of Shareholders to be held October 17, 1997,
and the information within that section is incorporated by reference.

PART IV.

ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) DOCUMENTS FILED AS PART OF THIS REPORT

1. Financial Statements. The Registrant's combined consolidated financial
statements, for the year ended June 28, 1997, together with the Report of
Independent Certified Public Accountants appear in the 1997 Annual Report on
pages 26-41 and are incorporated by reference and are filed as Exhibit 13 to
this Form 10-K report. The supplemental financial information listed and
appearing hereafter should be read in conjunction with the financial statements
included in this report.

2. Financial Statement Schedules. The following are included in Part IV of this
report for each of the years ended June 28, 1997, June 29, 1996 and July 1, 1995
as applicable:

Page
Report of Independent Certified Public Accountants on
Financial StatementSchedule 23
Schedule II, Valuation and Qualifying Accounts 24

All other schedules are not submitted because they are not applicable or because
the required information is included in the combined consolidated financial
statements or notes thereto.

3. Exhibits. Reference is made to the Exhibit Index which is found on the last
two pages of the body of this Form 10-K Annual Report preceding the exhibits.

(b) REPORTS ON FORM 8-K

The Registrant filed a Form 8-K, dated October 28, 1996, relating to the
acquisition of a controlling interest in Donnelly Hohe GmbH & Co. KG ("Donnelly
Hohe"). Therefore, Donnelly Hohe's financial statements are consolidated with
those of the Registrant beginning in the second quarter. The initial filing
included a description of the acquisition and additional options to increase the
Registrant's ownership in the future. The Registrant also filed a Form 8-K/A,
dated November 27, 1996, which was an amendment to the above Form 8-K. The
originally filed Form 8-K did not include audited financial statements for
Donnelly Hohe (the business acquired) or pro forma financial statements, which
were both filed under cover of the amended Form 8-K/A. The Registrant did not
file any reports on Form 8-K during the fourth quarter of the fiscal year ended
June 28, 1997.
<PAGE>
(c) EXHIBITS

The response to this portion of Item 14 is submitted as a separate section of
this report.

(d) FINANCIAL STATEMENT SCHEDULES

The response to this section of Item 14 is submitted as a separate section of
this report.
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 (d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

DONNELLY CORPORATION

/s/J. Dwane Baumgardner
Chairman, Chief Executive
Officer, and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the date indicated. The persons named below each hereby
appoint J. Dwane Baumgardner and William R. Jellison, and each of them
severally, as his or her attorney in fact, to sign in his or her name and on his
or her behalf, as a director or officer of the Registrant, and to file with the
Commission any and all amendments to thi report on Form 10-K.

/s/J. Dwane Baumgardner /s/William R. Jellison
Chairman, Director, Vice President, Corporate
Chief Executive Officer, Controller and Treasurer
and President

/s/John A. Borden /s/Arnold F. Brookstone
Director Director

/s/B. Patrick Donnelly III /s/Joan E. Donnelly
Director Director

/s/R. Eugene Goodson /s/Thomas E. Leonard
Director Director

/s/Gerald T. McNeive, Jr. /s/Rudolph B. Pruden
Director Director

/s/Donald R. Uhlmann
Director

DATE: September 24, 1997
Donnelly Corporation
Annual Report - Form 10-K
<PAGE>
Report of Independent Certified Public Accountants on Financial Statement
Schedule

Donnelly Corporation
Holland, Michigan

The audits referred to in our report dated August 1, 1997, relating to the
combined consolidated financial statements of Donnelly Corporation and
subsidiaries, which are incorporated by reference in Item 8 of this Form 10-K,
included the audit of the financial statement schedule listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.

In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.

/s/BDO SEIDMAN, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
August 1, 1997
<PAGE>
<TABLE>
DONNELLY CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT BALANCE AT
BEGINNING END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD
- ----------------------------------------------------------------------------------------------------------------------
RESERVE FOR UNCOLLECTIBLE ACCOUNTS AND
SALES RETURNS AND ALLOWANCES:
<S> <C> <C> <C> <C>
YEAR ENDED JULY 1, 1995 $676 -- (1) -- (1) $575
YEAR ENDED JUNE 29, 1996 $575 -- (1) -- (1) $571
YEAR ENDED JUNE 28, 1997 $571 $473 (2) -- (1) $1,064
</TABLE>
(1) INFORMATION IN THIS COLUMN IS NOT SIGNIFICANT
(2) INCREASE DUE TO CONSOLIDATION OF SUBSIDIARY
<PAGE>
Annual Report - Form 10-K

Exhibit Index

3. Articles of Incorporation and Bylaws are incorporated by reference to
Exhibit 3.1 and 3.2 of Registrant's Registration Statement on Form
S-1, as amended, dated March 9, 1988, (Registration No. 33-17167)
("S-1 Registration Statement").

4. A specimen stock certificate of the Class A Common Stock.

10.1 Amended and Restated First Chicago Revolving Credit Loan Agreement was
filed as part of Form 10-K for the fiscal year ending June 29, 1996,
as Exhibit 10.1 and is hereby incorporated by reference.

10.2 Nationwide Life Insurance Company Debt Agreement was filed as part of
Form 10-K for the fiscal year ended July 1, 1995, as Exhibit 10.1 and
is hereby incorporated herein by reference.

10.3 An English language summary of an Acquisition Agreement and related
documents written in German between the Registrant, Donnelly GmbH,
Hohe GmbH & Co. KG ("Hohe") and other related parties, dated May 25,
1995, was filed as Exhibit 2 to a Form 8-K dated on June 9, 1995,
which has been subsequently amended and that Exhibit 2 is hereby
incorporated herein by reference.

10.4 Nationwide Life Insurance Company Debt Agreement was filed as part of
Form 10-K for the fiscal year ended July 2, 1994, as Exhibit 10.1 and
is hereby incorporated herein by reference.

10.5 The Principal Mutual Debt Agreement was filed as part of Form 10-K for
the fiscal year ended July 3, 1993, as Exhibit 10.2 and is hereby
incorporated herein by reference.

10.6 A Merger Agreement for the Merger of Donnelly Coated Corporation
("DCC") into Applied Coated Corporation, among Registrant, DCC,
Applied Films Lab, Inc. and Cecil Vanalsburg, John Chapin, and Richard
Condon, dated February 24, 1992, was filed as part of a Registration
Statement on Form S-2 (Registration No. 33-47036) and Exhibit 10.7,
and the same is hereby incorporated herein by reference.

10.7 The form of Indemnity Agreement between Registrant and each of its
directors was filed as a part of a Registration Statement on Form S-1
(Registration No. 33-17167) as Exhibit 10.8, and the same is hereby
incorporated herein by reference.

10.8 The Donnelly Corporation Stock Option Plan was filed as part of a
Registration Statement on Form S-1 (Registration No. 33-17167) as
Exhibit 10.9, and the same is hereby incorporated herein by reference.

10.9 The Donnelly Corporation 1987 Employees' Stock Purchase Plan,
including amendments was filed as part of a Registration Statement on
Form S-8 (Registration No. 33-34746) as Exhibit 28.1, and the same is
hereby incorporated herein by reference.

10.10 The Donnelly Corporation Non Employee Director's Stock Option Plan was
filed as part of a Registration Statement on Form S-8 (Registration
No. 33-55499) as Exhibit 99, and the same is hereby incorporated
herein by reference.

10.11 The Donnelly Corporation Executive Compensation Plan was filed as part
of Form 10-K/A for the fiscal year ending June 29, 1996, as Exhibit
10.11 and is hereby incorporated by reference.
<PAGE>
10.12 The Donnelly Corporation Unfunded Deferred Director Fee Plan was filed
as part of Form 10-K/A for the fiscal year ending June 29, 1996, as
Exhibit 10.12 and is hereby incorporated by reference.

10.13 The Donnelly Corporation Pension Plan for Outside Directors was filed
as part of Form 10-K/A for the fiscal year ending June 29, 1996, as
Exhibit 10.13 and is hereby incorporated by reference.

10.14 The Donnelly Corporation Supplemental Retirement Plan was filed as
part of Form 10-K/A for the fiscal year ending June 29, 1996, as
Exhibit 10.14 and is hereby incorporated by reference.

10.15 The Donnelly Corporation Deferred Compensation Plan was filed as part
of Form 10-K/A for the fiscal year ending June 29, 1996, as Exhibit
10.15 and is hereby incorporated by reference.

10.16 Letter from Donnelly Corporation to Mr. Donn Viola dated July 12,
1996, as modified on July 22, 1996 was filed as part of Form 10-K/A
for the fiscal year ending June 29, 1996, as Exhibit 10.17 and is
hereby incorporated by reference.

10.17 Letter from Donnelly Corporation to Mr. Russell Scaffede dated
September 15, 1995 was filed as part of Form 10-K/A for the fiscal
year ending June 29, 1996, as Exhibit 10.18 and is hereby incorporated
by reference.

10.18 An English language summary of the Security Pooling Agreement written
in German between the Registrant and Donnelly Hohe GmbH & Co. KG dated
September 15, 1995 was filed as part of Form 10-K/A for the fiscal
year ending June 29, 1996, as Exhibit 10.19 and is hereby incorporated
by reference.

10.19 Receivables Purchase Agreement among Donnelly Receivables Corporation,
Falcon Asset Securitization Corporation and the First National Bank of
Chicago dated as of November 14, 1996 was filed as part of Form 10-K/A
for the fiscal year ending June 29, 1996, as Exhibit 10.20 and is
hereby incorporated by reference.

13 Certain portions of the Donnelly Corporation 1997 Annual Report to
Shareholders. This information was delivered to the Company's
Shareholders in compliance with Rule 14(a)-3 of the Securities
Exchange Act of 1934, as amended.

21 Schedule of Affiliates.

23 Consent of BDO Seidman, LLP, independent public accountants.

27 Financial Data Schedule.

<PAGE>
EXHIBIT 4

48658
SHARES
NUMBER

DCA DONNELLY /(R)/ INCORPORATED UNDER THE LAWS OF THE STATE OF
MICHIGAN
CUSIP 257870 10 5
SEE REVERSE FOR CERTAIN DEFINITIONS
DONNELLY CORPORATION CLASS A COMMON STOCK

THIS CERTIFIES THAT

IS THE OWNER OF

FULLY PAID AND NON-ASSESSABLE SHARES OF $.10 PAR VALUE CLASS A COMMON STOCK OF

Donnelly Corporation transferable on the books of the Corporation in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the Articles of Incorporation
and of any amendments thereto (copies of which are on file with, and are
available from, the Transfer Agent and the Corporation), to all of which the
holder by acceptance hereof, assents.
This certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar. Witness the facsimile seal of the Corporation
and the facsimile signatures of its duly authorized officers.

[DONNELLY CORPORATION SEAL]

Dated

/s/ Duane Baumgardner
CHAIRMAN OF THE BOARD [PHOTO]

/S/ Maryam Komejan
SECRETARY
COUNTERSIGNED AND REGISTERED:
THE BANK OF NEW YORK
TRANSFER AGENT
AND REGISTRAR
BY:

AUTHORIZED SIGNATURE
<PAGE>
DONNELLY CORPORATION

THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS,
A FULL STATEMENT OF THE DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND LIMITATION
OF THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED, THE DESIGNATION, RELATIVE
RIGHTS, PREFERENCES AND LIMITATIONS OF EACH SERIES OF SHARES SO FAR AS THE SAME
HAVE BEEN PRESCRIBED AND THE AUTHORITY OF THE BOARD TO DESIGNATE AND PRESCRIBE
THE RELATIVE RIGHTS, PREFERENCES AND LIMITATION OF OTHER SERIES.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common UNIF GIFT MIN ACT ______Custodian______ TEN ENT -
as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right
of survivorship and not as Under Uniform Gifts to Minors
tenants in common Act_____________________________
(State)

Additional abbreviations may also be used though not in the above list.

