UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C.  20549
                                FORM 10-K/A
    

Mark one
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the fiscal year ended OCTOBER 31, 1997

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from            to


                     OPTICAL COATING LABORATORY, INC.
          (Exact name of registrant as specified in its charter)

                      COMMISSION FILE NUMBER 0-2537
DELAWARE                                                            68-0164244

(State or other jurisdiction of                       (IRS Identification No.)
incorporation or organization)

2789 NORTHPOINT PARKWAY, SANTA ROSA CALIFORNIA                      95407-7397

(Address of principal executive offices)                            (Zip code)

    Registrant's telephone number, including area code: (707) 545-6440


    SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  NONE
       SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                       COMMON STOCK, $.01 PAR VALUE

                          (Title of each class)

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. [X]  Yes  [ ] 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 this Form 10-K or any
amendment to this Form 10-K. [X]

At December 31, 1997, the aggregate market value of the registrant's
common stock (based upon the closing price of these shares on the NASDAQ
National Market System) held by non-affiliates, which excludes shares held
by officers and directors and the Employee Stock Ownership Plan of the
registrant (not all of whom claim to be affiliates), was approximately
$109.8 million.

At December 31, 1997, there were 10,631,712 shares of the registrant's
common stock, $.01 par value, issued and outstanding.

                   DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Company's Annual
Meeting of Stockholders to be held March 31, 1998 are incorporated by
reference into Part III of this Form 10-K.

The Exhibit index appears on Pages 47-49.



               OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES

                      INDEX TO ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997

         PART I

Item 1.  Business.........................................................   3
Item 2.  Properties.......................................................  11
Item 3.  Legal Proceedings................................................  12
Item 4.  Submission of Matters to a Vote of Security Holders..............  13

         PART II

Item 5.  Market for Registrant's Common Equity and
         Related Stockholder Matters......................................  16
Item 6.  Selected Financial Data..........................................  16
Item 7.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations....................  17
Item 8.  Consolidated Financial Statements and
         Supplemental Financial Information...............................  23
Item 9.  Changes in and Disagreements with
         Accountants on Accounting and Financial
         Disclosure.......................................................  46

         PART III

Item 10. Directors and Executive Officers of the Registrant...............  46
Item 11. Executive Compensation...........................................  46
Item 12. Security Ownership of Certain Beneficial Owners and Management...  46
Item 13. Certain Relationships and Related Transactions...................  46

         PART IV
Item 14. Exhibits, Financial Statement Schedules
         and Reports on Form 8-K..........................................  47


THE INFORMATION CONTAINED IN THIS REPORT INCLUDES FORWARD LOOKING
STATEMENTS WHICH ARE TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES,"
"BELIEVES," "EXPECTS," "INTENDS," "FORECASTS," "PLANS," "FUTURE,"
"STRATEGY," OR WORDS OF SIMILAR IMPORT.  VARIOUS IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE
FORWARD LOOKING STATEMENTS ARE IDENTIFIED BELOW AND IN PART II, ITEM 7 OF
THIS REPORT. ACTUAL RESULTS MAY VARY SIGNIFICANTLY BASED ON A NUMBER OF
FACTORS INCLUDING, BUT NOT LIMITED TO, PRODUCT DEVELOPMENT,
COMMERCIALIZATION AND TECHNOLOGICAL DIFFICULTIES; MANUFACTURING COSTS AND
YIELD ISSUES ASSOCIATED WITH INITIATING PRODUCTION AT NEW FACILITIES; THE
IMPACT OF COMPETITIVE PRODUCTS AND PRICING; CHANGING CUSTOMER REQUIREMENTS;
AND THE CHANGE IN ECONOMIC CONDITIONS OF THE VARIOUS MARKETS THE COMPANY
SERVES.
                                  PART I

ITEM 1. BUSINESS

GENERAL
   
Optical Coating Laboratory, Inc., together with its consolidated
subsidiaries (the "Company"or "OCLI"), is the world's largest independent
manufacturer of optical thin film coated components used to manage light.
At its Company-owned and leased facilities located in Santa Rosa,
California, Goslar, Germany, Hillend, Scotland and Isehara, Japan, OCLI
designs, develops and manufactures multi-layer thin film coatings which
control and enhance light by altering the transmission, reflection and
absorption of its various wavelengths to achieve a desired effect such as
anti-reflection, anti-glare, electromagnetic shielding, electrical
conductivity and abrasion resistance.  OCLI markets and distributes
components to original equipment manufacturers ("OEMs") of optical and
electro-optical systems and sells its Glare/Guard brand ergonomic computer
display products through resellers and office retailers. OCLI's products
are found in many applications including computer monitors, flat panel
displays, telecommunication systems, photocopiers, fax machines,
medical/analytical equipment and instruments, projection imaging systems,
satellite power systems and aerospace and defense systems. The Company also
manufactures precision injection molded plastic optical components that are
used in a variety of applications such as inkjet printers, point-of-sale
scanners and sunglasses. Precision molded plastic optics allow for the
production of aspheric surfaces, have significant cost advantages over
similar products made with glass, improve impact resistance and offer a
substantial weight advantage over glass components.

    

The Company  has developed many of its thin film coating processes and has
designed and fabricated most of the coating equipment used to manufacture
its products.  The Company believes its ability to design and build this
specialized equipment has been an important factor in its ability to
compete successfully.  The Company maintains an extensive array of thin
film coating equipment, glass fabrication equipment, precision injection
molding equipment and support facilities to satisfy its customers'
requirements for thin film coated products, fabricated glass components and
precision injection molded plastic optics components.

   

Flex Products, Inc. ("Flex" or "Flex Products"), of which the Company
holds a controlling 60% interest, is a manufacturer of thin film coatings
on plastic film produced by a proprietary vacuum deposition technology on
large-scale, high-speed roll coating equipment developed by OCLI in
the 1980's.  Flex's principal product, optically variable pigment ("OVP"),
was also invented by the Company and is used primarily in currency
printing as a security and anti-counterfeiting measure.  SICPA Holding S.A.,
a Swiss company that is OCLI's 40% partner in Flex Products, is the
largest manufacturer of printing inks in the world and is currently
Flex Products' largest customer. Flex Products also manufactures and
sells energy efficient window film used for residential, commercial
and automotive energy conservation; printing plates used in offset
color printing; photoreceptor ground planes used in copiers; and pigment
used in automotive paint.

    

Through its OCLI/MMG Division in Goslar, Germany and its principal
manufacturing facility in Santa Rosa, California, the Company operates
fully integrated precision glass fabrication operations with capability for
sawing, machining, heat-treating, chemical-treating, silk screening and
etching glass products to customer specifications.  Fabricated glass
product lines include mirrors, platens, filters, panels and an array of
optics and components made of glass for use in copiers, cameras and other
electro-optical devices and instruments.

The Company also operates a fully integrated coating facility with
additional optical fabrication capability at its wholly-owned subsidiary in
Hillend, Scotland.  From this platform, the Company markets a broad array
of coated products with applications in commercial, scientific and military
markets and performs research and development under scientific and U.K.
Ministry of Defense sponsorships.

Through a contractual joint venture alliance with JDS FITEL Inc. ("JDS"), a
publicly held Canadian high technology company, OCLI produces optical
filters for use in dense wavelength division multiplexing ("WDM") products
that are marketed and distributed by JDS.  WDM is the simultaneous
transmission of information on different wavelengths along the same optical
fiber and is one of the alternative technologies available to
telecommunications network providers to satisfy the demand for increased
transmission capacity resulting from the growing use of new services such
as the Internet, video and other forms of data transmission.   WDM
components are the key elements in fiber optic systems that facilitate
transmission using different wavelengths.  Precision thin film optical
filters are one of the key elements in a WDM component that permit
wavelength discrimination.

Through its joint venture company in Japan, Hakuto-OCLI, Ltd., which is
doing business as "OCLI Asia," the Company provides fabrication and
applications engineering support for front surface mirrors, anti-reflection
panels, optical filters for satellites, dichroic filters, among other
products for Asian markets. OCLI Asia was formed in 1997, as a joint
venture with Hakuto Co., Ltd.  Hakuto has been a major customer and long-
term distributor and fabricator of OCLI's products in Japan and several
other Asian countries and is an approximate 9% stockholder of the Company.
OCLI Asia is consolidated into the Company's results of operations and
financial position as the Company has operating control over the joint
venture.

The Company has significant investments in Germany, Scotland and Japan.
Changes in the value of those countries' currencies relative to the U.S.
dollar are recorded as direct charges or credits to equity.  The Company
also has manufacturing operations in Germany, Scotland and Japan and sales
presence in other European and Asian countries.  A significant weakening of
the currencies in Europe or Asia in relation to the U.S. dollar could
reduce the reported results of those operations.  In addition, a
significant amount of the Company's sales are export sales which could be
subject to competitive price pressures if the U.S. dollar was to strengthen
compared to the currency of foreign competitors

MARKETS AND PRODUCTS

DISPLAY.  The Company is a leading supplier of anti-reflection coatings to
OEMs for use on computer terminals and other cathode ray tube ("CRT")
displays, flat panel displays, liquid crystal displays ("LCDs") and touch
panel displays (among other applications) to improve the readability of the
information displayed by reducing glare from reflected light while
optimizing the transmission of light from the display.  The coatings are
produced in several configurations to meet varied customer requirements,
including as laminates with conductive qualities to reduce electromagnetic
and electrostatic discharge.

The Company also produces ergonomic enhancement products which are sold in
the computer end-user market under its Glare/Guard brand and on a private
label basis. The filters provide viewing comfort and health and safety
protection for computer users by improving the visibility of the
information displayed on computer display monitors. Several models are also
capable of minimizing electrical and magnetic field radiation and static
charge buildup of display devices.

The Company also manufactures a variety of components used in projection
display products, such as front surface mirrors used in large screen
projection televisions and dichroic color filters used in LCD and digital
light processing projector systems.

TELECOMMUNICATIONS. OCLI produces state-of-the-art optical bandpass filters
for use in wavelength division multiplexing ("WDM") products that allow
simultaneous transmission of many telephone signals on a single optical
fiber. WDM is one of the alternative technologies available to
telecommunications network providers to satisfy the demand for increased
transmission capacity resulting from the growing use of new services such
as the Internet, video and other forms of data transmission.   WDM
components are the key elements in fiber optic systems that facilitate
transmission using different wavelengths.  Precision thin film optical
filters are one of the key elements in WDM components that permit
wavelength discrimination. OCLI's filters are marketed and distributed
through a contractual joint venture arrangement with JDS FITEL Inc.

OCLI also serves the telecommunications market through the production of
glass solar cell covers and thermal control mirrors for use on satellites.
The thin glass solar cell covers are coated to provide enhanced
performance, reduced temperature and protection for the photovoltaic cells.
These covers range from the simplest single layer products that improve
solar transmission to complex multi-layer designs that reflect ultraviolet
and infrared solar energy. The thermal control mirrors are used to control
the temperature of satellites.  These highly efficient mirrors are used to
reflect solar energy from sensitive instrument areas and to control antenna
temperature and performance using proprietary designs on flexible
substrates.

OFFICE AUTOMATION.  The Company manufactures a complete line of high
quality products for office automation OEMs, including front surface
mirrors for photocopiers, document scanners, overhead projectors, facsimile
machines and laser beam printers; platen glass and photoreceptors for
photocopiers; hot and cold mirrors used in micrographic readers and
overhead projectors; color separation filters for desktop document
scanners; and precision molded plastic components used in inkjet printers.

SECURITY PRODUCTS.  Through Flex Products, Inc., the Company manufactures
and markets optically variable pigment ("OVP") used in currency printing as
an anti-counterfeiting measure. Flex's largest customer for OVP, and OCLI's
partner in Flex's ownership, is SICPA Holding S.A., one of the world's
leading manufacturers of printing inks. Currently, over 50 countries,
including the United States, have adopted the use of ink made with
optically variable pigment in the printing of currencies and other valued
documents. Sales of this product constituted greater than 10% of the
Company's consolidated sales in 1997 and 1996.  See "Marketing" discussion.

OTHER MARKETS. The Company manufactures a wide array of filters, reflectors
and optical components for use in medical, biochemical, scientific and
analytical instruments, manufacturing process control instruments, barcode
scanners, point-of-sale scanners, focus devices in cameras and slide
projectors, instruments used to monitor blood glucose levels and
instruments used to measure color in paint pigment as well as
sophisticated, high-precision coated products and optical components to
meet the specific performance requirements of advanced scientific, space
and defense systems and products for a variety of specialty applications,
including dichroic filters for specialty stage lighting; energy control
window film for architectural applications; optically variable pigment used
in automotive paint; precision molded plastic optics for sunglasses and
anti-reflection linear polarizers for viewcams.

MANUFACTURING

The Company's initial growth came from the development of high precision
coated products for use primarily in defense and aerospace applications and
in sophisticated analytical equipment.  These types of coated products are
produced by relatively costly batch processes and continue to represent a
portion of the Company's revenues.  From this base, the Company has
expanded into commercial markets by designing and fabricating continuous
coating equipment capable of producing a high volume of relatively less
complex products at lower unit costs.  This large-scale equipment has
enabled the Company to serve broad commercial markets with many of its
products.

The Company has developed many of its thin film coating processes and has
designed, fabricated or significantly customized most of the coating
equipment used in production, including its continuous coaters, batch
coaters and high speed roll-to-roll coaters.  The Company believes its
ability to design and build this specialized equipment, and its ability to
develop proprietary process technologies, has been an important factor in
enabling it to compete successfully. Consequently, the Company maintains an
extensive array of thin film coating equipment, glass fabrication equipment
and metrology equipment to meet customer requirements for coated products
and fabricated glass components.

The Company employs various coating processes which it has developed and
established over many years including batch coating by evaporation as its
historic coating process and batch coating by reactive metal mode
sputtering as a proprietary, patented process. The Company employs similar
evaporation and sputtering processes in its continuous in-line coating
systems.  The Company's Flex Products subsidiary also employs proprietary
evaporation processes and sputtering in its high-speed, roll-to-roll
coating systems. The Company and its subsidiary operations have extensive
auxiliary material preparation and glass fabrication equipment in place
which allow the Company to produce a broad array of coated glass and
plastic components and coated products for a wide variety of applications.

The Company has developed and procured extensive state-of-the-art metrology
and test equipment to allow testing and verification of technological and
performance characteristics of its products.  This capability, including
the expertise of the Company's scientific and technical staff to develop
and design specific thin film coatings to meet a customer's application
requirements, is frequently an integral aspect sought by customers in
selecting the Company as a supplier.

RESEARCH AND DEVELOPMENT

The Company devotes substantial resources to research and development in
order to develop new and improve existing thin film products, processes and
manufacturing equipment.  As a result, the Company has developed a
technological leadership position in the thin film coatings industry, and
customers rely on the Company's thin film integration services expertise
and its products.

In cooperation with its joint venture partner, JDS FITEL Inc., the Company
is developing new wavelength division multiplexing ("WDM") products and
processes to expand the information carrying capability of fiber optic
telecommunication networks.  The emerging opportunities in this rapidly
growing market require extremely high precision interference coating
deposition technology combined with advanced fiber optic assembly and
testing technology.

The Company's ongoing research and development commitments also include
techniques to improve coating uniformity on plastic substrates for flat
panel display applications; automation of the Company's coating equipment
to improve product and increase equipment productivity; development of new
and improved product configurations for the Glare/Guard market; and
reduction and eventual elimination of coating and cleaning materials that
may be hazardous to the environment.

Flex Products' major research and development effort has been toward the
development and integration of state-of-the-art coating processes for use
in new coating machines, which the subsidiary installed during fiscal 1996,
and for the qualification of new products, primarily new color shifts for
OVP and pigment used for automotive paint.

Company funded research and development expenditures totaled $14.9 million,
$11.7 million and $8.4 million, or  6.8%, 6.2% and 5.0% of revenues, during
fiscal years 1997, 1996 and 1995. In addition to the research and
development funded by the Company, many of the Company's customer contracts
involve state-of-the-art coating applications requiring substantial amounts
of development in support of specific customer applications.

PATENTS AND LICENSES

The Company believes its proprietary technology, its trade secrets and its
patents to be of considerable value to its business.  The Company believes
that its patents demonstrate and support its technological leadership
position, safeguard its competitive position and support existing and
potential sales volume.

The Company has 48 patents and 63 patent applications in the United States
which cover materials, processes, products and production equipment.  The
Company also has patents and patent applications pending in various foreign
countries covering the same technology. Expiration dates for the Company's
various patents range from 1998 to 2016. Flex Products currently has 107
patents and 83 new patent applications pending that are separate from the
Company's patents. Expiration dates for Flex Products' patents range from
1998 to 2014.  Flex Products also has patents and patent applications
pending in various foreign countries covering the same technology. (See
Item 3., "Legal Proceedings", for a discussion of the Company's patent
infringement lawsuit with BASF Corporation and BASF AG.)

In 1988, at the formation of Flex Products as a joint venture, the Company
and Flex Products entered into a License Agreement under which certain of
the Company's patents relating to roll coating technology were assigned to
Flex Products and Flex Products agreed to make royalty payments to the
Company for the use of these patents.  The License Agreement provides for
royalties of 4% of Flex Products' revenues. The royalty payments are to
continue for several years until a total of $13.7 million is paid. At
fiscal year end 1997, $6.4 million remained to be paid. In years prior to
1995, and until May 1995, royalties were recorded as revenues.  In 1995,
after the Company's additional investment in Flex Products, the royalties
were eliminated in consolidation.

TECHNOLOGY LICENSING

The Company selectively licenses its coating technology to other companies,
primarily for integrated, mass production applications that the Company
would not otherwise be able to provide as a manufacturer in the ordinary
course of its business. During the past five years, these licenses,
together with sales of equipment built for licensees in support of the
licenses, have generated revenues to the Company totaling approximately $10
million.

MARKETING

The Company has established strong, long-term customer relationships and
serves a wide range of markets, including leading manufacturers of
computers, photographic equipment, copier products, medical
instrumentation, home entertainment products, and space and defense
systems.  The Company's Flex Products subsidiary also has long-term
relationships with customers in its markets.

The Company's products are sold by its sales organizations, headquartered
in Santa Rosa, California and Reinheim, Germany, who communicate directly
with customers' engineering, manufacturing and purchasing personnel in
determining the design, performance and cost specifications for customer
product requirements.  The Company has regional sales offices in several
major cities throughout the United States and in Germany, France, Spain and
the United Kingdom. In Japan and other Asian countries, the Company has
established joint venture companies with its former independent
distributors and sales representatives to provide more integrated marketing
and sales support in these regions.

With the exception of its Glare/Guard product line, the Company markets
most of its standard, high volume coated products and fabricated glass
components to OEMs.  Its customized, technically sophisticated products are
also marketed to OEMs in addition to defense and aerospace contractors. The
Company exports some of its products to major distributors who perform
product conversion and other value-added process steps before resale. The
Company's Glare/Guard product line is marketed through distributors and
dealers directly to end users.

Flex Products sells into several significant markets with a small,
technically oriented sales organization supported by operations and
engineering personnel in a sales team approach.

The Company's ten largest customers accounted for 42% of its sales in 1997.
The Company's largest customer in 1997, who is also the Company's 40%
partner in the ownership of Flex Products, accounted for approximately 14%
of total sales for fiscal 1997, 13% of total sales for fiscal 1996 and 12%
of total sales for the six months of consolidation of Flex Products in
fiscal 1995.  The Company's second and third largest customers in 1997
accounted for 7% and 5% of its sales in fiscal year 1997. The Company's
second largest customer in 1996 and largest customer in 1995 accounted for
5% and 8% of its sales in fiscal years 1996 and 1995. Because relatively
few customers account for a substantial portion of the Company's sales, the
loss of their business could have a material adverse effect on the
Company's operating results.  However, the Company believes that it has the
resources and capabilities to replace any lost business over time through
the development of new products and new applications for its products.
Foreign sales, primarily in Europe and Asia, including foreign sales of
Flex Products for fiscal 1997, fiscal 1996 and six months of 1995,
represented 48%, 48% and 47% of revenues for fiscal years 1997, 1996 and
1995.  Sales by the Company's wholly-owned subsidiary in Scotland
represented 5%, 5% and 10% of revenues for fiscal years 1997, 1996 and
1995.  Sales by the Company's wholly-owned subsidiary in Germany
represented 8%, 13% and 13% of revenues for fiscal years 1997, 1996 and
1995.  Sales by these subsidiaries are primarily to customers in European
countries.  See Note 11 of Notes to Consolidated Financial Statements.

Export sales by U.S. operations to Asian countries represented 11%, 13%,
and 13% and to European countries 19%, 14% and 9% of revenues for fiscal
years 1997, 1996 and 1995.  Export sales can be affected by adverse
currency alignments and economic factors within those countries.  In
addition, although the Company has not experienced significant overall
sales or pricing declines in these countries, economic factors in Europe
and Asia could have a material effect on the Company's future results.

Sales of products to the federal government, primarily under subcontracts,
accounted for 6%,  9% and 10% of revenues for the fiscal years 1997, 1996
and 1995.  The Company's cost-plus-fixed fee ("CPFF") government contracts
for fiscal years 1996 and 1995 are subject to pending governmental audit
review.  The audits entail, primarily, a review of costs and expenses
charged to government contracts with the focus on potential adjustments to
the allocation of general and administrative expenses.  General and
administrative expense allocations to CPFF contracts were $274,000 for
1997, $796,000 for 1996 and $1.8 million for 1995.  The Company does not
expect pending governmental audits to result in adjustments that will have
a material impact on future operating results.

RAW MATERIALS AND SUPPLIERS

The primary raw materials used by the Company in its coating operations are
various forms of glass, germanium, fused silica and several types of
plastic and inorganic coating materials, such as magnesium fluoride,
silicon dioxide, aluminum or germanium.  The Company has more than one
supplier for each of its raw materials and maintains adequate inventories
and close working relationships with its suppliers to assure a continuous
and adequate supply for production. The Company purchases special grade
flat glass under long-term arrangements from one major U.S. glass supplier.
The Company has not experienced any significant interruptions in production
due to a shortage of raw material. Substrate materials are purchased by the
Company or supplied by customers, while coating materials and their
composition are generally supplied by the Company, as they are often
considered a proprietary element of the manufacturing process.

In the Company's precision molded polymer optics operation, the primary raw
material used is high quality granular polycarbonite plastic base stock
which the Company procures from one principal supplier.  Although the
Company has experienced price increases for this raw material, and there is
currently product supply allocation, it has been able to maintain its
supply because of the long-term customer relationship with the supplier.

Flex Products uses significant quantities of plastic film and inorganic
coating materials in the manufacture of its products.  There is more than
one supplier for both materials, and Flex Products has not experienced
production interruptions due to a shortage of raw materials.