For value received, _______________hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
INDENTIFYING NUMBER OF ASSIGNEE

Please print or typewrite name and address including postal zip code of
assignee.

_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby

irrevocably constitute and appoint______________________________________________

- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.

Dated, ___________________

NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE>
EXHIBIT 13

DONNELLY CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

GENERAL

Effective April 1, 1995, the Company acquired an interest in Hohe GmbH & Co. KG,
since renamed Donnelly Hohe GmbH & Co. KG ("Donnelly Hohe"), a German limited
partnership. Donnelly Hohe, based in Collenberg, Germany, supplies many of the
leading European automakers with interior and exterior rearview mirrors through
manufacturing facilities in Germany and Spain.

Donnelly Hohe consists of a general partnership and a limited partnership. The
general partnership controls Donnelly Hohe's assets and manages its operations
while the limited partnership is the recipient of all income or losses generated
by Donnelly Hohe's operations. The Company's original equity investment of $3.6
million consisted of a 48% interest in the general partner and a 66 2/3%
interest in the limited partner. In the second quarter of 1997, the Company
acquired an additional 13% interest in the general partner, resulting in the
Company owning a controlling interest in the general partner of Donnelly Hohe.
As a result, Donnelly Hohe's financial statements were consolidated with those
of the Company, beginning with the second quarter of 1997. From the initial date
of acquisition, April 1, 1995, through the first quarter of 1997, the Company's
investment in Donnelly Hohe was accounted for using the equity method of
accounting. An additional 13% interest in the general partnership was acquired
in the third quarter of 1997, increasing the Company's interest in the general
partnership to 74%. The Company's limited partnership interest has remained
unchanged, therefore, the impact on net income has remained unchanged for each
period reported.

The Company's fiscal year ends on the Saturday nearest June 30, and its fiscal
quarters end on the Saturdays nearest September 30, December 31, March 31 and
June 30. Donnelly Hohe's fiscal year ends on May 31, and its fiscal quarters end
on August 31, November 30, February 28 and May 31. Accordingly, the Company's
Combined Consolidated Financial Statements as of and for a period ended on a
particular date include Donnelly Hohe's financial statements as of and for a
period ended approximately one month before that date. The Company intends to
continue this practice. The Company's financial statements as of and for the
year ended June 28, 1997, consolidate Donnelly Hohe's financial statements as of
and for the nine month period ended May 31, 1997. All year references are
relating to the Company's fiscal year.

The Company's net sales and net income are subject to significant quarterly
fluctuations attributable primarily to production schedules of the Company's
major automotive customers. These same factors cause quarterly results to
fluctuate from year to year. The comparability of the Company's results on a
period to period basis is also affected by the Company's implementation of new
joint ventures, alliances, acquisitions and investments in new product lines.

RESULTS OF OPERATIONS

Comparison of 1997 to 1996

Net sales were $671.3 million in 1997 compared to $439.6 million in 1996. The
consolidation of Donnelly Hohe contributed approximately $164.0 million of net
sales in 1997. Excluding Donnelly Hohe, consolidated net sales for 1997 were
$507.3 million, an increase of 15% over 1996. The Company continues to
experience significant price pressures from many of its main automotive
customers. While these price pressures continue to impact the Company's gross
profit and operating margins, they did not have a material impact on the
Company's net sales for 1997.

Net sales for the Company's North American operations increased by approximately
15% in 1997 compared to 1996. The increase in North American net sales occurred
despite the fact that automotive industry production increased less than 5%. The
increase was primarily due to programs launched in 1996 running at full
production volumes and new product introductions in the modular window, door
handle and interior trim product lines. Net sales also increased as a result of
strong sales of vehicles containing Company products, such as the Chrysler
Caravan/Voyager and the Ford Expedition.

The Company's consolidated European sales increased by approximately $172
million in 1997 from 1996 primarily due to the consolidation of Donnelly Hohe.
Excluding the consolidation of Donnelly Hohe, net sales for the Company's
European operations
<PAGE>
were approximately 17% higher due to increased sales of interior and
electrochromic mirrors and modular windows.

Gross profit margin for 1997 was 18.9% compared to 18.6% in 1996.

The Company's North American gross profit margins were stronger for the year due
to higher volumes, significantly lower start-up expenses compared to 1996,
non-recurring costs incurred in 1996, stronger performance at the Company's
subsidiary in Mexico and stronger sales and operational performance for the
Company's information products business. In 1996, the Company's North American
gross profit margin was negatively impacted due to the simultaneous start-up of
three major new business programs which resulted in annual net sales exceeding
$100 million in 1997. North American gross profit margin performance was also
significantly impacted in the third quarter of 1996 by technical difficulties
with one of the Company's suppliers on a new business program.

The Company's European gross profit margins were stronger than the previous year
primarily due to the consolidation of Donnelly Hohe and the Company's subsidiary
in France operating at normal production volumes during the period. Donnelly
Hohe's gross profit margins, particularly Donnelly Hohe's operation in Spain,
are equal to or slightly higher than those of the Company's other foreign
affiliates. Partially offsetting these improvements were lower gross profit
margins at the Company's Irish operations due to a number of factors, including
a paint supplier performance problem and price decreases resulting from currency
fluctuations associated with the strong Irish punt. These have impacted gross
profit in 1997 by approximately $4.0 million. The paint supplier performance
problem is primarily due to process related scrap expenses and the supplier's
difficulty in meeting customer schedules. This has resulted in excessive scrap,
rework and freight costs to the Company. The Company is in the process of
determining alternative sources of supply for these products including the
potential transfer to Donnelly Hohe.

Selling, general and administrative expenses were 9.9% of net sales in 1997
compared to 8.7% in 1996. These expenses increased from $38.1 million in 1996 to
$66.5 million in 1997. The increase resulted from the consolidation of Donnelly
Hohe, support necessary for higher sales from new business programs, support for
the ramp-up of the Donnelly Optics business and from discount fees associated
with the securitization of accounts receivable. In addition, a patent settlement
gain, net of litigation expenses, was recognized in 1996 resulting in a
reduction of these expenses by 0.5% of net sales.

Research and development expenses were $32.5 million in 1997 compared to $27.7
million in 1996. These expenses decreased from 6.3% of net sales in 1996 to 4.8%
of net sales in 1997 due to the consolidation of Donnelly Hohe. Excluding the
consolidation of Donnelly Hohe, research and development expenses were 5.8% of
net sales in 1997. Management currently expects that these expenses will be
approximately 4.5% to 5.5% of net sales in future periods.

In the fourth quarter of 1997, the Company recognized a $10 million
restructuring charge in the Company's European operations to realign
manufacturing capacity, improve operating efficiencies and to reduce future
operating costs, primarily by reducing the number of non-production employees.
The restructuring also involves reorganizing product lines and production to
realize efficiencies in the production process. The costs consist primarily of a
severance program and voluntary separation incentives in addition to other
expenses associated with the plan. The severance and separation incentive
program includes approximately 200 personnel, primarily personnel in
manufacturing and administrative support functions.

In the fourth quarter of 1996, the Company recorded a restructuring charge of
$2.4 million related to the write-down of certain assets and the closure of the
Company's manufacturing facility in Mt. Pleasant, Tennessee, including accruals
for severance and related employee support programs and write-off of certain
assets removed from service. The majority of these liabilities were paid or
settled during the first six months of 1997.

The Company's operating income increased from $13.5 million in 1996 to $17.7
million in 1997, despite the restructuring expense of $10 million in the fourth
quarter of 1997. Excluding the restructuring charges and patent gain, the
Company's operating margins increased from 3.1% of net sales in 1996 to 4.1% of
net sales in 1997.

The Company's North American operating income increased from 4.4% of net sales
in 1996 to 5.7% of net sales in 1997. Operating margins were higher during 1997
due to higher volumes, significantly lower start-up expenses compared to 1996,
non-recurring costs incurred in the third quarter of 1996 and stronger
performance at the Company's subsidiary in Mexico and within the information
products business. Improvements made in North American gross profit margins were
slightly offset by higher selling, general and administrative expenses and
research and development expenses as a percent to sales including start-up
losses experienced at the Company's Donnelly Optics operation.
<PAGE>
European operating income decreased from an operating loss of $3.7 million in
1996 to an operating loss of $7.8 million primarily due to the restructuring
charge recognized in the fourth quarter of 1997. Excluding the restructuring
charge, European operating income increased to $1.5 million in 1997 primarily
due to the consolidation of Donnelly Hohe and higher sales and stronger
operating performance at the Company's subsidiary in France.

Interest expense was $9.5 million and $8.1 million in 1997 and 1996,
respectively. The higher interest expense was due to the consolidation of
Donnelly Hohe. Interest expense was positively impacted in the year due to the
securitization of accounts receivable in November 1996, the proceeds of which
were used to reduce the borrowing under the Company's revolving credit
agreement. The discount fees of $1.1 million associated with this transaction
are included in administrative and general expenses.

Royalty income was $1.5 million and $5.2 million in 1997 and 1996, respectively.
Royalty payments associated with the sale of the refrigerator glass shelving
business (the "Appliance Business") in 1995 concluded in the fourth quarter of
1996.

Other income was $1.7 million and $0.7 million in 1997 and 1996, respectively.
In the second quarter of 1997, the Company sold 2.5% of its investment in VISION
Group plc ("VISION Group") shares, resulting in a $0.9 million gain.

Minority interest in net loss of subsidiaries was $1.1 million in 1997 compared
to $0.2 million in 1996. Beginning in the second quarter of 1997, the Company
began accounting for its investment in Donnelly Hohe on a consolidated basis,
thereby requiring the recognition of minority interest in the net (income) or
loss of this subsidiary. Prior to the second quarter of 1997, the Company
accounted for its investment in Donnelly Hohe under the equity method of
accounting. Equity in earnings (losses) of affiliated companies was ($0.3)
million in 1997 compared to $0.1 million for the same period in 1996. The equity
losses recognized in 1997 were primarily due to start-up losses incurred at
VISION Group and at the Company's China joint ventures. Slightly offsetting
these losses was stronger performance at Applied Films Corporation. The Company
is currently exploring opportunities to exit this business.

The Company's effective tax rate was 23.2% for 1997, compared to 33.8% in 1996.
The decrease in the effective tax rate was due to reinstatement of the research
and development tax credit in the United States, German tax benefits at tax
rates higher than United States on Donnelly Hohe losses and benefits from
adopting the new United States tax regulations for most of the Company's foreign
operations. The Company recorded a tax benefit of $2.6 million in the fourth
quarter on a pretax loss of $2.4 million, primarily due to the European
restructuring charge recognized in the fourth quarter. The Company's effective
tax rate for 1997 would have been approximately 32% without the restructuring
charge. The Company has recorded $6.7 million of deferred tax assets on net
operating loss carryforwards at June 28, 1997. The majority of the loss
carryforwards relate to the Company's European operations where it is expected
that the restructuring plan will provide an improvement in pretax earnings with
an estimated payback of eighteen months. Of the $6.7 million of deferred tax
assets on net operating loss carryforwards, approximately $1.2 million expire in
2010, with the remaining being indefinite.