SEASONALITY

The Company's business is not seasonal in any material sense. However, the
Company customarily shuts down a major portion of its operations between
Christmas and New Year's Day.  As a result, during the last five fiscal
years, normally scheduled work days for the first fiscal quarter have
averaged 56 compared to an average of 64 for the other three fiscal
quarters.  Nonetheless, the Company generally has sufficient manufacturing
capacity and the ability to schedule additional production shifts to meet
its customers' shipment requirements in any period of the year.  The
Company believes that its revenues and costs are consistently matched in
each fiscal quarter since labor costs during the holiday shutdown period
are generally charged to holiday and vacation labor expense categories
which are accounted for on a pro rata basis over the fiscal year.

The Company's European subsidiaries customarily shut down their operations
for a two week summer vacation.  The summer shutdown has historically
reduced the Company's fiscal fourth quarter sales in Europe as compared to
sales in the other three fiscal quarters.  In 1997 and prior years, the
decline in sales during the summer in Europe has not been significant to
the consolidated operations of the Company. However, such seasonality could
become significant in future periods depending upon the overall
significance of European sales to total Company sales.

BACKLOG

The Company's backlog of orders at the end of each of the last three fiscal
years ended October 31, 1997, 1996 and 1995 was as follows:

                        1997        1996        1995
                               (In Millions)

                        $62.2       $51.6       $47.9

At October 31, 1997, backlog includes $6.2 million from Flex Products,
which represents orders and specifically scheduled releases on long-term
contracts for delivery within 12 months.  Substantially all orders in
backlog at October 31, 1997 are scheduled for shipment during 1998.  The
amount of backlog at October 31, 1997 represents only a portion of
anticipated sales in 1998, with new orders historically comprising the
major portion of sales in a fiscal year.

Backlog consists of new orders on which shipments have not yet started or
unfilled portions of orders which are only partly completed.  Some of these
orders are completed within several days of receipt, while others are not
completed for a number of months.  Substantially all orders included in
backlog are subject to cancellation without penalty; however, the Company
generally has not experienced significant order cancellations. Contractually
specified delivery dates on orders sometimes are adjusted at the request
of either the customer or the Company.

Flex Products has multi-year supply contracts with two of its customers
which include annual buy requirements with take or pay provisions.  It is
the practice of Flex Products to only include specifically scheduled
shipment releases under these contracts in reported backlog.

COMPETITION

The Company believes its ability to compete successfully in its markets
depends on a number of factors, both within and outside of its control,
including the price, quality and performance of the Company's products, the
emergence of new optical standards, the ability to maintain adequate
coating capacity and sources of raw materials, the efficiency of its
manufacturing and production, the rate at which customers design the
Company's products into their products, the number and nature of the
Company's competitors in a given market, the assertion of intellectual
property rights and general market and economic conditions.   The Company
attempts to position itself as the exclusive or principal supplier to most
of its key customers.  To the extent competitors offer similar products to
the Company's customers, pricing pressure may result.  When the Company is
unable to differentiate its product offerings, competition and related
pressure on profit margins can be intense.

The Company's competitors include several private companies whose sales of
coated products are believed to be considerably less than the Company's, as
well as coating operations that comprise only a portion of the total
business of other companies.  The Company's glass fabrication operation in
Germany also has local and foreign competitors. The Company believes none
of these competitors has the wide array of technologies or manufacturing
capabilities available at OCLI.

The Company has a larger number of domestic and foreign competitors for its
Glare/Guard anti-glare optical filters.  Companies that purchase coated
glass and assemble and sell filters in competition with the Company include
Fellows, Polaroid, ACCO and 3M. The Company is the world's largest
manufacturer of anti-reflective optical filters, as measured by total
number of units produced, manufacturing filters for both Glare/Guard
products and private label distributors.  Glare/Guard is one of the most
recognized brand names in its market, both domestically and
internationally.

   

Flex Products' position in its major market is technologically proprietary
and patent protected. Flex Products faces competition in its OVP product
from other manufacturers of special effects pigments which the Company is
addressing, in part, through patent infringement litigation. (See Item 3,
"Legal Proceedings," for a discussion of the Company's patent infringement
lawsuit with BASF Corporation and BASF AG.) In this market,and in the
remainder of its business, Flex Products competes through product
innovation, customer service and willingness to invest in additional
manufacturing capacity.

    

The Company responds to competition primarily on the basis of the advanced
technical characteristics and quality of its products; its ability to meet
and exceed individual customer design and performance specifications; its
dependability and capability as a manufacturer and supplier; the quality of
technical assistance and service furnished to its customers; and the
competitive pricing of its products.

EMPLOYEES

At October 31, 1997, the Company, including Flex, had 1,515 employees of
whom 1,229 were employed domestically, 103 were employed by the Company's
operations in Hillend, Scotland; 125 were employed by the Company's
OCLI/MMG Division in Goslar, Germany; 16 were employed in the Company's
sales and administrative offices in Europe and 42 were employed by OCLI
Asia in Japan. The Company has not experienced a work stoppage due to labor
difficulties.  The Company believes its employee relations are
satisfactory.

None of the Company's employees in its domestic operations, in its
operations in Scotland or in its European sales and administrative offices
are subject to collective bargaining agreements.  Approximately 70% of the
Company's employees in Goslar, Germany, are members of the national
chemical, paper and ceramic union organization in Germany.  The unionized
employees work under a collective bargaining agreement.

In 1987, the Board of Directors approved increases in severance benefits
for its domestic employees, not including Flex Products employees, in the
event of certain changes in control of the Company. These severance
arrangements have been extended through November 1999.

OCLI attributes much of its success to its strong relationship with its
employees.  The Company has instituted several employee oriented programs,
including Total Quality Management and high performance work system
practices, to enhance the quality and efficiency of its operations while
improving employee relations.

JOINT VENTURES, INVESTMENTS AND ACQUISITIONS

Information regarding joint ventures, investments and acquisitions is
included in Note 4 to the Consolidated Financial Statements filed as part
of this Annual Report on Form 10-K.

   

COMPUTER SYSTEMS

During 1997, the Company initiated a program to modernize its business
processes in order to reduce cycle time and improve profitability.  The
program has been deployed worldwide with the goal of streamlining,
automating and applying best practices to all of the Company's business
processes.  In conjunction with this initiative, the Company identified the
need for, selected and purchased an Enterprise Resource Planning System.
Expected total cost of the system, including hardware, software and
integration services, is approximately $4.6 million, of which the Company
has recorded $2.0 million in 1997. The Company expects to spend the balance
of  $2.6 million over the next five years.  Commencing with the
implementation dates of the system modules in 1998, software and
implementation costs will be depreciated over six years and hardware will
be depreciated over the remaining lease term of approximately three years.
Training and software maintenance costs are being expensed when incurred.
The vendor has informed us that the Enterprise Resource Planning System is
year 2000 compliant and it will be implemented at all of the Company's
business locations before the year 2000.

    

ITEM 2.   PROPERTIES

The Company's corporate headquarters and principal manufacturing and
research and development facilities are located on a Company-owned campus
in Santa Rosa, California. The site consists of approximately 75 acres of
land of which approximately 53 acres are occupied by existing operations,
with the remaining 22 acres currently held available for development or
sale.  The site is within an industrial park area and is served by well-
developed road access and utilities. In addition, the Company leases
offices for its sales personnel located in various cities in the U.S.,
Europe and the Far East.

The following table sets forth certain information concerning the Company's
principal facilities.

   
              NO. OF      LEASED/    TOTAL   SITE
LOCATION      BUILDINGS   OWNED      SQ. FT. (ACRES)     USE

Santa Rosa, CA    12    Owned(1)     490,000    75  Optical Coating
                                                    Laboratory, Inc.and Flex
                                                    Products, Inc. corporate
                                                    offices, manufac-turing,
                                                    engineering and research
                                                    and development
                                                    facilities

Santa Rosa, CA     1    Leased        23,000    --  OCLI Precision Polymer
                                                    Optics adminis-trative
                                                    offices and manufacturing
                                                    facilities

Santa Rosa, CA     1    Leased        74,000    --  Warehousing facilities

Hillend, Scotland  1    Owned(2)      56,000    16  OCLI Optical Coating
                                                    Laboratory, Ltd.
                                                    administrative offices,
                                                    manufacturing and
                                                    research and development
                                                    facilities

Hillend, Scotland  1    Leased        9,000     --  OCLI Optical Coating
                                                    Laboratory, Ltd.
                                                    warehousing

Goslar, Germany    2    Owned(3)      74,000    22  OCLI/MMG Division
                                                    administrative offices
                                                    and manufacturing
                                                    facilities

Reinheim, Germany  2    Leased(4)     3,100     --  OCLI Optical Coating
                                                    Laboratory GmbH
                                                    administrative and sales
                                                    offices

Isehara, Japan     2    Leased          794    --   Hakuto-OCLI, Ltd. ("OCLI
                                                    Asia") admin- istrative
                                                    offices and manufacturing
                                                    facilities

(1) During fiscal 1996, the Company entered into two mortgage loan
agreements in the amount of $2.6 million and $3.0 million, respectively.
The loans are collateralized by the land and buildings of two newly
constructed manufacturing and office buildings located on the Company's
Santa Rosa, California campus. The term of each non-recourse loan is 15
years, with fixed interest rates of 8% and 7.5%, respectively. Payments of
principal and interest for the loans are $25,000 and $28,000 per month,
respectively. The Company leases one of the new buildings to Flex Products
for its corporate offices and additional manufacturing facilities.

(2) The facility occupied by OCLI Optical Coating Laboratory, Ltd. ("OCLI
Ltd.") in Scotland was constructed for the subsidiary by the Scottish
Development Agency ("SDA"). The facility consists of a manufacturing and
office building on a 16 acre site in an industrial park area.  The property
is owned by the Company subject to a mortgage held by SDA that has a
remaining balance of $3.9 million as of October 31, 1997, with nine years
left on the term of the mortgage. At the beginning of 1995, OCLI Ltd.
negotiated a three year mortgage interest moratorium, with principal
continuing to be payable to Locate in Scotland (formerly SDA), as economic
inducement to encourage business and employment growth in this region of
Scotland.

(3) The Company's OCLI/MMG Division in Goslar, Germany, occupies two
manufacturing buildings totaling approximately 68,000 square feet and an
adjacent 6,000 square foot office building located on approximately 22
acres in an industrial park area.  The land is held by a wholly-owned
subsidiary of the Company under a long-term hereditary rights agreement
that extends through September 2065. The manufacturing facility is pledged
as security on loans totaling approximately $1.9 million with repayment
terms running through 2020. The office building serves as collateral for
an approximately $500,000 mortgage loan payable over eight years
through 2005.

    

(4) The Company leases approximately 3,100 square feet of office space for
its European headquarters and sales activities in Reinheim, Germany.

Management believes that the Company's facilities are adequate for its
current level of business and the near-term growth requirements of the
Company and its subsidiaries.

ENVIRONMENTAL

In 1988, the Company discovered ground water contamination at its
facilities in Santa Rosa, California.  With the assistance of its
environmental consultants and under the regulatory guidance of the
California Regional Water Quality Control Board, the Company established a
program for reducing contaminant concentration levels to acceptable federal
and state levels.  In prior years, the Company recorded accruals to cover
the future estimated cost of drilling additional extraction and monitoring
wells and considers those accruals to be adequate.  The Company spent $0,
$228,000 and $10,000 in fiscal years 1997, 1996 and 1995 for drilling,
extraction and monitoring wells which were charged against those accruals.
In addition, the accrual was reduced by a total of $200,000 in 1997 and
1996 as a result of approval of the Company's final remediation plan by the
California Regional Water Quality Control Board.  Ongoing ground water
remediation expenses, and the cost of compliance with environmental
standards for years 1995 through 1997, have not been material to the
operations of the Company, and the Company does not expect them to be
material in the future

ITEM 3.  LEGAL PROCEEDINGS

In 1997, Optical Corporation of America ("OCA") and certain of its
directors and officers ("Affiliates") commenced suit against the Company.
The complaint arises out of a letter of intent executed by the Company and
OCA in March 1996 and an ensuing merger agreement executed by the Company
and OCA in June 1996.  Under the merger agreement, the Company would
acquire OCA.  The complaint seeks damages for costs and expenses incurred
by OCA in pursuing the merger transaction with the Company due to the
Company's alleged negligent misrepresentations to OCA and Affiliates and
the Company's alleged breach of its letter of intent with OCA.  The Company
has filed counterclaims against OCA and the Affiliates based on OCA's
breach of the merger agreement and is seeking damages based on the
difference between the value of OCA's business to the Company and the
agreed upon purchase price under the merger agreement.  The Company does
not believe that this litigation will have any material adverse effect on
its future operating results or financial condition.

   

In 1997, Flex Products filed a suit in United States District Court for the
Eastern District of Michigan alleging that BASF Corporation (BASF) and BASF
AG have infringed Flex's patents covering optically variable thin film
flakes which, when mixed with paints and inks, produce color shifting
visual properties.  The complaint requests that the Court enjoin BASF from
importing, making, using, selling or offering to sell the infringing
pigment in the United States.  The complaint also seeks damages for the
infringement, including treble damages if the infringement is found to be
willful. BASF Corporation has filed a counterclaim seeking a declaration
that the patent in question is invalid.  Both BASF companies have requested
that they be awarded their attorneys' fees and costs. Management remains
confident in the validity of Flex Products' patent, and based upon the
information currently available, that the BASF product is, in fact,
covered by the patent.

    

During fiscal 1996, SICPA Holding S.A. ("SICPA"), the 40% joint owner of
Flex Products, filed suit in Delaware Chancery Court seeking injunctive and
other relief against OCLI, Flex Products and certain of Flex Products'
directors.  In the suit, SICPA alleged that Flex Products could not proceed
with an initial public offering of its common stock without the consent of
SICPA and that SICPA had the right to purchase OCLI's 60% ownership of Flex
Products pursuant to a call option beginning after May 8, 1998. In January
1997, the Delaware Chancery Court rendered a decision that upheld the
position of OCLI and Flex Products that a simple majority of Flex Products'
Board of Directors had the legal authority to authorize a public offering
of Flex Products' securities without the approval of SICPA.


Subsequent to fiscal year end 1997, OCLI, Flex Products and SICPA reached
settlement of the pending litigation.  Under the terms of the settlement
agreement, OCLI and SICPA have agreed to modify their co-ownership
agreement to allow OCLI to more effectively manage the day-to-day
operations of Flex Products, to eliminate the "put" and "call" provisions,
to allow for the public financing of Flex's operations and to modify the
License and Supply Agreement between Flex Products and SICPA to maintain a
competitive price on the sale of optically variable pigment to SICPA but
provide for more attractive scheduled pricing discounts on higher volume
purchases.  In addition, OCLI purchased Flex Products working capital loan
of $2.6 million from SICPA.

During the past several years, the Company has been engaged in litigation
in the United Kingdom ("U.K.") involving infringement of a Company patent
by a U.K. company.  The Company won its action at the Patents County Courts
level but lost on appeal to the U.K. House of Lords.  During the injunction
period, the U.K. company submitted a claim for damages totaling
approximately $1.6 million for lost profits.  The Company and legal counsel
are in the process of reviewing the claim.  Management believes that the
amount of the claim is substantially overstated and that the ultimate
settlement will not have a material adverse effect on the financial
statements.

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

There were no matters submitted to a vote of the Company's security holders
during the three months ended October 31, 1997.

EXECUTIVE OFFICERS OF THE COMPANY

The names, ages and positions of the executive officers of the Company as
of January 15, 1998 are listed below, followed by a brief description of
their business experience during at least the past five years.  Officers
are appointed annually by the Board of Directors at the next regularly
scheduled meeting of the Board following the Annual Meeting of
Stockholders.  There are no family relationships among these officers nor
any arrangements or understandings between any officer and any other person
pursuant to which an officer was selected.

   

NAME                   AGE  POSITION                      BUSINESS EXPERIENCE


Herbert M. Dwight,Jr.  67   Chairman of the Board and     Chairman of the
                            Chief Executive Officer,      Board and Chief
                            OCLI and Flex Products, Inc   Executive Officer of
                                                          OCLI since August
                                                          1991; Chairman of
                                                          the Board and Chief
                                                          Executive Officer of
                                                          Flex Products, Inc.
                                                          since May 1995;
                                                          President of OCLI
                                                          from 1991 to 1997;
                                                          Chairman, President
                                                          and Chief Executive
                                                          Officer,
                                                          Superconductor
                                                          Technologies, Inc.
                                                          from 1988 to 1991;
                                                          Chief Executive
                                                          Officer, Spectra
                                                          Physics from 1967 to
                                                          1988

Charles J. Abbe....... 56   President and Director        President and
                                                          Director since
                                                          November 1997; Vice
                                                          President and
                                                          General Manager,
                                                          Santa Rosa Division
                                                          from April 1996 to
                                                          November 1997;
                                                          various senior
                                                          management positions
                                                          with Raychem
                                                          Corporation from
                                                          1989 to 1996

Craig B. Collins...... 42   Vice President, Finance and   Vice President,
                            Chief Financial Officer       Finance and Chief
                                                          Financial Officer
                                                          since September
                                                          1997; Senior Vice
                                                          President of Finance
                                                          and Chief Financial
                                                          Officer, Nestle
                                                          Beverage Company, a
                                                          division of Nestle
                                                          Corporation, from
                                                          1983 to 1996

Klaus F. Derge........ 60   Vice President, International Vice President,
                            Operations                    International
                                                          Operations since
                                                          July 1992; various
                                                          senior management
                                                          positions with
                                                          Spectra Physics,
                                                          Sweden from 1969 to
                                                          1992

Bryant Hichwa ........ 51   Vice President, Research and  Vice President,
                            Development                   Research and
                                                          Development since
                                                          December 1997;
                                                          Director, Research
                                                          and Development from
                                                          1988 to December
                                                          1997

Michael A. Kasper..... 47   Vice President and General    Vice President and
                            Manager, Aerospace &          General Manager,
                            Instrumentation Division      Aerospace &
                                                          Instrumentation
                                                          Division since
                                                          December 1997;
                                                          Director of
                                                          Operations from 1996
                                                          to December 1997;
                                                          manufacturing
                                                          engineering and
                                                          materials management
                                                          positions with
                                                          Procter & Gamble
                                                          from 1972 to 1996

John McCullough....... 65   Vice President and Director   Vice President since
                                                          January 1992;
                                                          Director since 1985;
                                                          Executive Vice
                                                          President from 1988
                                                          to 1992; Senior Vice
                                                          President from 1978
                                                          to 1988; Vice
                                                          President,
                                                          Commercial Products
                                                          and Raytek Divisions
                                                          from 1976 to 1977;
                                                          Vice President,
                                                          Finance and
                                                          Administration from
                                                          1958 to 1967

Stephen E. Myers...... 50   Vice President and General    Vice President and
                            Manager, Information          General Manager,
                            Industries Division           Information
                                                          Industries Division
                                                          since December 1997;
                                                          Director,
                                                          Information
                                                          Industries Business
                                                          Unit from February
                                                          1996 to December 1997;
                                                          various operations
                                                          and finance
                                                          management positions
                                                          with Raychem
                                                          Corporation from
                                                          1978 to 1996

Laurence D. Parson.... 49   Vice President, North         Vice President,
                            America and Asia Sales        North America and
                                                          Asia Sales since
                                                          November 1997; Vice
                                                          President, Sales
                                                          from October 1996 to
                                                          November 1997; Vice
                                                          President and
                                                          General Manager,
                                                          Glare/Guard
                                                          Division from 1993
                                                          to 1996; General
                                                          Manager,
                                                          Glare/Guard Division
                                                          from 1992 to 1993;
                                                          various
                                                          manufacturing,
                                                          marketing and sales
                                                          positions from 1973
                                                          to 1992

Kenneth D. Pietrelli.. 49   Vice President, Corporate     Vice President,
                            Services                      Corporate Services
                                                          since June 1993;
                                                          Corporate Materials
                                                          Manager from 1980 to
                                                          1993

James W. Seeser, Ph.D. 54   Vice President and Chief      Vice President since
                            Technical Officer             March 1986 and Chief
                                                          Technical Officer
                                                          since November 1993;
                                                          General Manager,
                                                          Advanced Products
                                                          Division from 1987
                                                          to 1989; various
                                                          engineering and
                                                          engineering
                                                          management positions
                                                          from 1983 to 1986

Glenn K. Yamamoto..... 46   Vice President and General    Vice President and
                            Manager, Telecommunications   General Manager,
                            Division                      Telecommunications
                                                          Division since
                                                          December 1997;
                                                          various product
                                                          line, sales and
                                                          manufacturing
                                                          management posi-
                                                          tions from 1973 to
                                                          1997

Joseph C. Zils........ 43   Vice President, Legal         President, Chief
                            Counsel and Corporate         Financial Officer
                            Secretary, OCLI;              and Director of Flex
                            President and Chief           Products, Inc. since
                            Financial Officer             November 1997; Vice
                            Flex Products, Inc.           President of OCLI
                                                          since June 1993;
                                                          Corporate Secretary
                                                          of OCLI since
                                                          December 1993; Legal
                                                          Counsel of OCLI
                                                          since November 1997;
                                                          General Counsel of
                                                          OCLI from 1989 to
                                                          1997
    

Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is set forth in the definitive Proxy Statement
relating to the Company's 1998 Annual Meeting of Stockholders, which
information is incorporated herein by reference.

                                    PART II

ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND
       RELATED STOCKHOLDER MATTERS

The Company's common stock trades on The Nasdaq Stock MarketSM under the
symbol OCLI.  The table below sets forth the high and low prices of the
Company's common stock during the two most recent fiscal years ended
October 31, 1997 and 1996.
                                        1Q      2Q      3Q       4Q       FY


1997
  High..............................11-5/8  11-3/8  14-1/4   13-1/4   14-1/4
  Low .............................. 9-1/2   9-3/8   9-3/8   12-1/8    9-3/8

1996
  High..............................15-3/8  14-3/8  19-1/4  15        19-1/4
  Low .............................. 9-1/4  10-1/8  12-1/2  10-1/4     9-1/4

DIVIDEND INFORMATION

Since June 1991, the Company has paid a semiannual cash dividend of $.06 per
share on its common stock.

APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK

There were 962 holders of record of the Company's common stock as of December
31, 1997.