Net income was $10.0 million in 1997 compared to $8.5 million in 1996. Net
income increased compared to 1996 due to higher sales, significantly lower
start-up costs and improved operational performance in North America. North
American net income was also significantly impacted in the third quarter of 1996
by technical difficulties with one of the Company's suppliers on a new business
program that resulted in significant additional costs. The Company's net income
was positively impacted in 1997 by the gain on sale of VISION Group stock.
Offsetting these improvements were the restructuring charge taken in the fourth
quarter of 1997, losses experienced at the Company's Irish operations and lower
royalty income. The restructuring charge impacted net income by $4.0 million, or
$0.40 earnings per share. The Company's net income also included start-up losses
for Donnelly Optics of approximately $1.5 million and $0.4 million for 1997 and
1996, respectively. The Company expects the Donnelly Optics business to continue
experiencing start-up losses in 1998 to support planned new business orders. The
consolidation of Donnelly Hohe did not impact the comparability of net income
from 1996 to 1997.

The Company is committed to improving shareholder value through focused
development of core automotive businesses, primarily by increasing the Company's
dollar content per vehicle through introduction of new technologies, increasing
volume through penetration into new and emerging markets and improving the
efficiency of current operations and the effectiveness of new product launches.
The Company believes that future results of operations will be influenced by the
Company's introduction of improved program management and lean manufacturing
systems, introduction of new technologies and programs to the Company,
significant global pricing pressures and general economic and industry
conditions. The Company is restructuring European operations to improve
financial performance to a level consistent with the Company's overall corporate
financial goals. In addition, global pricing pressures are continuing to place
pressure on the Company's overall gross profit margin performance as pricing
agreements are implemented.
<PAGE>
Comparison of 1996 to 1995

The Company's net sales increased 14.7% to $439.6 million in 1996, from $383.3
million in 1995. Net sales for the Company's operations in North America
increased by approximately 11% despite a 3% decrease in North American car and
light truck production, the loss of the Saturn modular window business (which
represented approximately 5% of the Company's net sales in 1995) and price
pressures from the Company's major automotive customers. While these price
pressures continued to impact the Company's gross profit and operating margins,
they did not have a material impact on the Company's net sales for 1996. The
increase in net sales remained strong due to higher sales of modular window
systems (particularly for the new Chrysler Caravan/Voyager minivans), lighting
and trim products, complete exterior mirror products and door handles. Net sales
for the Company's European operations increased by over 45% from the previous
year due to the introduction of modular window programs in Langres, France for
the Chrysler Caravan/Voyager minivan and Jeep Cherokee and stronger sales for
the Company's electrochromic mirror product line. The Company's Irish operations
experienced significant pricing pressures during the year from competition in
Eastern Europe and Asia, slightly offsetting the higher sales volumes.
Consolidated net sales remained relatively strong throughout the year, but were
exceptionally strong during the fourth quarter with an increase of 24% over the
fourth quarter of 1995.

Gross profit margin decreased to 18.6% of net sales in 1996, from 21.5% of net
sales in 1995. The gross profit margins were adversely impacted in the first
half of the year by the start-up of various modular window programs,
particularly for the Chrysler Caravan/Voyager minivan, and the implementation of
a new paint line in the Company's Newaygo facility. North American gross profit
margin performance was also significantly impacted by technical difficulties
with one of the Companies suppliers on a new business program that resulted in
significant additional engineering, production and other costs that negatively
impacted gross margins by $2.2 million. Although this problem was largely due to
factors not directly under the Company's control, the issue was resolved in a
timely and cooperative way that provided an uninterrupted source of supply to
the customer. Finally, the Company's European operations experienced lower gross
profit margins in 1996 compared to 1995 due to pricing pressures and higher
operating expenses at the Company's Irish operations.

Selling, general and administrative expenses were 8.7% of net sales in 1996,
down from 11.8% of net sales in 1995. These costs were significantly reduced
primarily as a result of the restructuring plan implemented in 1995 and
continued commitment to achieve higher sales levels without a proportionate
increase in these expenses. In addition, a patent settlement gain, net of
litigation expenses, was recognized in 1996, resulting in a reduction of these
expenses by 0.5% of net sales. 1995 selling, general and administrative expenses
included $3.1 million of patent litigation costs, or 0.8% of net sales.

Research and development expenses for 1996 were 6.3% of net sales, compared to
5.9% of net sales in 1995. The increase in research and development costs was to
support the design and development of new window, mirror, door handle and
interior trim programs.

A restructuring charge of $2.4 million was recorded in the fourth quarter of
1996 related to the write-down of certain assets and the closure of the
Company's manufacturing facility in Mt. Pleasant, Tennessee. These costs
included accruals for severance and related employee support programs and
write-down of certain assets removed from service. The majority of these
liabilities were paid or settled during the first six months of 1997.

In the second quarter of 1995, the Company implemented a restructuring plan to
focus on its automotive business. The restructuring plan included the sale of
the Company's Appliance Business, the sale of the heavy truck mirror business
and the liquidation of the Company's investment in OSD Envizion, a joint venture
engaged in the manufacture of welding helmet shields. In addition, restructuring
costs were also recognized to cover a severance program and other expenses
associated with the restructuring plan. The restructuring of the non-automotive
businesses resulted in a pretax gain of $4.7 million. The Company received total
proceeds of $14.2 million associated with the restructuring of these businesses,
net of $6.5 million net book value of assets disposed and $3.0 million of
restructuring costs to cover a severance program and other expenses associated
with the restructuring plan. The severance program included twenty-five
personnel, primarily middle and senior managers of the Company. These
non-automotive businesses represented an insignificant portion of the Company's
operations.

The Company also restructured certain automotive operations in the second
quarter of 1995, resulting in a charge of $2.4 million, primarily for the
write-down of operating assets due to the loss of Saturn's business at D&A
Technology, Inc. ("D&A"), the Company's former joint venture with Asahi Glass
Company. D&A represented 5% and 8%, respectively, of the Company's combined
consolidated net sales and net income in 1995.
<PAGE>
Operating income decreased from $17.0 million in 1995 to $13.5 million in 1996.
North American operating income decreased from $18.6 million in 1995 to $17.2
million in 1996 primarily due to the start-up of various modular window
programs, the implementation of a new paint line in the Company's Newaygo
facility and the supplier technical difficulties on a new business program that
resulted in significant additional engineering, production and other costs that
negatively impacted operating income. North American operating income was also
unfavorably impacted in both 1995 and 1996 by a $2.4 million restructuring
charge recognized in each year. By comparison, 1995 operating income was
favorably impacted by a $4.7 million pretax gain on the restructuring of certain
non-automotive businesses. 1996 operating income was also favorably impacted by
the patent settlement included in selling, general and administrative expenses
net of legal expenses previously capitalized. European operating losses
increased from $1.5 million in 1995 to an operating loss of $3.7 million in 1996
due to pricing pressures and higher operating expenses at the Company's Irish
operations and higher research and development expenses for electrochromic
mirrors.

Interest expense increased to $8.1 million in 1996, from $5.0 million in 1995.
The increase over 1995 resulted from higher borrowing levels to support the
Company's investment in and advances to Donnelly Hohe, which was then an equity
affiliate of the Company, and to support the Company's capital expenditures and
higher working capital. The Company advanced $28 million to Donnelly Hohe under
a subordinated loan agreement. The advances were financed through the Company's
existing borrowing agreements. The increase in interest income realized by the
Company was a result of the interest charged on the advances to Donnelly Hohe,
which is presented net of amounts eliminated from equity earnings in accordance
with generally accepted accounting principles.

Royalty income was $5.2 million in 1996 compared to $3.8 million in 1995. This
increase resulted from royalty income associated with the sale of the Appliance
Business in 1995.

Equity in earnings of affiliated companies was $0.1 million in 1996 compared to
$0.4 million in 1995. Equity earnings from Donnelly Hohe, after the elimination
of intercompany interest, were offset by losses at Applied Films Corporation
("AFC"), the Company's joint venture in Boulder, Colorado, and VISION Group. The
combined impact on net income from the Company's non-automotive joint ventures
was a loss of $1.5 million in 1996, compared to income of $0.1 million in 1995.
AFC's results were adversely affected by a downturn in the market for coated
glass used in the production of liquid crystal displays, while VISION Group
continued to experience start-up losses during 1996.

The Company reported net income of $8.5 million in 1996 compared to $11.0
million for 1995. Net income in 1996 included $1.1 million of net income
associated with the patent and license settlement and a $1.4 million net loss
for restructuring costs, while 1995 included $2.0 million of net income
associated with the gain on the sale and restructuring of certain non-automotive
businesses. Positively impacting the Company's North American operations were
higher sales volumes, higher royalty income, lower selling, general and
administrative costs as a percentage of net sales and a patent and license
settlement with a competitor. These improvements were offset by higher than
expected start-up costs during the first half of the year, technical
difficulties during the third quarter on a new business program which resulted
in a reduction of net earnings by $1.2 million, higher research and development
costs as a percent of net sales and restructuring charges taken in the fourth
quarter. The Company's European operations experienced lower net income at the
Company's subsidiaries in Ireland in addition to start-up losses at Langres,
France. The Company's net income was also lower in 1996 due to the recognition
of a combined $1.5 million loss for non-automotive affiliated companies.

LIQUIDITY AND CAPITAL RESOURCES

The Company's current ratio was 1.3 and 2.0 at June 28, 1997 and June 29, 1996,
respectively. Working capital was $37.0 million at June 28, 1997, compared to
$63.5 million at June 29, 1996. The decrease in the current ratio for the period
was due to the sale of $40.0 million of accounts receivable at June 28, 1997,
offset slightly by the addition of Donnelly Hohe's working capital. Inventory
levels were higher due to the consolidation of Donnelly Hohe which has lower
inventory turns than other operations of the Company.

In November 1996, the Company entered into a three year agreement to sell, on a
revolving basis, an interest in a defined pool of trade accounts receivable of
up to $50 million. At June 28, 1997, a $40.0 million interest had been sold
under this agreement with proceeds used to reduce revolving lines of credit. The
sale is reflected as a reduction of accounts receivable and as operating cash
flows. As collections reduce previously sold interests, new accounts receivable
are customarily sold. The proceeds of sales are less than the face amount of
accounts receivable sold by an amount that approximates the purchaser's
financing cost of issuing its own commercial paper backed by these accounts
receivable. The discount fees of $1.1 million in 1997 are included in
administrative and general expense. The Company, as agent for the purchaser,
retains collection and administrative responsibilities for the participating
interests of the defined pool.
<PAGE>
Capital expenditures in 1997, 1996 and 1995 were $35.2, $20.6 and $29.2 million,
respectively. Capital spending in 1997 was slightly higher compared to the
previous year due to the consolidation of Donnelly Hohe and to support new
business programs. Capital expenditures were lower in 1996 compared to 1995 due
to the completion of the building additions in 1995 at Langres, France and
Newaygo, Michigan to support new business programs, the transfer of the outside
mirror glass product line to Mexico and the consolidation of two older interior
mirror operations into a new facility in Holland, Michigan. The Company expects
that spending will increase significantly in 1998 primarily to support new
business in interior lighting and trim, diffractive optics and electrochromic
mirrors and the installation of new computer software for manufacturing,
distribution and administration applications. The Company does not have any
material commitments for capital expenditures other than those arising out of
the normal course of business, which were approximately $7.3 million at June 28,
1997.