   

ITEM 6.  SELECTED FINANCIAL DATA

Years ended October 31, 1997, 1996, 1995, 1994,  and 1993

(Amounts in thousands,
except per share amounts)            1997     1996     1995     1994     1993

Revenues........................ $217,829 $189,195 $169,417 $131,780 $123,013
  Net income (loss) before
  cumulative effect of changes
  in accounting principles and
  dividend on preferred stock... $  7,125 $  5,196 $  7,391 $  4,604 $ (5,737)

Net income (loss) applicable to
  common stock.................. $  6,432 $  4,236 $  6,929 $  4,604 $ (5,737)

Net income (loss) per common and
  common equivalent share ...... $    .60 $    .41 $    .73 $    .51 $  ( .65)

Weighted average common and
  common equivalent shares
  outstanding...................   10,673   10,301    9,510    9,023    8,795

Cash dividend paid
on common stock................. $  1,199 $  1,153 $  1,083 $  1,075 $  1,043

Cash dividend paid per share
of common stock................. $    .12 $    .12 $    .12 $    .12 $    .12

Working capital................. $ 41,731 $ 38,087 $ 28,015 $ 28,692 $ 16,251

Total assets.................... $183,493 $172,771 $169,834 $118,879 $ 99,226

Long-term debt.................. $ 40,975 $ 45,788 $ 47,267 $ 35,441 $ 23,110
Convertible redeemable
preferred stock................. $  5,559 $ 11,309 $ 11,357

Stockholders' equity............ $ 86,963 $ 79,559 $ 73,894 $ 52,037 $ 47,135

Common stockholders' equity
per share....................... $   7.68 $   6.99 $   6.59 $   5.79 $   5.25

Number of employees.............    1,515    1,362    1,407    1,162    1,107

    

ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
       FINANCIAL CONDITION

THE INFORMATION CONTAINED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION INCLUDES FORWARD LOOKING
STATEMENTS WHICH ARE TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES,"
"BELIEVES," "EXPECTS," "INTENDS," "FORECASTS," "PLANS," "FUTURES,"
"STRATEGY," OR WORDS OF SIMILAR IMPORT.  VARIOUS IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE
FORWARD LOOKING STATEMENTS ARE IDENTIFIED BELOW.  ACTUAL RESULTS MAY VARY
SIGNIFICANTLY BASED ON A NUMBER OF FACTORS INCLUDING, BUT NOT LIMITED TO,
PRODUCT DEVELOPMENT, COMMERCIALIZATION AND TECHNOLOGICAL DIFFICULTIES;
MANUFACTURING COSTS AND YIELD ISSUES ASSOCIATED WITH INITIATING PRODUCTION
AT NEW FACILITIES; THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING; CHANGING
CUSTOMER REQUIREMENTS; AND THE CHANGE IN ECONOMIC CONDITIONS OF THE VARIOUS
MARKETS THE COMPANY SERVES.

RESULTS OF OPERATIONS

FISCAL 1997 COMPARED TO FISCAL 1996

REVENUES.  Revenues for 1997 were $217.8 million, an increase of $28.6
million, or 15%, over revenues of $189.2 million for 1996. The 1997 revenue
increase was due to revenue growth in telecommunications, satellite solar
power and office automation markets and increased sales by Flex Products,
Inc. ("Flex Products") of optically variable pigment. During 1997, sales in
these markets totaled 53% of total Company sales.  These revenue increases
were partially offset by decreased revenues in the Company's display and
other markets.  During 1997, sales in these markets totaled 47% of total
Company sales.  Much of the decrease in the Company's sales in display
markets was due to a next generation product in which the Company has
elected not to participate in order to focus resources into other markets.

GROSS PROFIT.  Gross profit as a percent of revenue was 34.3% in 1997
compared to  33.0% in 1996.  The 1997 gross profit improvement is primarily
due to yield and throughput improvements including improvements in the
performance of the Company's new continuous coating platforms, which had
depressed margins in 1996.  The comparative improvement in 1997 was
partially offset by lower gross margins on the manufacture of wavelength
division multiplexing products used in telecommunications applications and
the gross profit recognized in 1996 on the sale of a coating machine

RESEARCH AND DEVELOPMENT.  Research and development expenditures for 1997
were $14.9 million, an increase of $3.2 million, or 27% over research and
development expenditures of $11.7 million for 1996.  The 1997 increase is
primarily due to increased spending by Flex Products for the qualification
of new products and processes incorporating new production equipment.  The
Company also increased research and development expenditures for product
and process development for telecommunications products.

   

SELLING AND ADMINISTRATIVE.  Selling and administrative expenses for 1997
were $42.8 million, an increase of $5.7 million, or 15%, over 1996 selling
and administrative expenses of $37.1 million.  Slightly over half of this
increase was due to increased selling expenses resulting from the
establishment of a new joint venture in Japan ("OCLI Asia") and the
introduction of new products by Flex Products.  The remainder of the
increase was primarily due to higher legal expenses in 1997 associated with
patent infringement lawsuits and a lawsuit with SICPA Holding S.A.
and a $600,000 restructuring charge recorded by Flex Products pursuant
to a plan approved prior to the end of the fiscal year. (See "Acquisition
and Investment Transactions" for further discussion.)

    

The Company recorded amortization of intangibles of $936,000 in 1997 and
$1.1 million in 1996, primarily resulting from amortization of goodwill
relating to the acquisitions of MMG and Netra.

INCOME FROM OPERATIONS.  As a result of the foregoing changes in revenue,
gross profit and operating expenses, the Company's income from operations
in 1997 was $15.9 million compared to $12.4 million in 1996.

INTEREST INCOME AND EXPENSE.  Interest income was $461,000 in 1997 compared
to $379,000 in 1996.  Net interest expense in 1997 was $4.0 million
compared to $3.5 million in 1996.  1997 net interest expense is the net
result of interest incurred of $4.2 million net of interest capitalized of
$219,000, compared to 1996 interest incurred of $4.7 million net of
interest capitalized of $1.2 million.  The higher amount of interest
capitalized in 1996 was due to the construction of two new buildings and
the installation of two new continuous coating machines.

PROVISION FOR INCOME TAXES.  The Company's effective tax rate was 37.3% in
1997 compared to 37.0% in 1996.  In both years, the lower than statutory
effective rate was primarily due to the recognition of state business tax
credits arising from the purchase of new manufacturing equipment.

MINORITY INTEREST.  In 1997, the Company recorded minority interest of
$631,000 compared to minority interest of $636,000 in 1996.  1997 minority
interest represents the share of net income of Flex Products accruing to
its 40% shareholder and the portion of the operating results of OCLI Asia
attributable to its Japanese partner.  1996 minority interest represents
the share of net income of Flex Products accruing to its 40% shareholder.

NET INCOME.  The Company had net income of $7.1 million in 1997 compared to
$5.2 million in 1996.  Dividends of $693,000 in 1997 and $960,000 in 1996
were accrued on outstanding Convertible Redeemable Preferred Stock.  The
1997 preferred dividend decrease was due to the conversion of 5,750 shares
of Convertible Redeemable Preferred Stock into 555,000 shares of Company
common stock during 1997.

FISCAL 1996 COMPARED TO FISCAL 1995

REVENUES.  Revenues for 1996 were $189.2 million compared to revenues of
$169.4 million for 1995.  Excluding the revenues of Flex Products, fiscal
1996 revenues would have been $158.6 million, an increase of $4.8 million,
or 3%, over 1995 adjusted revenues of $153.8 million.  The 1996 revenue
increase was due to higher sales of products used for satellite solar power
applications and licensing revenue from the sale of a coating machine,
partially offset by decreased sales of products used in office automation
and computer display applications.  Flex Products reported 1996 revenues of
$30.6 million compared to six month revenues of $15.6 million in 1995.  The
Company increased its ownership in Flex Products from 40% to a controlling
60% in May of 1995, resulting in the consolidation of Flex Products'
financial results into the Company's financial statements for the last six
months of fiscal 1995.

GROSS PROFIT.  Gross profit as a percent of revenue was 33.0% in 1996
compared to  37.4% in 1995.  Excluding the effect of Flex Products, the
1996 gross profit percentage would have been 31.4% compared to an adjusted
gross profit percentage of 36.6% in 1995.  The gross profit percentage
decrease in 1996 was primarily due to startup costs and additional fixed
costs associated with adding new manufacturing facilities and coating
capacity in 1996 and the shifting of resources to new products to offset
reduced sales of products used in computer display applications.  These
decreases were partially offset by the gross profit associated with the
sale of a coating machine in 1996. In addition, the Company experienced
price decreases and lower unit volumes, both domestically and in Europe, in
its office automation and computer aftermarket display businesses.  These
decreases were partially offset by initiatives to shift resources to other
markets and initiatives to increase manufacturing efficiencies in order to
decrease unit cost.  Flex Products' gross profit percentage for 1996 was
41.1% compared to a gross profit percentage of 45.8% for its six months of
consolidation in 1995.  Flex Products' gross margin reduction was due to
start-up costs and throughput issues associated with a new coating machine
installed in 1996 which costs include inventory reserve additions of
approximately $1 million.

RESEARCH AND DEVELOPMENT.  Research and development expenditures for 1996
were $11.7 million, an increase of  $3.3 million over research and
development expenditures of $8.4 million for 1995.  Excluding the results
of Flex Products, 1996 research and development expenditures would have
increased 3% over expenditures for 1995 and would have been consistent
with the research and development expenditures for 1995 of 4.8% of
revenues.  Flex Products incurred research and development expenses of
$4.2 million compared to research and development expenses of $1.1 million
for its six months of consolidation in 1995.  The 1996 increase is due to
the development and integration of state-of-the-art coating processes for
use in two new coating machines installed during fiscal 1996.

SELLING AND ADMINISTRATIVE.  Selling and administrative expenses for 1996
were $37.1 million,  a decrease of $317,000, compared to 1995 selling and
administrative expenses of $37.4 million.  Excluding the results of Flex
Products, 1996 selling and administrative expenses would have decreased
$2.9 million, or 8%, compared to 1995.  The 1996 decrease is primarily due
to higher expenses recorded in 1995 associated with the Company's European
sales operations that were not incurred in 1996.  Flex Products' selling
and administrative expenses for 1996 were $4.8 million which was consistent
with its run rate for 1995.

The Company recorded amortization of intangibles of $1.1 million in 1996
and $975,000 in 1995 primarily resulting from amortization of goodwill
relating to the acquisitions of MMG and Netra.

INCOME FROM OPERATIONS.  As a result of the foregoing, the Company had
income from operations of $12.4 million in 1996 compared to $16.6 million
in 1995. Excluding the effect of Flex Products, income from operations
would have been $9.1 million in 1996 compared to income from operations of
$12.9 million in 1995.  The Flex Products operation contributed income from
operations of $3.3 million in 1996 compared to $3.7 million for the six
month period of consolidation in 1995.

INTEREST INCOME AND EXPENSE. Interest income decreased $288,000 in 1996
compared to 1995.  The 1996 decrease was due to lower average cash
equivalents during 1996.  Net interest expense was $3.5 million in 1996 and
1995.  Adjusted for the effect of Flex Products, net interest expense would
have been $3.9 million in 1996 compared to $3.5 million in 1995.  Adjusted
net interest expense in 1996 was composed of interest incurred of $4.2
million net of capitalized interest of $323,000.  Adjusted net interest
expense in 1995 was composed of interest incurred of $4.1 million net of
capitalized interest of $616,000.  Flex Products recorded capitalized
interest of $849,000 in 1996 and $163,000 in 1995. Flex Products' 1996
capitalized interest increase was due to a new coating machine and
equipment installed in 1996.

PROVISION FOR INCOME TAXES.  The Company's effective income tax rate was
37.0% in 1996 and 40.1% 1995.  The 1996 effective income tax rate decrease
resulted from the recognition of state business tax credits arising from
the purchase of new manufacturing equipment partially offset by  losses
incurred by the Company's subsidiary in Germany for which tax benefits were
not provided.

MINORITY INTEREST.  In 1996, the Company recorded minority interest of
$636,000 compared to minority interest of $816,000 in 1995.  Minority
interest represents the share of net income of Flex Products accruing to
its 40% stockholder.

NET INCOME.  The Company had net income of $5.2 million in 1996 compared to
net income of $7.4 million in 1995.  Adjusted for the results of Flex
Products, the 1996 net income would have been $2.9 million compared to 1995
net income of $5.9 million.  Dividends of $960,000 in 1996 and $462,000 in
1995 were paid on the 8% Convertible Redeemable Preferred Stock issued in
connection with the Flex Products investment transaction.  As a result, net
income attributable to common stock was $4.2 million for 1996 compared to
$6.9 million for 1995.
INFLATION EFFECT.  Inflation did not have a significant effect on the
operations of the Company during fiscal 1997, 1996 or 1995.