In the fourth quarter of 1997, the Company implemented a $10 million plan to
restructure the Company's European operations. Cash payments of approximately
$1.3 million were made in the fourth quarter of 1997 under the plan with the
majority of the remaining cash requirements anticipated to be completed by the
end of 1998.

The Company has two primary revolving credit agreements, an $80 million domestic
credit agreement with a maturity date of November 2002 and a 75 million Deutsch
Mark (approximately $44 million) credit agreement with varying maturity dates
beginning in June 1999. The domestic revolving credit agreement did not have any
borrowings against it at June 28, 1997, compared to $35.4 million at June 29,
1996. The decrease is primarily due to the sale of accounts receivable. The
Donnelly Hohe revolving line of credit agreement had borrowings against it of
approximately $33.4 million as of May 31, 1997. The Company anticipates
completing a $160 million multi-currency global revolving credit agreement late
in the first quarter of 1998, which is intended to replace the existing
revolving credit agreements and is expected to have a five- to seven-year term.

The Company believes that the long term liquidity and capital resource needs of
the Company will continue to be provided principally by funds from operating
activities, supplemented by borrowings under the Company's existing and future
credit facilities. The Company also considers equity offerings to properly
manage the Company's total capitalization position. The Company considers, from
time to time, new joint ventures, alliances and acquisitions, the implementation
of which could impact the liquidity and capital resource requirements of the
Company.

Except for Mexico, the value of the Company's consolidated assets and
liabilities located outside the United States and income and expenses reported
by the Company's foreign operations may be affected by translation values of
various functional currencies. Translation gains and loss adjustments are
reported as a separate component of shareholders' equity. For the Company's
subsidiary in Mexico, whose functional currency is the United States dollar,
transaction and translation gains or losses are reflected in net income for all
accounts other than intercompany balances of a long-term investment nature, for
which the translation gains or losses are reported as a separate component of
shareholders' equity.

"Safe Harbor" Provisions

This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
any forward-looking statements, including statements regarding the intent,
belief, or current expectations of the Company or its management, are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in forward-looking statements as
a result of various factors including, but not limited to (i) general economic
conditions in the markets in which the Company operates, (ii) fluctuation in
worldwide or regional automobile and light truck production, (iii) changes in
practices and/or policies of the Company's significant customers and (iv) other
risks and uncertainties.
The Company does not intend to update these forward-looking statements.

Recently Issued Accounting Standards

Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," establishes standards for computing and presenting earnings per share
("EPS") and simplifies the standards previously found in APB Opinion No. 15,
which has been superseded. It replaces the presentation of primary EPS with a
presentation of basic EPS, which excludes dilution and is computed
<PAGE>
by dividing net income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB No. 15. This Statement is
effective for the Company in 1998, and requires restatement of all prior period
EPS data presented. It is not expected to have a material effect on the
accompanying financial statements.

SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distributions to owners.

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers.

SFAS Nos. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures. However, results of operations and
financial position will be unaffected by implementation of these new standards.

No other recently issued accounting standards are expected to have a material
impact on the Company.
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES COMBINED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
June 28, June 29, July 1,
In thousands, except share data Year ended 1997 1996 1995
<S> <C> <C> <C>
Net sales ....................................... $ 671,297 $ 439,571 $ 383,340
Cost of sales ................................... 544,629 357,830 300,772
Gross profit .............. 126,668 81,741 82,568
Operating expenses:
Selling ......................................... 11,644 8,239 6,538
Administrative and general ...................... 54,886 29,884 38,529
Research and development ........................ 32,492 27,728 22,733
Restructuring charges (gain) .................... 9,965 2,399 (2,265)
Total operating expenses ........................ 108,987 68,250 65,535
Operating income .......... 17,681 13,491 17,033
Non-operating (income) expenses:
Interest expense ................................ 9,530 8,102 5,010
Royalty income .................................. (1,486) (5,239) (3,774)
Interest income ................................. (648) (1,017) (514)
Other income, net ............................... (1,720) (704) (512)
Non-operating expenses .......................... 5,676 1,142 210
Income before taxes on .... 12,005 12,349 16,823
income
Taxes on income ................................. 2,786 4,191 5,795
Income before minority
interest and
equity earnings ........ 9,219 8,158 11,028
Minority interest in net (income) loss of ....... 1,141 186 (371)
subsidiaries
Equity in earnings (losses) of affiliated ....... (340) 110 352
companies
Net income ...................................... $ 10,020 $ 8,454 $ 11,009
Per share of common stock:
Net income per share of common stock ............ $ 1.01 $ 0.86 $ 1.14
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
DONNELLY CORPORATION AND SUBSIDIARIES
- ---------------------------------------------------------------------------------
COMBINED CONSOLIDATED BALANCE
SHEETS
June 28, June 29,
In thousands, except share data 1997 1996
- ---------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................ $ 8,568 $ 1,303
Accounts receivable, less allowance of $1,064 and $571 67,850 73,123
Inventories .......................................... 42,484 24,228
Customer tooling to be billed ........................ 25,235 19,955
Prepaid expenses ..................................... 4,787 6,174
Deferred income taxes ................................ 3,716 1,912
--------- ---------
Total current assets ............................ 152,640 126,695
--------- ---------
Property, plant and equipment:
Land ................................................. 9,497 3,327
Buildings ............................................ 82,212 33,000
Machinery and equipment .............................. 177,700 112,761
Construction in progress ............................. 21,556 8,073
--------- ---------
290,965 157,161
Less accumulated depreciation ........................ 125,841 57,397
--------- ---------
Net property, plant and equipment ............... 165,124 99,764
Investments in and advances to affiliates ............ 15,487 37,932
Other assets ......................................... 25,042 7,101
--------- ---------
Total assets .................................... $ 358,293 $ 271,492
========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable ..................................... $ 76,392 $ 44,349
Current maturities of long-term debt ................. 103 159
Accruals:
Compensation ......................................... 13,765 7,264
Taxes ................................................ 8,162 4,705
Other ................................................ 17,227 6,736
--------- ---------
Total current liabilities ....................... 115,649 63,213
--------- ---------
Long-term debt, less current maturities .............. 122,798 101,757
Postretirement plans ................................. 17,341 12,026
Deferred income taxes and other ...................... 8,333 5,644
--------- ---------
Total liabilities ............................... 264,121 182,640
--------- ---------
Minority interest .................................... 345 --
Shareholders' equity:
Preferred stock, 7 1/2% cumulative, $10 par:
shares authorized 250,000, issued 53,112 ........ 531 531
Common stocks:
Class A, $.10 par; shares authorized
30,000,000, issued 5,412,286 and 4,248,814 ... 541 425
Class B, $.10 par; shares authorized
15,000,000, issued 4,463,243 and 3,582,198 ... 446 358
Donnelly Export Corporation, $.01 par; shares
authorized 600,000, issued 408,474 and 409,397 4 4

Additional paid-in capital ........................... 28,765 25,158
Cumulative foreign currency translation adjustment.... (6,038) (771)
Retained earnings .................................... 69,578 63,147
--------- ---------
Total shareholders' equity ...................... 93,827 88,852
--------- ---------
Total liabilities and shareholders' equity....... $ 358,293 $ 271,492
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DONNELLY CORPORATION AND
SUBSIDIARIES
- -------------------------------------------------------------------------------
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
June 28, June 29, July 1,
In thousands Year ended 1997 1996 1995
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income .......................... $ 10,020 $ 8,454 $ 11,009
Adjustments to reconcile net
income to net cash from
(for) operating activities:
Depreciation and amortization ....... 21,460 12,984 11,184
Gain on sale of property and ........ (605) 0 0
equipment
Gain on sale of affiliate stock ..... (872) 0 0
Deferred pension cost and ........... 5,315 4,934 2,742
postretirement benefits
Deferred income taxes ............... (4,723) (2,386) (2,108)
Minority interest income (loss) ..... (1,646) (186) 371
Equity in (earnings) losses of ...... 765 1,160 (453)
affiliated companies
Restructuring charges (gain) ........ 9,965 2,399 (2,265)
Changes in operating assets and
liabilities, net of
effects of sale of businesses:
Sale of accounts receivable ......... 44,604 0 0
Accounts receivable ................. (17,661) (22,792) (3,736)
Inventories ......................... (2,101) (2,186) (2,841)
Prepaid expenses and other current .. (2,074) (6,117) (3,304)
assets
Accounts payable and other current .. 9,416 3,134 6,320
liabilities
Other ............................... (4,149) 189 131
-------- -------- --------
Net cash from (for) ......... 67,714 (413) 17,050
operating activities
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures ................ (35,151) (20,585) (29,154)
Investments in and advances to equity (4,537) (13,966) (18,824)
affiliates
Purchase of minority interest ....... 0 (2,100) --
Proceeds from sale of businesses .... 0 -- 14,200
Proceeds from sale of property and .. 3,078 0 0
equipment
Proceeds from sale of affiliate stock 974 0 0
Proceeds from sale-lease back ....... 0 -- 10,513
Change in unexpended bond proceeds .. 1,344 316 (1,015)
Cash increase due to consolidation of 9,963 0 0
subsidiary
Other ............................... (884) (854) (601)
-------- ------- --------
Net cash for investing ...... (25,213) (37,189) (24,881)
activities
-------- ------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt ........ 8,433 36,195 15,000
Repayments on long-term debt ........ (39,887) -- (1,764)
Resources provided by minority ...... 0 -- 491
interest
Common stock issuance ............... 925 706 478
Dividends paid ...................... (3,039) (3,220) (2,524)
Other financing ..................... (415) 0 0
------- ------- --------
Net cash from (for) ......... (33,983) 33,681 11,681
financing activities
------- ------- --------
Effect of foreign exchange rate ..... (1,253) 0 0
changes on cash
Increase (decrease) in cash and cash 8,518 (3,921) 3,850
equivalents
Cash and cash equivalents, beginning 1,303 5,224 1,374
of year
------- ------- --------
Cash and cash equivalents, end of ... $ 8,568 $ 1,303 $ 5,224
year ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
DONNELLY CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Cumulative
foreign
Donnelly Additional currency
Preferred Export paid-in translation Retained
In thousands, except share data Stock Class A Class B Corporation capital adjustment Earnings
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 2, 1994 .................... $ 531 $ 415 $ 358 $ 4 $ 20,730 ($ 640) $ 49,428
Net Income ............................... 11,009
Foreign currency translation adjustment .. 794
Cash dividends declared:
Preferred stock - $.75 per share ......... (40)
Common stock:
Class A - $.26 per share ................. (1,337)
Class B - $.26 per share ................. (1,147)
Common stock issued under employee
benefit plans ....................... 3 475
Change in investment in VISION Group plc . 2,317

Balance, July 1, 1995 .................... 531 418 358 4 23,522 154 57,913
Net Income ............................... 8,454
Foreign currency translation adjustment .. (925)
Cash dividends declared:
Preferred stock - $.75 per share ......... (40)
Common stock:
Class A - $.32 per share ................. (1,690)
Class B - $.32 per share ................. (1,435)
Common stock issued under employee
benefit plans ....................... 7 699
Change in investment in VISION Group plc . 937
Other .................................... (55)

Balance, June 29, 1996 ................... 531 425 358 4 25,158 (771) 63,147
Net Income ............................... 10,020
Foreign currency translation adjustment .. 564
Foreign currency trasaction adjustments on
long-term advances to affiliates ...... (5,831)
Cash dividends declared:
Preferred stock - $.75 per share ......... (40)
Common stock:
Class A - $.36 per share ................. (1,941)
Class B - $.36 per share ................. (1,608)
Issuance of common stock in a five-for-
four stock split .............. 108 88 (204)
Common stock issued under employee
benefit plans ....................... 8 925
Change in investment in VISION Group plc . 2,886
Balance, June 28, 1997 ................... $ 531 $ 541 $ 446 $ 4 $ 28,765 ($ 6,038) $ 69,578
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The combined consolidated financial statements include the accounts of Donnelly
Corporation, Donnelly Export Corporation and all majority owned, controlled
subsidiaries (the Company) after all significant intercompany balances,
transactions and shareholdings have been eliminated. Investments in 20% to 50%
owned companies are accounted for using the equity method of accounting.
Investments in affiliates representing less than 20% ownership are accounted for
under the cost method. Cost in excess of net assets of acquired companies is
being amortized on a straight-line basis over no more than a 15-year period.

In the second quarter of 1997, the Company acquired majority control of Donnelly
Hohe GmbH & Co. KG (" Donnelly Hohe"). As a result, Donnelly Hohe's financial
statements were consolidated with those of the Company beginning in the second
quarter of 1997. Prior to acquiring control, the Company owned 48% of Donnelly
Hohe and accounted for its investment using the equity method of accounting. The
Company consolidates the Donnelly Hohe financial statements from the one month
prior to the Company's period end. For the Company's year ended June 28, 1997,
financial statements are consolidated using Donnelly Hohe's year end balance
sheet at May 31, 1997 and the nine month operating results ended May 31, 1997.
Accordingly, all 1997 data presented in the financial statements and
accompanying footnotes includes consolidated Donnelly Hohe information, however,
comparative data provided for previous years does not include consolidated
Donnelly Hohe information. At June 28, 1997, Donnelly Hohe represents
approximately 33% of the Company's combined consolidated total assets. A more
detailed discussion of the acquisition of Donnelly Hohe and pro forma results of
operations for the current and prior years are included in Note 3.

Voting control of Donnelly Corporation and Donnelly Export Corporation is vested
in the same shareholders and the corporations are under common management.
Because of these relationships, the accounts of the two corporations are
included in the financial statements as if they were a single entity.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR

The Company's fiscal year is the 52 or 53 week period ending the Saturday
nearest June 30. Fiscal years ended June 28, 1997, June 29, 1996 and July 1,
1995, each included 52 weeks.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

FOREIGN CURRENCY TRANSLATION

Except for the Company's subsidiary in Mexico, whose functional currency is the
United States dollar, financial statements of international companies are
translated into United States dollar equivalents at exchange rates as follows:
(1) balance sheet accounts at year end rates and (2) income statement accounts
at weighted average monthly exchange rates prevailing during the year.
Translation gains and losses are reported as a separate component of
shareholders' equity. For the Company's subsidiary in Mexico, transaction and
translation gains or losses are reflected in net income for all accounts other
than intercompany balances of a long-term investment nature for which the
translation gains or losses are reported as a separate component of
shareholders' equity. Foreign currency transaction gains and losses included in
other income are not material.

REVENUE RECOGNITION

The Company's primary source of revenue is generated from the sale of its
products. The Company recognizes revenue when its products are shipped.
<PAGE>
CASH EQUIVALENTS

Cash equivalents include all highly liquid investments with a maturity of three
months or less when purchased.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method for domestic inventories and on the FIFO or
average cost basis for international inventories for the year ended June 28,
1997. Prior to fiscal 1997, the last-in, first-out (LIFO) method was used,
except for inventories of the consolidated subsidiaries which were valued using
the first-in, first-out method.

CUSTOMER TOOLING TO BE BILLED

Customer tooling to be billed represents costs incurred on behalf of the
Company's customers. These costs are recoverable at the time of tool completion
and approval, or are recovered in the program's piece price over the program's
life, not to exceed a period of three years.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation, which includes
amortization of assets under capital leases, is provided primarily by the
straight-line method. Depreciation is computed over the estimated useful lives
of the assets as follows:
Years

Buildings.................... 10 to 50
Machinery and equipment...... 3 to 15

For tax purposes, useful lives and accelerated methods are used as permitted by
the taxing authorities.

INCOME TAXES

Deferred income taxes reflect the tax effects of temporary differences between
the financial statement and tax basis of assets and liabilities and operating
loss carryforwards. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred income taxes
are not provided on cumulative undistributed earnings of the foreign
subsidiaries and affiliates because they are intended to be permanently
reinvested.

INCOME PER SHARE OF COMMON STOCK

Income per share is computed by dividing net income, adjusted for preferred
stock dividends, by the weighted average number of shares of Donnelly
Corporation common stock outstanding, as adjusted for the five for four stock
split distributed January 30, 1997 (9,835,621 in 1997, 9,753,558 in 1996 and
9,680,053 in 1995). The potential dilutive effect from the exercise of stock
options is not material.

Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," establishes standards for computing and presenting earnings per share
("EPS") and simplifies the standards previously found in APB Opinion No. 15,
which has been superseded. It replaces the presentation of primary EPS with a
presentation of basic EPS, which excludes dilution and is computed by dividing
net income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed similarly to
fully diluted EPS pursuant to APB No. 15. This Statement is effective for the
Company in 1998, and requires restatement of all prior period EPS data
presented. The adoption of SFAS NO. 128 is not expected to have a material
effect on the accompanying financial statements.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company estimates the fair value of all financial instruments where the
carrying value differs from the fair value, primarily long-
<PAGE>
term fixed-rate debt, interest rate swaps and foreign exchange currency
contracts, based upon quoted amounts, the current rates available for similar
financial instruments or based on calculations discounting expected cash flows
at the rates currently offered to the Company for debt of the same remaining
maturities. The carrying value of the Company's variable rate debt and all other
financial instruments approximates their fair value.

IMPAIRMENT OF LONG-LIVED ASSETS

On June 30, 1996, the Company adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which requires impairment losses to be recognized for
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows are not sufficient to recover the assets'
carrying amount. The impairment loss is measured by comparing the fair value of
the asset to its carrying amount. SFAS No. 121 did not have a material effect on
the accompanying financial statements.

RECLASSIFICATIONS

Certain reclassifications have been made to prior year data to conform to the
current year presentation and had no effect on net income reported for any
period.

3. INVESTMENTS IN AND ADVANCES TO AFFILIATES

Effective April 1, 1995, the Company acquired an interest in Hohe GmbH & Co. KG,
since renamed Donnelly Hohe GmbH & Co. KG (Donnelly Hohe), a German limited
partnership. Donnelly Hohe, based in Collenberg, Germany, supplies many of the
leading European automakers with interior and exterior rearview mirrors, through
manufacturing facilities in Germany and Spain.

Donnelly Hohe consists of a general partnership and a limited partnership. The
general partnership controls Donnelly Hohe's assets and manages its operations
while the limited partnership is the recipient of all income or losses generated
by Donnelly Hohe's operations. The Company's original investment of $3.6 million
consisted of a 48% interest in the general partner and a 66 2/3% interest in the
limited partner. In the second quarter of 1997, the Company acquired an
additional 13% interest in the general partner, resulting in the Company owning
a controlling interest in the general partner of Donnelly Hohe. As a result,
Donnelly Hohe's financial statements were consolidated with those of the
Company, beginning with the second quarter of 1997. From the initial date of
acquisition, April 1, 1995, through the first quarter of 1997, the Company's
investment in Donnelly Hohe was accounted for using the equity method of
accounting. An additional 13% interest in the general partner was acquired in
the third quarter of 1997, increasing the Company's interest in the general
partnership to 74%. The Company's limited partnership interest has remained
unchanged, therefore, the impact on net income has remained unchanged for each
period reported.

The Company has advanced 40 million Deutsch Marks to Donnelly Hohe under a
subordinated loan agreement, 20 million in 1995 and 20 million in 1996, valued
at $23.4 million at June 28, 1997, using year end exchange rates. Amounts
advanced to Donnelly Hohe under the subordinated loan agreement provide for 10%
interest per annum with no principal payments due until its maturity on April 1,
1998. These advances are now eliminated as intercompany transactions in the
consolidation of Donnelly Hohe with the Company's financial statements. In
connection with the Company's original acquisition of the Donnelly Hohe
interest, refinancing and additional loans of approximately $70 million were
provided to Donnelly Hohe by several banks. The terms of the transaction allow
Donnelly to purchase the remaining ownership interest in Donnelly Hohe through
various options. The remaining owners have an option to require the Company to
buy their interests at any time based upon a predetermined formula which is
currently less than $2 million.

The following unaudited pro forma combined consolidated results of operations
have been prepared as if the acquisition of a controlling interest in Donnelly
Hohe had occurred at the beginning of 1996, but may not be indicative of the
results that actually would have been achieved.
<PAGE>
<TABLE>
In thousands, except share data Year Ended 1997 1996
- -------------------------------------------- ---------- ----------
<S> <C> <C>
Net sales $ 719,548 $ 664,376
Net income 10,020 8,454

Net income per share of common stock $ 1.01 $ 0.86
</TABLE>
The Company's current equity affiliates include the following: VISION Group plc
("VISION Group"), the sole shareholder of VLSI Vision Limited that produces an
advanced video microchip; Shanghai Donnelly Fu Hua Window Systems Company Ltd.
("Shanghai Donnelly Fu Hua"), a 50% owned joint venture that will manufacture
encapsulated and framed glass products for the Asian automotive industry; Shunde
Donnelly Zhen Hua, Ltd. ("Zhen Hua"), a 30% owned joint venture that
manufactures exterior mirrors for car makers throughout southern China and
Applied Films Corporation, a 50% owned joint venture that manufactures thin film
glass coatings used in the production of liquid crystal displays.

During 1997, 1996 and 1995, VISION Group sold common shares in a private
placement and through public offerings. In conjunction with a public offering of
VISION Group shares in the Company's second quarter of 1997, the Company also
sold 2.5% of its investment in VISION Group shares, resulting in a $0.9 million
gain. The effect of all of these transactions resulted in reducing the Company's
ownership interest from 40.4% from the date of the Company's original investment
through December 1994 to 25.6% at June 28, 1997. The Company's equity in the net
proceeds of VISION Group's sale of new shares is reflected as an increase in the
Company's investment in the net assets of VISION Group, which was approximately
$8 million at June 28, 1997, and additional paid-in capital in the accompanying
financial statements. The aggregate market value of the Company's investment in
VISION Group, based on the quoted market price for VISION Group's common shares,
which are listed on the London Stock Exchange, was approximately $36 million at
June 28, 1997. The aggregate market value of the Company's investment in VISION
Group may vary based on business and industry conditions.

In the first quarter of 1997, the Company formed Zhen Hua, a joint venture with
Shunde Zhen Hua Automobile Parts Co., Ltd. The Company acquired a 30% interest
in the joint venture which manufactures exterior mirrors for car makers
throughout southern China, including Volkswagen, Isuzu and Chrysler. The Company
also has an option to acquire an additional 30% interest in the joint venture.
Zhen Hua operates out of three existing buildings in Shunde, China, which are
owned by the joint venture. Certain manufacturing equipment was in place at the
time the joint venture was formed and 200 Shunde Zhen Hua employees currently
are employed at the facilities.