IMPACT OF FOREIGN OPERATIONS, EXPORT SALES AND FOREIGN CURRENCY.  The
Company has significant investments in Germany, Scotland and Japan.
Changes in the value of those countries' currencies relative to the U.S.
dollar are recorded as direct charges or credits to equity.  The Company
also has manufacturing operations in Germany, Scotland and Japan and sales
presence in other European and Asian countries.  A significant weakening of
the currencies in Europe or Asia in relation to the U.S. dollar could
reduce the reported results of those operations.  In addition, a
significant amount of the Company's sales are export sales which could be
subject to competitive price pressures if the U.S. dollar was to strengthen
compared to the currency of foreign competitors.

The Company is exposed to foreign currency risk on a bank loan of
approximately $4.6 million which is denominated in German marks, on open
intercompany balances between the U.S. and certain of its foreign
subsidiaries and on open intercompany balances that some of the foreign
subsidiaries have with each other.  In addition, the Company and its
foreign subsidiaries make some sales and purchase commitments in currencies
other than their own which exposes the Company to currency risk on open
receivable and payable balances. The Company does not consider its net
exposure on these items to be material.

During 1997, 33% of the Company's consolidated sales constituted sales to
customers in Europe and 15% of the Company's consolidated sales constituted
sales to customers in Asia.  Although the Company has not experienced
significant overall sales or pricing declines in these regions, economic
factors in Europe and Asia could have a material effect on the Company's
future results.
Sales of the Company's operation in Germany declined 8% in 1997 compared to
1996 but would have showed a slight increase in local currency sales due to
the significant decrease in the value of the deutschemark against the U.S.
dollar in 1997.   The German operation continues to experience intense
competitive and pricing pressures and has responded to those pressures with
cost controls.  The Company continues to explore strategies to increase the
sales growth of the German operation.

ENVIRONMENTAL MATTERS.  In 1988, the Company discovered ground water
contamination at its facilities in Santa Rosa, California.  With the
assistance of its environmental consultants and under the regulatory
guidance of the California Regional Water Quality Control Board, the
Company established a program for reducing contaminant concentration levels
to acceptable federal and state levels.  In prior years, the Company
recorded accruals to cover the future estimated cost of drilling additional
extraction and monitoring wells and considers those accruals to be
adequate.  The Company spent $0, $228,000 and $10,000 in fiscal years 1997,
1996 and 1995 for drilling, extraction and monitoring wells which were
charged against those accruals.  In addition, the accrual was reduced by a
total of $200,000 in 1997 and 1996 as a result of approval of the Company's
final remediation plan by the California Regional Water Quality Control
Board.  Ongoing ground water remediation expenses, and the cost of
compliance with environmental standards for years 1995 through 1997, have
not been material to the operations of the Company, and the Company does
not expect them to be material in the future.

LITIGATION.  The Company has been engaged, over the past several years, in
litigation in the United Kingdom ("U.K.") involving infringement of a
Company patent by a U.K. company.  The Company won its action at the
Patents County Courts level but lost on appeal to the U.K. House of Lords.
During the injunction period, the U.K. Company submitted a claim for
damages totaling approximately $1.6 million for lost profits.  The Company
and legal counsel are in the process of reviewing the claim.  Management
believes that the amount of the claim is substantially overstated and that
the ultimate settlement will not have a material adverse effect on its
future operating results.

In 1997, Optical Corporation of America ("OCA") and certain of its
directors and officers ("Affiliates") commenced suit against the Company.
The complaint arises out of a letter of intent executed by the Company and
OCA in March 1996 and an ensuing merger agreement executed by the Company
and OCA in June 1996.  Under the merger agreement, the Company would
acquire OCA.  The complaint seeks damages for costs and expenses incurred
by OCA in pursuing the merger transaction with the Company due to the
Company's alleged negligent misrepresentations to OCA and Affiliates and
the Company's alleged breach of its letter of intent with OCA.  The Company
has filed counterclaims against OCA and the Affiliates based on OCA's
breach of the merger agreement and is seeking damages based on the
difference between the value of OCA's business to the Company and the
agreed upon purchase price under the merger agreement.  The Company does
not believe that this litigation will have any material adverse effect on
its future operating results or financial condition.

In 1997, Flex Products filed a suit in United States District Court for the
Eastern District of Michigan alleging that BASF Corporation (BASF) and BASF
AG have infringed Flex's patents covering optically variable thin film
flakes which, when mixed with paints and inks, produce color shifting
visual properties.  The complaint requests that the Court enjoin BASF from
importing, making, using, selling or offering to sell the infringing
pigment in the United States.  The complaint also seeks damages for the
infringement, including treble damages if the infringement is found to be
willful. BASF Corporation has filed a counterclaim seeking a declaration
that the patent in question is invalid.  Both BASF companies have requested
that they be awarded their attorneys' fees and costs. Management remains
confident in the validity of Flex Products' patent, and based upon the
information currently available, that the BASF product is , in fact,
covered by the patent.

During 1997 and 1996, the Company was engaged in litigation with SICPA
Holding S.A., the 40% joint owner of Flex Products.  See "Acquisitions,
Joint Ventures and Strategic Allicances."

   

COMPUTER SYSTEMS AND BUSINESS PROCESSES. During 1997, the Company initiated
a program to modernize its business processes in order to reduce cycle time
and improve profitability.  The program has been deployed worldwide with
the goal of streamlining, automating and applying best practices to all of
the Company's business processes.  In conjunction with this initiative, the
Company identified the need for, selected and purchased an Enterprise
Resource Planning System.  Expected total cost of the system, including
hardware, software and integration services, is approximately $4.6 million,
of which the Company has recorded $2.0 million in 1997. The Company expects
to spend the balance of  $2.6 million over the next five years.  Commencing
with the implementation dates of the system modules in 1998, software and
implementation costs will be depreciated over six years and hardware will
be depreciated over the remaining lease term of approximately three years.
Training and software maintenance costs are being expensed when incurred.
The vendor has informed us that the Enterprise Resource Planning System is
year 2000 compliant and it will be implemented at all of the Company's
business locations before the year 2000. 

    

ACQUISITIONS, INVESTMENTS, JOINT VENTURES AND STRATEGIC ALLIANCES

ALLIANCE WITH JDS FITEL INC.  In 1997, the Company announced that it had
entered into an alliance with JDS FITEL Inc. ("JDS") in order to capitalize
on the rapidly growing market for Wavelength Division Multiplexing ("WDM")
products used in telecommunications applications.  The alliance is
structured as a contractual joint venture through a series of exclusive
supply and distribution contracts under which OCLI will contribute its
expertise to provide optical filters for WDM's and JDS will contribute its
expertise in the design, manufacture and marketing of WDM products.  The
first sales under these agreements were recognized in the second quarter of
1997.

OCLI ASIA.   In 1997, the Company announced the establishment of a joint
venture with Hakuto Co., Ltd. in Japan.  The new company, Hakuto-OCLI Co.,
Ltd., which is doing business as "OCLI Asia", is headquartered in Shinjuku,
Tokyo, with manufacturing facilities in Isehara, Kanagawa Prefecture.  The
joint venture was established to address the rapidly changing market for
OCLI's multi-layer thin film coatings that require an expanded presence and
more integrated support within Asia.  Hakuto, an approximate 9% stockholder
of the Company, has been a major customer of OCLI and a long-term
distributor and fabricator of OCLI's products in Japan and several other
Asian countries.  OCLI Asia will assume sales support, fabrication and
applications engineering support for several of the Company's products that
are being sold into the Asian market.  The joint venture began operations
in Japan in the second quarter of 1997 and is consolidated into the
Company's results of operations and financial position since the Company
has operating control over the joint venture.

FLEX PRODUCTS, INC.  In 1995, the Company acquired controlling ownership of
Flex Products with the purchase of an additional 20% interest in Flex
Products from ICI Americas Inc. ("ICIA"), an affiliate of Imperial Chemical
Industries PLC.  Flex Products was founded as a division of the Company in
the early 1980's and subsequently established as a joint venture between
the Company and ICIA in 1988, with ICIA owning 60% and the Company owning
40%.  In conjunction with the Company's increase in ownership, ICIA's
remaining 40% interest in Flex Products was acquired by SICPA Holding S.A.
("SICPA"), a privately-held Swiss Corporation headquartered in Lausanne,
Switzerland.  SICPA is the world's largest manufacturer of printing inks
and a major customer of Flex Products.

Pursuant  to the terms of the Stock and Note Purchase Agreement dated May
1, 1995 by and among the Company, SICPA, ICIA and Flex Products, the
Company acquired an incremental 20% interest in Flex Products for a cash
payment of $8.4 million and paid an affiliate of ICIA approximately $7.0
million in cash to acquire a 60% interest in an $11.7 million promissory
note previously issued by Flex Products to ICIA to fund Flex Products'
working capital requirements.  SICPA acquired a 40% equity interest in Flex
Products and the balance of the $11.7 million promissory note.

   

In July of 1996, SICPA filed a lawsuit in Delaware Chancery Court in order
to block an attempted initial public offering by Flex Products arguing that
without SICPA's consent such an offering was prohibited by Flex Products'
articles of incorporation, as well as by certain contractual provisions
between OCLI and SICPA.  In November 1997, after the end of fiscal year
1997, the Company announced that it had completed final negotiations for
the settlement of the litigation with SICPA.  Under the terms of the
settlement, OCLI and SICPA have agreed to modify their co-ownership
agreement to enable OCLI to more effectively manage the day-to-day
operations of Flex Products, to allow for public financing of Flex Products'
operations and to modify the License and Supply Agreement between Flex
Products and SICPA to maintain a competitive price on the sale of optically
variable pigment to SICPA but provide for more attractive scheduled pricing
discounts on higher volume purchases.  In addition, OCLI purchased $2.6
million of Flex Products' working capital loan from SICPA which was recorded
as a decrease to minority interest in fiscal 1998.

In 1997, the Company approved a restructuring plan which consolidates
several of the administrative and senior management functions of Flex
Products in order to reduce costs.  Pursuant to this plan, Flex Products
recorded restructuring expenses in 1997 of $600,000, constituting severance
and severance related expenses.

NETRA CORPORATION. In February 1995, the Company acquired the assets and
liabilities of Netra Corporation, a precision molded plastic component
manufacturer, for a total purchase price of approximately $3.1 million.
The purchase price consisted of a cash payment of $1.5 million and the
balance of approximately $1.6 million paid by the issuance of 164,735
shares of the Company's common stock to the sellers.  Upon completion of
the acquisition, Netra was relocated from its facilities in Mountain View,
California to a facility immediately adjacent to the Company's principal
manufacturing site in Santa Rosa, California.

FINANCIAL CONDITION AND LIQUIDITY

In 1997, the Company's cash and cash equivalents decreased by $810,000.
Net cash provided by operations during 1997 was $20.1 million and
stockholders and minority interest holders invested a net of $3.6 million.
These were offset by investments in plant and equipment of $17.2 million,
net repayments of debt and bank notes of $5.2 million and payment of
dividends of $1.9 million.  At fiscal year end 1997, the Company had cash
and cash equivalents totaling $15.2 million.  In addition, the Company has
available domestically a $20 million revolving line of credit and separate
credit arrangements in place for the operating requirements of its
subsidiaries in Germany and Scotland.