In the fourth quarter of 1996, the Company formed Shanghai Donnelly Fu Hua, a
50-50 joint venture with Shanghai Fu Hua Glass Company, Ltd. Shanghai Fu Hua
Glass Company is a joint venture between Ford Motor Company and Shanghai Yao Hua
Glass Works. The joint venture has its equipment and processes in place and will
begin manufacturing encapsulated and framed glass products in 1998.

Summarized 1996 balance sheet and income statement information for the Company's
non-consolidated affiliates accounted for using the equity method are as
follows. Income statement information includes Donnelly Hohe's twelve months
ended May 31, 1996. All significant others presented include twelve months
ending in June of 1996. This information is only presented for 1996 due to the
consolidation of Donnelly Hohe in 1997.
<TABLE>
In thousands 1996
<S> <C>
Summarized Balance Sheet Information
Current assets.............................. $ 90,927
Non-current assets.......................... 82,052
Current liabilities......................... 69,931
Non-current liabilities..................... 87,905
---------
Net equity.................................. $ 15,143
=========
</TABLE>
<TABLE>
Summarized Income Statement Information
<S> <C>
Net sales................................ $250,904
Costs and expenses....................... 254,403
Net loss................................. $ (3,500)
</TABLE>
<PAGE>
4. NATURE OF OPERATIONS

The Company is an international supplier of high-quality automotive parts and
component systems through manufacturing operations and various joint ventures in
North America, Europe and Asia. The Company supplies automotive customers around
the world with rearview mirror systems, modular window systems and interior
lighting and trim systems. The Company also provides products to several
non-automotive markets.

In the second quarter of 1997, the Company began consolidating the financial
statements of Donnelly Hohe, a subsidiary based in Collenberg, Germany. For the
Company's year ended June 28, 1997, financial statements are consolidated using
Donnelly Hohe's year end balance sheet at May 31, 1997, and the nine month
operating results ended May 31, 1997. See Notes l and 3 for a more thorough
discussion.

North American revenues are revenues produced by assets located in the United
States and Mexico. Export revenues are foreign revenues produced by identifiable
assets located in the United States. European revenues are generated by
identifiable assets at the Company's subsidiaries located in Germany, Spain,
Ireland and France. A summary of the Company's operations by geographic area
follows:
<TABLE>
In thousands Year ended 1997 1996 1995
- ----------------------------------------------------------------
Revenues:
<S> <C> <C> <C>
North American:
United States ..... $ 390,852 $ 338,355 $ 320,431
Export:
Americas ...... 54,302 49,655 25,016
Asia .......... 2,825 532 981
Europe ........ 1,829 1,917 2,786
Other ......... 76 -- 15
---------
449,884 390,873 349,229
European ............... 221,413 49,112 34,111
---------
$ 671,297 $ 439,571 $ 383,340
=========
Operating Income (Loss):
North American ......... $ 25,528 $ 17,208 $ 18,572
European ............... (7,847) (3,717) (1,539)
---------
$ 17,681 $ 13,491 $ 17,033
=========
Identifiable Assets:
North American ......... $ 200,100 $ 232,370 $ 193,545
European ............... 158,193 39,122 30,243
---------
$ 358,293 $ 271,492 $ 223,788
=========
</TABLE>
Sales to major automobile manufacturers as a percentage of the Company's net
sales follows:
<TABLE>
Year ended 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Ford Motor Company ....... 25% 22% 22%
Chrysler Corporation ..... 20 33 18
Honda .................... 11 16 14
BMW ...................... 7 -- --
VW ....................... 6 -- --
General Motors Corporation 5 10 17
--- --- ---
74% 81% 71%
=== === ===
</TABLE>
<PAGE>
5. RESTRUCTURING OF OPERATIONS

In the fourth quarter of 1997, the Company recognized a $10 million
restructuring charge in the Company's European operations to realign
manufacturing capacity, improve operating efficiencies and to reduce future
operating costs, primarily by reducing the number of non-production employees.
The restructuring also involves reorganizing product lines and production to
realize efficiencies in the production process. The costs consist primarily of a
severance program and voluntary separation incentives, in addition to other
expenses associated with the plan. The severance and separation incentive
program includes approximately 200 personnel, primarily personnel in
manufacturing and administrative support functions. Cash payments of
approximately $1.3 million were made in 1997 under the plan with the majority of
the remaining cash requirements anticipated to be completed by the end of 1998.

In the second quarter of 1995, the Company implemented a restructuring plan to
focus on its automotive businesses. The restructuring plan included the sale of
the Company's Appliance Business, the sale of the heavy truck mirror business
and the liquidation of the Company's investment in OSD Envizion, a joint venture
engaged in the manufacture of welding helmet shields. The restructuring of the
non-automotive businesses resulted in a pretax gain of $4.7 million. The Company
received total proceeds of $14.2 million associated with the restructuring of
these businesses, net of a $6.5 million net book value and $3.0 million of
restructuring costs to cover a severance program and other expenses associated
with the restructuring plan. The severance program included twenty-five
personnel, primarily middle and senior managers of the Company. The spending for
these costs was essentially completed by the end of 1995. These non-automotive
businesses represented an insignificant portion of the Company's operations for
each period reported.

The Company also restructured certain automotive operations in the second
quarter of 1995, resulting in a charge of $2.4 million primarily for the
write-down of operating assets due to the loss of Saturn's business at D&A
Technology, Inc. ("D&A"), the Company's former joint venture with Asahi Glass
Company. In the first quarter of 1996, the Company dissolved the joint venture
and acquired Asahi's 40% interest in D&A for approximately $2.1 million. D&A
represented 5% and 8%, respectively, of the Company' combined consolidated net
sales and net income in 1995.

6. INVENTORIES

At the beginning of 1997, the Company changed from the LIFO (last-in, first-out)
method to the FIFO (first-in, first-out) method for determining the cost of all
domestic inventories to provide a better matching of revenue and expenses. This
accounting change was not material for the year ended June 28, 1997 or to the
financial statements for any previously reported periods. Accordingly, no
retroactive restatement of the prior years' financial statements was made.
International inventories are determine using FIFO or the average cost method.

Inventories consist of:
<TABLE>
In thousands 1997 1996
- --------------------------------------------------------
FIFO and average cost:
<S> <C> <C>
Finished products and work in process $16,675 3,202
Raw materials ....................... 25,809 7,047
------ ------
42,484 10,249

LIFO cost:
Finished products and work in process 6,998
Raw materials ....................... 6,981
------
13,979
------ ------
$ 42,484 $ 24,228
====== ======
</TABLE>
If only the first-in, first-out method of inventory valuation had been used as
of June 29, 1996, inventories would have been $0.4 million higher than reported,
and would have approximated replacement cost.
<PAGE>
7. DEBT AND OTHER FINANCING ARRANGEMENTS

Debt consists of:
<TABLE>
In thousands 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Borrowings under revolving credit agreements at 4.81% and 4.15% ................ $ 41,532 $ 35,418
Senior Notes, due 2004, principal payable in installments beginning
in 1999, interest at 6.67% ..................................................... 15,000 15,000
Senior Notes, due 2005, principal payable in installments beginning in
2000, interest at 7.22% ........................................................ 15,000 15,000
Senior Notes, due 2006, principal payable in installments beginning
in 2001, interest at 6.70% ..................................................... 20,000 20,000
Industrial revenue bonds:
$9,500 at adjustable rates (4.14% at June 28, 1997 and 3.80% at June 29, 1996),
due in 2008-2010; $5,000 at a fixed rate of 8.13%, due in 2012;
$1,725 at a fixed rate of 5.75%, due in 2003 ................................... 16,225 14,500
Bank Note, principal payable in installments through 2003,
interest at 6.34% .............................................................. 3,077 --
Capitalized lease obligations .................................................. 5,110 --
Other .......................................................................... 6,957 1,998

Total .......................................................................... 122,901 101,916

Less current maturities ........................................................ 103 159
$122,798 $101,757
</TABLE>
The Company has two primary revolving credit agreements, an unsecured $80
million domestic credit agreement and a 75 million Deutsch Mark (approximately
$45 million) revolving Eurocredit loan agreement. The Company's domestic
revolving credit loan agreement did not have any borrowings against it at June
28, 1997, compared to $35.4 million at June 29, 1996. Interest is at prime
unless one of three alternative elections is made by the Company. At the balance
sheet date, $33.4 million was outstanding on the Company's revolving Eurocredit
loan agreements at an average interest rate of 4.44%. The Company's domestic
revolving credit agreement terminates November 20, 2002, and the Company's
revolving Eurocredit loan agreements terminate in stages beginning June 30, 1999
and ending December 31, 1999.

The $9.5 million industrial revenue bonds are secured by letters of credit which
expire in 2000. All industrial revenue bonds are collateralized by the purchased
land, building and equipment. The senior notes are unsecured.

The various borrowings subject the Company to certain restrictions relating to,
among other things, minimum net worth, payment of dividends and maintenance of
certain financial ratios. At June 28, 1997, the Company was in compliance with
all related covenants. Retained earnings available for dividends at June 28,
1997, are $19.5 million.

The Company classifies certain maturities as long term due to the intent to
finance these under the Company's revolving credit agreements. Annual principal
maturities (excluding capitalized lease obligations) consist of:
<TABLE>
Year ending In thousands Amount
<S> <C>
1998...................................$ 103
1999................................... 32,790
2000................................... 9,675
2001................................... 16,185
2002................................... 18,161
2003 and thereafter.................... 40,877

$117,791
</TABLE>
The Company provides guarantees for $7.3 million in municipal funding for the
construction of a manufacturing facility and up to $5.0 million of Applied Films
Corporation borrowings.
<PAGE>
Interest payments of $10.4 million, $7.8 million and $5.0 million were made in
1997, 1996 and 1995, respectively.

8. ACCOUNTS RECEIVABLE SECURITIZATION

SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," provides accounting and reporting standards for
sales, securitization and servicing of receivables and other financial assets
and extinguishments of liabilities. The Company adopted the Statement for all
transactions occurring after December 31, 1996, including sales of receivables
pursuant to securitization structures that were previously entered into by the
Company. The provisions of the Statement do not have a material impact on the
accounting for actual or future sales of trade accounts receivable under the
securitization agreement referred to above.

9. FINANCIAL INSTRUMENTS

The Company utilizes interest rate swaps and foreign exchange contracts to
manage exposure to fluctuations in interest and foreign currency exchange rates.
The risk of loss to the Company in the event of nonperformance by any party
under these agreements is not material. At June 28, 1997 and June 29, 1996, the
Company had interest rate swaps with an aggregate notional amount of $50 million
and $60 million, respectively, $20 million and $30 million of which were
offsetting at June 28, 1997 and June 29, 1996, respectively. These effectively
converted $30 million of the Company's variable interest rate debt to fixed
rates at June 28, 1997 and June 29, 1996, respectively. The Company is currently
paying a weighted average fixed rate of 7.02%, calculated on the notional
amounts. These swap agreements have varied expirations through 2003. The
notional amounts of interest rate swaps do not represent amounts exchanged by
the parties, and thus are not a measure of the exposure to the Company through
its use of these instruments. Net receipts or payments under the agreements are
recognized as an adjustment to interest expense.

The Company's Irish subsidiaries enter into foreign exchange contracts to hedge
against changes in foreign currency exchange rates. The Company had foreign
exchange contracts outstanding of $2.0 million and $7.8 million at June 28, 1997
and June 29, 1996, respectively. The foreign exchange contracts require the
Company to exchange foreign currencies for Irish punts and generally mature
within 12 months. Deferred gains and losses are included on a net basis in the
statement of financial position as either other assets or other liabilities and
are recognized in income as part of a sale transaction when it is recognized.

The carrying value and estimated fair value of financial instruments in which
the fair value differs from carrying value at June 28, 1997 and June 29, 1996,
are as follows:
<TABLE>
In thousands 1997 1996
Carrying Value Fair Value Carrying Value Fair Value
<S> <C> <C> <C> <C>
Liabilities
Long-term fixed rate debt ... $ 56,725 $ 56,544 $ 55,000 $ 53,630
Derivatives
Interest rate swaps ......... -- (361) -- (423)
Foreign exchange contracts .. -- 5 -- 274
</TABLE>
<PAGE>
10. BENEFIT PLANS

A. Pension Benefits

The Company sponsors defined benefit pension plans covering substantially all
domestic employees and employees at the Company's Donnelly Mirrors Ltd. facility
in Ireland. Pension costs for the plans are funded in amounts which equal or
exceed regulatory requirements. Benefits under these plans are based primarily
on years of service and compensation.

Assumptions and net periodic pension cost are as follows:
<TABLE>
In thousands Year ended 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate.................................. 8.00% 7.75% 8.25%
Compensation increase.......................... 5.00% 5.00% 5.00%
Expected return on plan assets................. 9.50% 9.50% 9.50%
Service cost................................... $ 3,545 $ 3,545 $ 3,544
Interest cost.................................. 5,497 5,060 4,560
Actual gain on plan assets..................... (6,931) (8,528) (6,389)
Net amortization and deferral.................. 2,270 4,550 2,563
-------------------------------------------

Net periodic pension cost...................... $ 4,381 $ 4,627 $ 4,278
==========================================
</TABLE>
The funded status of the defined benefit pension plans is summarized below:
<TABLE>
In thousands 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$51,182 and $43,101....................................................$ (52,812) $(43,945)
Effect of projected compensation increases ............................. (21,602) (23,826)
Projected benefit obligation for service rendered to date .............. (74,414) (67,771)
Plan assets at fair value, primarily corporate equity and debt
securities ............................................................. 66,569 55,784
-------- --------
Projected benefit obligation in excess of plan assets .................. (7,845) (11,987)
Unrecognized net transition obligation ................................. 328 408
Unrecognized prior service cost ........................................ 448 530
Unrecognized net (gain) loss ........................................... (5,921) 1,926
-------- --------

Net pension liability .................................................. $(12,990) $ (9,123)
======== ========
</TABLE>
B. Postretirement Health Care Benefits

The Company provides certain health care and life insurance benefits for
eligible active and retired domestic employees. The plan contains cost-saving
features such as deductibles, coinsurance and a lifetime maximum and is
unfunded. The Company accrues, during the employee's years of service, the
expected cost of providing postretirement benefits to the employee and the
employee's beneficiaries and covered dependents. The net transition obligation
represents the difference between the accrued postretirement benefit costs and
the plan's unfunded accumulated postretirement benefit obligation as of the
adoption of SFAS No. 106 on July 4, 1993. The net transition obligation of $7.9
million is being amortized over 22 years.

The components of the net periodic postretirement benefit cost are as follows:
<TABLE>
In thousands Year ended 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost ......................................... $ 445 $ 450 $ 402
Interest cost ........................................ 911 830 779
Amortization of net transition
obligation over 22 years ............................. 360 360 360
Unrecognized net loss ................................ 4 20 13
------ ----- ------
Net periodic postretirement benefit
cost................................................. $ 1,720 $1,660 $1,554
======= ====== ======
</TABLE>
<PAGE>
The postretirement health care liability recognized in the balance sheet is as
follows:
<TABLE>
In thousands 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Retirees.......................................$ (5,478) $ (5,946)
Fully eligible active participants ............. (70) (66)
Other active participants ...................... (6,626) (5,467)
------- --------
Accumulated postretirement benefit
obligation ..................................... (12,174) (11,479)
Unrecognized transition obligation ............. 6,481 6,841
Unrecognized net loss .......................... 1,199 1,486
------- --------

Postretirement health care liability ........... $ (4,494) $ (3,152)
======= ========
</TABLE>
The assumed health care inflation rate used in measuring the postretirement
health care liability is 8% for 1998, declining uniformly to 6% in 2000 and
remaining level thereafter. The health care cost trend rate has an effect on the
amounts reported. Increasing the assumed health care inflation rate by 1% would
increase the postretirement health care liability by $0.5 million, and the net
periodic postretirement benefit cost for 1997 by $71,000. The weighted average
discount rate used in determining th accumulated postretirement benefit
obligation was 8.0% and 7.75% in 1997 and 1996, respectively.

11. TAXES ON INCOME

Deferred income taxes reflect the tax effects of temporary differences between
the amounts of assets and liabilities for financial reporting purposes and those
amounts as measured by income tax laws. The Company has grouped the noncurrent
deferred tax assets with other assets and the net noncurrent deferred tax
liability with certain other liabilities on the accompanying balance sheets. The
tax effects of temporary differences which give rise to a significant portion of
deferred tax assets (liabilities) are as follows:
<TABLE>
In thousands 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Fixed assets................................... $(7,776) $(5,581)
Retirement plans ............................... 4,462 3,106
Postretirement benefits ........................ 1,534 1,103
Loss carryforwards ............................. 6,718 2,095
Accrued expenses and other ..................... (2,063) (280)
Valuation allowance ............................ (337) --
------- -------

Net deferred tax asset ......................... $ 2,538 $ 443
======= =======
</TABLE>
Deferred taxes are classified in the accompanying balance sheets as follows:
<TABLE>
In thousands 1997 1996
- ----------------------------------------------------
<S> <C> <C>
Current income tax asset ...... $ 3,716 $ 1,912

Noncurrent income tax asset ... 4,174 2,095

Noncurrent income tax liability (5,352) (3,564)
------ -------

Net deferred tax asset ........ $ 2,538 $ 443
====== =======
</TABLE>
At June 28, 1997, the Company has $19.6 million of consolidated net operating
loss carryforwards, of which approximately $3.5 million expire in 2010 with the
remaining being indefinite.
<PAGE>
<TABLE>
In thousands Year ended 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before taxes on income consists of:
Domestic ................................. $ 23,833 $ 15,647 $ 18,692
Foreign .................................. (11,828) (3,298) (1,869)
-------- -------- --------
$ 12,005 $ 12,349 $ 16,823
======== ======== ========
Tax expense (benefit) consists of:
Current:
Domestic ................................. $ 6,256 $ 6,909 $ 7,920
Foreign .................................. 950 8 (17)
-------- -------- --------
7,206 6,917 7,903
-------- -------- --------
Deferred:
Domestic ................................. (23) (2,156) (1,761)
Foreign .................................. (4,397) (570) (347)
-------- -------- --------
(4,420) (2,726) (2,108)
-------- -------- --------
$ 2,786 $ 4,191 $ 5,795
======== ======== ========
</TABLE>
The difference between the Company's income tax provision and the amount that
would be computed by applying the federal statutory income tax rate to income
before taxes on income is reconciled as follows:
<TABLE>
In thousands Year ended 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at federal statutory rate ......... 35% 35% 35%
Impact of:
Available tax credits ..................... (5) (2)
Foreign subsidiary earnings ............... (4) 5
DISC earnings ............................. (5) (6) (2)
Other ..................................... 2 -- 1
----- ------ --------
Effective tax rate ............................. 23% 34% 34%
----- ------ --------
Income taxes paid.............................. $9,193 $3,731 $ 10,332
===== ====== ========
</TABLE>
12. PREFERRED STOCK AND COMMON STOCK

Each share of 7 1/2% cumulative preferred stock is entitled to one vote for the
election of the members of the Board of Directors not elected by the holders of
Class A Common Stock, and all other matters at all shareholders' meetings
whenever dividend payments are in arrears for four cumulative quarters. No
arrearage existed at June 28, 1997. The preferred stock is redeemable in whole
or in part, if called by the Company, at $10.50 per share. Additionally, there
are 1,000,000 authorized shares of series preferred stock, no par value. At June
28, 1997 and June 29, 1996, no series preferred stock was outstanding.

On December 6, 1996, the Board of Directors declared a five-for-four stock split
in the form of a 25% stock dividend distributed on January 30, 1997. All
references to weighted average number of shares outstanding and per share
information have been adjusted to reflect the stock split.

Each share of Class A Common Stock and Class B Common Stock is entitled to one
vote and ten votes, respectively, at all shareholders' meetings. The holders of
Class A Common Stock are entitled to elect one quarter of the members of the
Board of Directors. The remaining directors are elected by the holders of Class
B Common Stock and any preferred stock entitled to vote.
<PAGE>
13. STOCK PURCHASE AND OPTION PLANS

The Company's Employees' Stock Purchase Plan permits the purchase in an
aggregate amount of up to 547,250 shares of Class A Common Stock. Eligible
employees may purchase stock at market value, or 90% of market value if the
price is $6.40 per share or higher, up to a maximum of $5,000 per employee in
any calendar year. The Company issued 11,540 shares in 1997, 21,825 shares in
1996 and 28,464 in 1995 under this plan.

The Company's Stock Option Plans permit the granting of either nonqualified or
incentive stock options to certain key employees and directors to purchase an
aggregate amount of up to 1,078,125 shares of the Company's Class A Common
Stock. The options, which become exercisable twelve months after date of grant,
expire ten years after date of grant. Although the plan administrator may
establish the nonqualified option price at below market value at date of grant,
incentive stock options may be granted onl at prices not less than the market
value. At June 28, 1997, 365,281 options were available for grant. A summary of
the Company's stock option activity, and related information for the years ended
follows:
<TABLE>
Shares Under Options Weighted--Average Option Price
In thousands
- ----------------------------------------------------- -------------------- -----------------------
<S> <C> <C>
Outstanding at July 3, 1994 ......................... 451 $10.91
Granted in 1995 ..................................... 95 13.53
Exercised ........................................... (16) 8.06
Canceled ............................................ (15) 13.36
- ----------------------------------------------------- ---- ------
Outstanding at July 1, 1995 ......................... 515 11.41
- ----------------------------------------------------- ---- ------
Exercisable at July 1, 1995 ......................... 429 10.99
Granted in 1996 ..................................... 100 12.57
Exercised ........................................... (59) 7.96
Canceled ............................................ (45) 14.18
Outstanding at June 29, 1996 ........................ 511 11.80
Exercisable at July 29, 1996 ........................ 421 11.64
Granted in 1997 ..................................... 97 14.20
Exercised ........................................... (79) 10.21
Canceled ............................................ (6) 14.53
Outstanding at June 28, 1997 ........................ 523 12.45
Exercisable at July 28, 1997 ........................ 426 12.05
- ----------------------------------------------------- ---- ------
</TABLE>
<TABLE>
Weighted-Average
-------------------------------------------------------
Number of Options Option Price Remaining
------------------------------------ -------------------------------------
Exercise Price Range Outstanding Exercisable Outstanding Exercisable Contractual Life
- ------------------------- ------------------- ------------------ ------------------ ---------------- --------------------
<S> <C> <C> <C> <C> <C>
$7.36 - $12.90 248 236 $ 9.86 $ 9.71 4.26 years
$13.50 - $17.80 275 190 $ 14.79 $ 14.96 7.05 years
</TABLE>
The weighted-average grant-date fair value was $4.93 and $4.37 for stock options
granted in 1997 and 1996, respectively.