During 1997, the Company's working capital, excluding cash and cash
equivalents, increased $5.3 million, primarily due to increased accounts
receivable and inventory, offset by increased accounts payable.  These
increases are primarily due to increased sales during the year and to the
consolidation of the Company's new joint venture in Japan.

During 1997, the Company replaced its 8%, $5 million note payable to
private parties with a 5.6% bank note.  Payments of principal and interest
under the new note are denominated in German marks and are approximately
$300,000 at the end of each calendar quarter through December 2002.  Also
during 1997, the Company's $15 million unsecured revolving credit facility
was increased to $20 million.

During 1997, the Company recorded capital leases totaling $2.0 million to
finance the hardware, software and some of the integration costs of a new
Enterprise Resource System that is to be implemented in 1998.  Lease terms
run through February 2002 with payments totaling approximately $50,000 per
month.

Management believes that the cash and cash equivalents on hand at October
31, 1997, cash anticipated to be generated from future operations, new
lease agreements and the available funds from revolving credit arrangements
will be sufficient for the Company to meet its working capital needs,
capital expenditures, debt service requirements and payment of dividends as
declared for the foreseeable future.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995

Except for historical information contained in this report, matters
discussed in this report are forward-looking statements that involve risks
and uncertainties.  Actual results may vary significantly based on a number
of factors including, but not limited to, product development,
commercialization and technological difficulties; manufacturing costs and
yield issues associated with initiating production at new facilities; the
impact of competitive products and pricing; changing customer requirements;
and the change in economic conditions of the various markets the Company
serves.

    

               OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES


ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND
         SUPPLEMENTAL FINANCIAL INFORMATION

                                     INDEX

                                                                      PAGE(S)

Report of Independent Auditors of
Optical Coating Laboratory, Inc.........................................  24

Report of Independent Auditors
of Flex Products, Inc...................................................  25

Consolidated Balance Sheets as of October 31, 1997 and 1996.............  26

Consolidated Statements of Income for the years
ended October 31, 1997, 1996 and 1995...................................  27

Consolidated Statements of Cash Flows for the
years ended October 31, 1997, 1996 and 1995............................28-29

Consolidated Statements of Stockholders' Equity
for the years ended October 31, 1997, 1996 and 1995.....................  30

Notes to Consolidated Financial Statements..............................  31

INDEPENDENT AUDITORS' REPORT



Board of Directors
Optical Coating Laboratory, Inc.
Santa Rosa, California

We have audited the accompanying consolidated balance sheets of Optical
Coating Laboratory, Inc. and subsidiaries (the "Company") as of October 31,
1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the
period ended October 31, 1997.  These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.  We
did not audit the financial statements of Flex Products, Inc., who became a
consolidated subsidiary effective May 1, 1995 and whose assets represent
12% and 10%, respectively, of consolidated total assets at October 31, 1997
and 1996, and whose total revenues for each of the two years in the period
ended October 31, 1997 and for the period from May 1, 1995 to October 31,
1995, represent 18%, 15% and 9%, respectively, of consolidated total
revenues.  The financial statements of Flex Products, Inc. for the two
years ended October 31, 1997 and for the ten months ended October 31, 1995
were audited by other auditors whose report has been furnished to us, and
our opinion, insofar as it relates to the amounts included for Flex
Products, Inc., is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
and the report of the other auditors provide a reasonable basis for our
opinion.

In our opinion, based on our audits and the report of the other auditors,
such consolidated financial statements present fairly, in all material
respects, the financial position of Optical Coating Laboratory, Inc. and
its subsidiaries at October 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended October 31, 1997 in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

San Jose, California
December 19, 1997



INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Flex Products, Inc.
Santa Rosa, California

We have audited the balance sheets of Flex Products, Inc. (the "Company"),
a joint venture of Optical Coating Laboratory, Inc. and SICPA Holding S.A.,
as of November 2, 1997 and November 3, 1996 and the related statements of
operations, stockholders' equity and cash flows for the years ended
November 2, 1997, November 3, 1996 and ten months ended October 29, 1995.
These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
and the report of the other auditors provide a reasonable basis for our
opinion.

These financial statements have been prepared on a historical basis of
accounting and do not reflect any purchase accounting adjustments recorded
by Optical Coating Laboratory, Inc. as a result of their acquisition of a
majority interest in Flex Products, Inc. as of May 8, 1995.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Flex Products, Inc. as
of November 2, 1997 and November 3, 1996, and the results of its operations
and its cash flows for the years then ended and for the ten months ended
October 29, 1995 in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

San Francisco, California
November 26, 1997

   
               OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS


As of October 31, 1997 and 1996
(Dollars in thousands)

ASSETS                                                          1997     1996

CURRENT     Cash and cash equivalents....................... $15,217  $16,027
ASSETS      Accounts receivable, net of allowance for
             doubtful accounts of $1,884 and $1,775.........  34,923   27,700
            Inventories.....................................  22,829   18,701
            Income taxes receivable.........................     504    1,248
            Deferred income tax assets......................   6,853    5,165
            Other current assets............................   1,707    1,230

                    Total Current Assets....................  82,033   70,071

OTHER       Deferred income tax assets......................            4,451
ASSETS      Other assets and investments....................   8,243   10,680

PROPERTY,   Land and improvements...........................   9,225    9,200
PLANT AND   Buildings and improvements......................  41,944   40,953
EQUIPMENT   Machinery and equipment ........................ 121,717  112,326
            Construction-in-progress........................   9,525    6,190

                                                             182,411  168,669
            Less accumulated depreciation................... (89,194) (81,100)

              Property, plant and equipment-net  ...........  93,217   87,569

                    Total Assets............................$183,493 $172,771



LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT     Accounts payable................................ $14,301   $7,199
LIABILITIES Accrued expenses................................   6,854    6,566
            Accrued compensation expenses...................   8,752    7,057
            Income taxes payable............................     339    1,823
            Current maturities on long-term debt............   7,888    4,981
            Notes payable...................................     381    3,112
            Deferred revenue................................     900    1,246

                    Total Current Liabilities ..............  39,415   31,984

NONCURRENT  Accrued postretirement health benefits
LIABIL-      and pension liabilities........................   2,040    2,308
ITIES       Deferred income tax liabilities.................     785    1,804
            Long-term debt .................................  40,975   45,788
            Minority interest...............................  13,315   11,328
            Commitments and contingencies (Note 10)

STOCK-      Preferred stock - Series C;
HOLDERS'     8% cumulative, convertible, redeemable;
EQUITY       issued and outstanding 6,250 and 12,000
             shares; aggregate liquidation value
             at October 31, 1997 $6,250.....................   5,559   11,309
            Common stock, $.01 par value; authorized
             30,000,000 shares; issued and outstanding
             10,599,000 and 9,761,000 shares................     106       98
            Paid-in capital.................................  55,723   47,219
            Retained earnings...............................  26,217   20,984
            Cumulative foreign currency
             translation adjustment  .......................   (642)      (51)

              Stockholders' Equity..........................  86,963   79,559

                    Total Liabilities and
                     Stockholders' Equity ..................$183,493 $172,771


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

    
               OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME


Years ended October 31, 1997, 1996 and 1995
(Amounts in thousands, except per share amounts)      1997     1996     1995


REVENUES    Revenues............................  $217,829 $189,195  $169,417
            Cost of sales.......................   143,207  126,769   106,009

               Gross Profit.....................    74,622   62,426    63,408

COSTS AND   Operating Expenses:
EXPENSES     Research and development ..........    14,903   11,733     8,401
             Selling and administrative.........    42,836   37,145    37,462
             Amortization of intangibles........       936    1,146       975

              Total Operating Expenses..........    58,675   50,024    46,838


               Income from Operations...........    15,947   12,402    16,570

            Nonoperating Income (Expense):
             Interest income ...................       461      379       667
             Interest expense....................   (4,030)  (3,524)   (3,547)


EARNINGS       Income Before Provision
                for Income Taxes
                 and Minority Interest...........   12,378     9,257    13,690

            Provision for income taxes...........    4,622     3,425     5,483
            Minority interest....................      631       636       816


               Net Income........................    7,125     5,196     7,391

            Dividend on convertible redeemable
             preferred stock.....................      693       960       462

               Net Income Applicable
                 to Common Stock ................  $ 6,432   $ 4,236 $   6,929



            Net Income Per Common and Common
             Equivalent Share....................  $   .60   $   .41 $     .73

            Weighted average number of common
             and common equivalent shares used
             to compute earnings per share.......    10,673   10,301     9,510



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

               OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS


Years ended October 31, 1997, 1996 and 1995
(Amounts in thousands, except per share amounts)      1997     1996      1995

               
OPERATIONS  Cash Flows From Operations:
             Cash received from customers....... $194,375  $191,665  $162,568
             Interest received..................      455       258       733
             Cash paid to suppliers
             and employees                       (164,654) (165,565) (139,489)
             Cash paid to ESOP+..................    (379)               (406)
             Interest paid.......................  (5,345)   (5,196)   (3,730)
             Income taxes paid, net of refunds...  (4,316)     (954)   (6,625)

                    Net Cash Provided
                      By Operations                20,136    20,208    13,051


INVESTMENTS Cash Flows From Investments:
             Purchase of plant and equipment..... (17,231)  (30,530)  (30,911)
             Proceeds from sale-leaseback
             of new equipment....................            18,940
             Purchase of additional equity
              interest and note of Flex Products,
               net of cash from
               consolidation.................                         (15,185)
            Cash portion of payment for purchase
              of Netra, net of cash acquired.....                      (1,477)

                    Net Cash Used For Investments (17,231)  (11,590)  (47,573)

FINANCING   Cash Flows From Financing:
             Net proceeds from issuance of
             preferred stock.....................                      11,357
             Proceeds from long-term debt........   5,416     8,596    21,542
             Proceeds from notes payable.........       6         8       494
             Proceeds from exercise
               of stock options..................   2,247     1,713     1,627
             Investment by minority
               interest holder...................   1,440
             Repayment of long-term debt.........  (8,311)   (7,019)  (11,700)
             Repayment of notes payable..........  (2,400)               (388)
             Repayment of note to minority
             interest holder, net of
              amounts borrowed...................     (76)     (413)
             Payment of dividend on
             preferred stock.....................    (693)     (960)     (462)
             Payment of dividend on common stock.  (1,199)   (1,153)   (1,083)

                    Net Cash Provided
                    By Financing.................  (3,570)      772    21,387

            Effect of exchange rate
               changes on cash...................    (145)       35        74


            Increase (decrease) in cash
                 and cash equivalents............    (810)    9,425   (13,061)
            Cash and cash equivalents at
                 beginning of year...............  16,027     6,602    19,663

            Cash and cash equivalents at
                 end of year.....................  $5,217   $16,027   $ 6,602



               OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


Years ended October 31, 1997, 1996 and 1995
(Amounts in thousands)                                  1997     1996     1995

ADJUST-    Reconciliation of Net Income
MENTS      to Cash Flows From Operations:
            Net income............................. $  7,125 $  5,196 $  7,391
            Adjustments to reconcile net
              income to net cash provided
              by operations:
               Depreciation and amortization ......   12,784   13,669   10,261
               Minority interest in earnings
               of subsidiaries.....................      631      636      816
               Net book value of coating
               machine sold........................               880
               Loss on disposal or abandonment
               of equipment .......................    1,412    1,356
               Accrued postretirement health
               benefits............................     (226)     184      238
               Deferred income tax liabilities.....   (1,014)    (468)   2,515
               Other non-cash adjustments
               to net income.......................      (97)    (681)      46
               Changes in:
                 Accounts receivable...............   (8,012)   1,378   (3,792)
                 Inventories.......................   (4,623)  (3,030)  (2,391)
                 Income tax receivable ............      957     (719)     (76)
                 Deferred income tax assets........    2,715    1,645   (2,237)
                 Other current assets and
                  other assets
                  and investments..................      136      716   (1,547)
                 Accounts payable, accrued
                  expenses and
                  accrued compensation expenses....    9,979   (3,094)   2,807
                 Deferred revenue..................     (346)     464     (538)
                 Income taxes payable..............   (1,285)   2,076   (1,356)

                  Total adjustments................   13,011   15,012    5,660

                    Net Cash Provided
                     By Operations ................   $20,136 $20,208  $13,051



SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1997, the Company recorded capital leases totaling $2.0 million to
finance the hardware and some of the integration service costs of a new
Enterprise Resource System that is to be implemented in 1998.  Lease terms
run through February 2002 with payments totaling approximately $50,000 per
month.