The Company has elected to follow Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock incentive plans. Under APB Opinion No. 25, compensation
expense is recognized when the market price of the underlying stock award on the
date of grant exceeds any related exercise price. Accordingly, no compensation
expense has been recognized in the accompanying financial statements.

Pro forma information regarding net income and net income per share has been
determined as if the Company had accounted for its stock awards since July 2,
1995, using the fair value method consistent with SFAS No. 123 and had
recognized compensation expense. The fair value of these awards was estimated at
the date of grant using the Black-Sholes option pricing model with the following
weighted-average assumptions in 1997 and 1996: risk free interest rates of
6.23%; dividend yield of 2.2%; expected market price volatility factor of .303;
and an expected option life of 7 years.
<PAGE>
The Black-Sholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting provisions and are fully
transferable. In addition, the model requires input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
stock options have characteristics significantly different from traded option
and the input assumptions can materially affect the estimate of fair value, in
management's opinion, the Black-Sholes option model does not necessarily provide
a reliable measure of the fair value of its stock options.

The Company's pro forma information under SFAS No. 123 is as follows:
<TABLE>
Year Ended 1997 1996
- ------------------------------------- ------------- --------------
<S> <C> <C>
Net income (In thousands):
As reported $10,020 $ 8,454
Pro forma 9,544 8,170

Net income per share:
As reported $ 1.01 $ .86
Pro forma .97 .83
</TABLE>
14. COMMITMENTS AND CONTINGENCIES

A. Litigation

On January 21, 1997, Midwest Manufacturing Holdings, L.L.C. ("Midwest") filed a
lawsuit against the Company in Cook County, Illinois Circuit Court with respect
to terminated discussions regarding the possibility of Midwest's acquisition of
the Company's Information Products business. The litigation has been removed to
the Federal District Court for the Northern District of Illinois. Midwest
alleges that a verbal agreement to purchase the Information Products business
had been reached, and has filed its lawsuit in an attempt to compel the Company
to proceed with the sale or to pay Midwest damages. Management believes that the
claim by Midwest will be resolved without a material effect on the Company's
financial condition or results of operations and liquidity.

In June 1994, the Company entered into a joint venture with Happich
Fahrzeug-InnausstaHung GmbH of Germany ("Happich") to produce sun visors, grab
handles and other interior parts in North America. In July 1995, when the joint
venture was at an early stage of its development, Happich expressed its desire
to terminate the joint venture. The parties had been engaged in arbitration over
the terms of the joint venture termination since July 29, 1996. On July 31,
1997, the Company was granted an interim arbitration award favorable to the
Company and indicating that the arbitration will be concluded without a material
effect on the Company's financial condition or results of operation and
liquidity, with the final award yet to be determined.

The Company and its subsidiaries are involved in certain other legal actions and
claims, including environmental claims, arising in the ordinary course of
business. Management believes that such litigation and claims will be resolved
without material effect on the Company's financial position, results of
operations and liquidity, individually and in the aggregate.

B. Other

As of June 28, 1997, the Company had capital expenditure purchase commitments
outstanding of approximately $6.5 million.
<PAGE>
15. LEASES

Future minimum lease payments, excluding renewal options, consist of:
<TABLE>
Year Ending In thousands Capital Leases Operating Leases
- ---------------------------------------------------------------------------------
<S> <C> <C>
1998 $2,306 $2,817
1999 2,105 724
2000 1,231 481
2001 56 347
2002 -- 278
2003 and thereafter ....................... -- 935
------ ------
Total minimum lease payments .............. 5,698 $5,582
====== ======
Less amount representing interest and other 588
------
Present value of net minimum lease payments $5,110
======
</TABLE>
The Company's subsidiary, Donnelly Hohe, has various capital leases for
manufacturing and warehouse facilities and manufacturing, office and
transportation equipment. Included in property, plant and equipment are the
following assets held under capital leases:
<TABLE>
In thousands Year Ended 1997
- ----------------------------------------------------------------
<S> <C>
Land $ 134
Building 3,309
Machinery and equipment 2,086
-------
Net property, plant and equipment under capital lease $ 5,529
=======
</TABLE>
The Company has operating leases for office, warehouse and manufacturing
facilities and manufacturing equipment. Rental expense charged to operations
amounted to approximately $3.8 million for 1997, $3.8 million for 1996 and $2.5
million for 1995. In 1995, the Company entered into an agreement for the sale
and leaseback of newly installed modular window production equipment. The
equipment was sold at cost and no gain or loss was recognized on the
transaction. The lease has six one-year renewal terms, an effective 6.9% fixed
interest rate and a 40% balloon for the Company's option to purchase the
equipment after the full seven-year term and is classified as an operating
lease.

16. COMMON STOCK PRICE PER SHARE - UNAUDITED

The Company's common stock is traded on the New York Stock Exchange under the
Symbol "DON." Prior to March 10, 1997, the Company's stock was listed on the
American Stock Exchange under the symbol "DON." Market quotations regarding the
range of high and low sales prices of the Company's common stock were as
follows:
<TABLE>
Fiscal 1997 1996
- ----------------------------------- ------------------------ -----------------------
<S> <C> <C> <C> <C>
Quarter High Low High Low
- ----------------------------------- ----------- ------------- ------------ -----------
First $ 14.70 $ 11.80 $ 13.40 $ 11.60
Second 17.90 14.10 12.50 11.00
Third 20.00 16.00 11.90 10.40
Fourth 17.38 14.38 12.90 11.00
- ----------------------------------- ----------- ------------- ------------ -----------
</TABLE>
<PAGE>
QUARTERLY FINANCIAL DATA--UNAUDITED
<TABLE>
First Second Third Fourth Total
In thousands, except per share data Quarter Quarter Quarter Quarter Year
- ---------------------------------------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C> <C>
Net sales .................................. $ 113,400 $ 188,037 $ 181,681 $ 188,179 $ 671,297
Gross profit ............................... 23,148 34,771 33,321 35,428 126,668
Operating income (loss) .................... 4,942 8,600 5,403 (1,264) 17,681
Net Income:
Income .................................. 1,722 3,917 2,958 1,423 10,020
Per common share ........................ .18 .40 .30 .14 1.01
Dividends declared per share of common stock .08 .08 .10 .10 .36

1996
Net sales .................................. $ 90,523 $ 106,823 $ 116,445 $ 125,780 $ 439,571
Gross profit ............................... 13,685 20,030 22,153 25,873 81,741
Operating income (loss) .................... (2,087) 3,899 3,920 7,759 13,491
Net Income (loss):
Income (loss) ........................... (1,789) 2,629 2,503 5,111 8,454
Per common share ........................ (.18) .27 .25 .52 .86
Dividends declared per share of common stock .08 .08 .08 .08 .32
</TABLE>
See Management's Discussion and Analysis of Results of Operations and Financial
Condition for discussion of the Company's results of operations and Notes 3, 5
and 14 for a discussion of the impact of certain transactions on the 1997 and
1996 quarterly results of operations.
<PAGE>
EXHIBIT 21

SCHEDULE OF AFFILIATES

AS OF JUNE 29, 1997
PERCENTAGE OF
AFFILIATE INCORPORATION OWNERSHIP
- ---------------------------- --------------------------- -----------------

DONNELLY MIRRORS LIMITED ORGANIZED UNDER 100%
THE LAWS OF THE
REPUBLIC OF IRELAND

DONNELLY VISION SYSTEMS ORGANIZED UNDER 100%
EUROPE LIMITED THE LAWS OF THE
REPUBLIC OF IRELAND

DONNELLY DE MEXICO, S.A. DE ORGANIZED UNDER 100%
C.V. THE LAWS OF MEXICO

DONNELLY EUROGLAS SYSTEMS, ORGANIZED UNDER 100%
S.A.R.L. THE LAWS OF FRANCE

DONNELLY HOLDING GmbH ORGANIZED UNDER 100%
THE LAWS OF GERMANY

DONNELLY INTERNATIONAL, INC. MICHIGAN 100%

DONNELLY TECHNOLOGY, INC. MICHIGAN 100%

DONNELLY INVESTMENTS, INC. MICHIGAN 100%

DONN-TECH INC. MICHIGAN 100%

DONNELLY RECEIVABLES MICHIGAN 100%
CORPORATION

DONNELLY OPTICS CORPORATION MICHIGAN 100%

INFORMATION PRODUCTS, INC. MICHIGAN 100%

DONNELLY EUROTRIM LIMITED ORGANIZED UNDER 100%
THE LAWS OF THE
REPUBLIC OF IRELAND

DONNELLY SCANDINAVIA A.B. ORGANIZED UNDER 100%
THE LAWS OF SWEDEN

DONNELLY HOHE ORGANIZED UNDER 74%
VERWALTUUNGS GmbH THE LAWS OF GERMANY

DONNELLY HOHE GmbH & CO. KG ORGANIZED UNDER 66.7%
THE LAWS OF GERMANY

DONNELLY HAPPICH MICHIGAN 60%
TECHNOLOGIES, INC.

SHANGHAI DONNELLY FU HUA ORGANIZED UNDER 50%
WINDOW THE
SYSTEMS COMPANY, LTD. LAWS OF CHINA

SHUNDE DONNELLY ZHEN HUA ORGANIZED UNDER 50%
AUTOMOTIVE SYSTEMS CO. LTD. THE LAWS OF CHINA

APPLIED FILMS CORPORATION COLORADO 50%

DONNELLY HOHE ESPANA, S.A. ORGANIZED UNDER 25.6%
THE LAWS OF SPAIN

VISION GROUP, PLC ORGANIZED UNDER 25.6%
THE LAWS OF SCOTLAND
<PAGE>
EXHIBIT 23

Consent of Independent Certified Public Accountants

Donnelly Corporation
Holland, Michigan

We hereby consent to the incorporation by reference of our reports dated August
1, 1997, relating to the combined consolidated financial statements and schedule
of Donnelly Corporation appearing in the corporation's annual report on Form
10-K for the year ended June 28, 1997, in that corporation's previously filed
Form S-8 Registration Statements for that corporation's 1987 Stock Option Plan
(Registration No. 33-26555), 1987 Employees' Stock Purchase Plan (Registration
No. 33-34746) and Non-Employee Directors' Stock Option Plan (Registration No.
33-55499).

/s/BDO Seidman, LLP

Grand Rapids, Michigan
September 23, 1997
<PAGE>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
June 29, 1996 Donnelly Corporation financial statements and is qualified
in its entirety by reference to such financial statements
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> JUN-28-1997
<CASH> 8,568
<SECURITIES> 0
<RECEIVABLES> 67,850
<ALLOWANCES> 0
<INVENTORY> 42,484
<CURRENT-ASSETS> 152,640
<PP&E> 290,965
<DEPRECIATION> 125,841
<TOTAL-ASSETS> 358,293
<CURRENT-LIABILITIES> 115,649
<BONDS> 122,798
0
531
<COMMON> 991
<OTHER-SE> 92,305
<TOTAL-LIABILITY-AND-EQUITY> 358,293
<SALES> 671,297
<TOTAL-REVENUES> 671,297
<CGS> 544,629
<TOTAL-COSTS> 544,629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,530
<INCOME-PRETAX> 12,005
<INCOME-TAX> 2,786
<INCOME-CONTINUING> 12,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,020
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01

</TABLE>