During 1995, the Company acquired Netra Corporation for approximately $1.5
million in cash and the issuance of approximately $1.6 million in Company
common stock.  Cash and non-cash components of the acquisition were as
follows:

(Amounts in thousands)

Fair value of assets acquired,
including intangibles.............................................  $3,529
Cash acquired.....................................................    (188)
Liabilities assumed...............................................    (279)
                                                                    
                                                                    $3,062


Cash paid to sellers, net of cash acquired........................  $1,477
OCLI common stock issued to sellers...............................   1,585

                                                                    $3,062

In 1997, 1996 and 1995, common stock, with an aggregate fair market value
of $51,000, $52,000 and $30,000 was awarded to the Company's outside
directors as remuneration.

During 1997, 1996 and 1995, the Company issued 14,601, 39,880 and 0 shares
of common stock to the OCLI 401(k)/Employee Stock Ownership Plan at fair
market value to satisfy a portion of its Company contribution.

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

   
               OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years ended October 31, 1997, 1996 and 1995

                       PREFERRED       COMMON                       FOREIGN
                         STOCK          STOCK      PAID-IN RETAINED CURRENCY
                     SHARES AMOUNT  SHARES  AMOUNT CAPITAL EARNINGS TRANSLATION

(Amounts in thousands)
BALANCE AT 
NOVEMBER 1, 1994                     8,978   $ 90  $39,967  $12,055    $  (75)
Shares issued on
 purchase of Netra                     165      1    1,584
 Shares issued to
 Employee Stock
 Ownership Plan                         82      1      794
Exercise of stock
 options,including
 tax benefit and
 shares issued to
 directors                             264      3    2,116
Series C preferred
 stock issued
 for cash net of
 issuance expenses     12  $11,357
Foreign currency
 translation
 adjustment for
 the year                                                                 155
Net income for
 the year                                                        7,391
Dividend on
 preferred stock                                                  (462)
Dividend on
 common stock                                                   (1,083)
BALANCE AT
OCTOBER 31, 1995       12   11,357   9,489     95   44,461      17,901     80

Shares issued to
 Employee Stock
 Ownership Plan                         39      1      439
Exercise of stock
 options, including
 tax benefit and
 shares issued
 to directors                          233      2    2,319
Foreign currency
 translation
 adjustment for
 the year                                                                (131)
Net income for
 the year                                                        5,196
Series C preferred
 stock issuance
 expenses                      (48)
Dividend on
 preferred stock                                                  (960)
Dividend on
 common stock                                                   (1,153)
BALANCE AT 
OCTOBER 31, 1996       12   11,309   9,761     98   47,219      20,984    (51)

Shares issued to
 Employee Stock
 Ownership Plan                         15             159
Exercise of stock
 options,including
 tax benefit and
 shares issued to
 directors                             268      3    2,524
Conversion of
 Series C
 preferred stock
 to common stock       (6)  (5,750)    555      5    5,821
Foreign currency
 translation
  adjustment
  for the year                                                           (591)
Net income for
 the year                                                        7,125
Dividend on
 preferred stock                                                  (693)
Dividend on
 common stock                                                   (1,199)
BALANCE AT 
OCTOBER 31, 1997        6  $ 5,559  10,599   $106  $55,723     $26,217  $(642)

The accompanying notes are an integral part of these statements.

    

             OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                Years Ended October 31, 1997, 1996 and 1995
             (Amounts in thousands, except per share amounts)
1.   GENERAL


NATURE OF OPERATIONS. OCLI designs, develops and manufactures multi-layer
thin film coatings which control and enhance light by altering the
transmission, reflection and absorption of its various wavelengths to
achieve a desired effect such as anti-reflection, anti-glare,
electromagnetic shielding, electrical conductivity and abrasion resistance.
OCLI markets and distributes components to original equipment manufacturers
("OEMs") of optical and electro-optical systems and sells its Glare/Guard
brand ergonomic computer display products through resellers and office
retailers. OCLI's products are found in many applications including
computer monitors, flat panel displays, telecommunication systems,
photocopiers, fax machines, medical/analytical equipment and instruments,
projection imaging systems, satellite power systems and aerospace and
defense systems. Through its 60% owned subsidiary, Flex Products, Inc.
("Flex Products"), the Company designs and manufactures thin film coatings
on flexible substrates using high vacuum roll-to-roll processes.  Flex
supplies critical pigments for use in anti-counterfeiting applications,
energy conserving window film for residential, commercial, and automotive
applications, photoreceptor components for copiers and ChromaFlair light
interference pigments for commercial paints.

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 may differ from those
estimates.

   
    

2.   SIGNIFICANT ACCOUNTING POLICIES


PRINCIPLES OF CONSOLIDATION.  The consolidated financial statements include
the accounts of the Company and its wholly and majority owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated. The Company's fiscal year ends on the Sunday closest to the
last day in October.  For convenience purposes, the Company has designated
October 31 as its fiscal year end. Fiscal year 1997 was a 52 week year,
fiscal year 1996 was a 53 week year and fiscal year 1995 was a 52 week
year.

INVESTMENTS. Cash and cash equivalents are comprised of cash, bank
repurchase agreements and short-term commercial paper readily convertible
to cash. Cash equivalents are carried at cost which approximates market
value. For purposes of the Statements of Cash Flows, all highly liquid cash
equivalents with an original maturity of three months or less are
considered cash  equivalents.

REVENUE RECOGNITION. Revenue from sales of manufactured products is
recognized when products are shipped to the customer.  Revenue from fixed
price service and supply contracts and cost reimbursement contracts is
recognized on a percentage of completion basis based on cost incurred to
total estimated cost.

INVENTORIES.  Inventories are stated at the lower of cost, on a first-in,
first-out basis, or market.  Work-in-process inventories related to fixed-
price contracts are stated at the accumulated cost of material, labor and
manufacturing overhead, less the estimated cost of units delivered.  To the
extent total costs under fixed-price contracts are estimated to exceed the
total sales price, charges are made to current operations to reduce
inventoried costs to net realizable value.  In addition, if future costs
are estimated to exceed future revenues, an allowance for losses equal to
the excess is provided by a charge to current operations.  The Company did
not have any estimated loss contracts in the periods presented.

PROPERTY, PLANT AND EQUIPMENT.  Property, plant and equipment are stated at
cost.  Estimated service lives range from 5 to 45 years for buildings and
improvements and from 3 to 8 years for all other property, plant and
equipment. Buildings and improvements and substantially all equipment are
depreciated using accelerated methods.

RESEARCH AND DEVELOPMENT. Research and development costs are charged to
operations in the period incurred.  The cost of equipment used in research
and development activities which has alternative uses is capitalized as
equipment and not treated as an expense of the period. Such equipment is
depreciated over estimated lives of 5 years.

FOREIGN OPERATIONS.  The financial position and operating results of
foreign operations are consolidated using the local currency as the
functional currency. Local currency assets and liabilities are translated
at the rate of exchange to the U.S. dollar on the balance sheet date, and
the local currency revenues and expenses are translated at average rates of
exchange to the U.S. dollar during the period.  Resulting translation gains
or losses are included in stockholders' equity as cumulative foreign
currency translation adjustment.  Foreign currency transaction gains and
losses, which have not been material, are reflected in operating results.

INCOME TAXES. Income taxes include provisions for temporary differences
between earnings for financial reporting purposes and earnings for income
tax purposes under the guidelines of SFAS No. 109, Accounting for Income
Taxes.  Tax credits are taken as a reduction of current income tax
provisions when available.

EARNINGS PER SHARE. Earnings per common and common equivalent share
includes the effect of dilutive stock options outstanding. Fully diluted
earnings per share are not presented as it is not materially different from
primary earnings per share.

RECLASSIFICATIONS.  Certain reclassifications have been made to prior year
data to conform to the current year presentation.

   

FAIR VALUE OF FINANCIAL INSTRUMENTS.  For certain of the Company's financial
instruments, including cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, accrued compensation expenses and
notes payable, the carrying amounts approximate fair value due to their
short maturities.  The Company's long-term debt is carried at amounts
that approximate fair value based on borrowing rates currently available
to the Company for bank loans of similar terms and maturities.

    

NEW ACCOUNTING PRINCIPLES.  During 1997, the Company adopted the provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation," which requires
the Company to adopt the fair value method of accounting for employee
stock-based transactions or to disclose pro forma net income and earnings
per share as if the fair value method of accounting were adopted at the
beginning of 1996.  The Company elected to continue to account for its
stock-based transactions using the intrinsic value method of accounting in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and has provided the pro forma disclosures, and
other disclosures required by SFAS No. 123, in Note 6 to its Notes to
Consolidated Financial Statements.

At the beginning of fiscal 1997, the Company implemented SFAS 121,
"Accounting for the Impairment of Long-Lived Assets," which requires that
long-lived assets, certain identifiable intangibles and goodwill related to
those assets be reviewed for impairment, measured by comparing the carrying
amount of the asset to its fair value, whenever events or changes in
circumstances indicate that the carrying amount of a long-lived asset may
not be recoverable.  There was no financial impact resulting from the
Company's adoption of this statement in 1997.

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which requires the Company to replace its
presentation of primary earnings per share with a presentation of basic
earnings per share and requires dual presentation of basic and diluted
earnings per share on the face of the income statement.  The principal
difference between primary earnings per share under current accounting
standards and basic earnings per share under the new statement is that
basic earnings per share does not consider common stock equivalents such as
stock options and warrants.  Diluted earnings per share under the new
statement will include potential dilution of convertible securities, stock
options and warrants.  The statement is effective for the Company's first
quarter of fiscal 1998 and requires restatement of all prior periods
presented.  Basic earnings per share would have been $.63, $.44 and $.76
for 1997, 1996 and 1995.  Under the new statement, diluted earnings per
share for those periods would have been the same as net income per common
and common equivalent share as presented on the income statement.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which requires enterprises to report, by
major component and in total, all changes in equity from nonowner sources;
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information;" which establishes annual and interim reporting standards for
a public company's operating segments and related disclosures about its
products, services, geographic areas and major customers.  Both standards
are effective for the Company's fiscal year 1999 with earlier application
permitted.  The effect of adoption of these statements will be limited to
the form and content of the Company's disclosure and will not impact the
Company's results of operations, cash flow or financial position.

   

3.    LONG-TERM DEBT
                     
Long-term debt, including current maturities,
at October 31, 1997 and 1996 consisted of the following:

(Amounts in thousands)                                        1997       1996

Unsecured senior notes. Interest at 8.71%
    payable semiannually. Principal payable in
    annual installments of $3.6 million from
    1998 through 2002..................................    $14,400    $18,000

Unsecured bank term loan. Variable interest
    rates averaging 6.8% at October 31, 1997,
    payable quarterly, with semiannual principal
    payments of $2 million.............................     10,000     13,000

Unsecured borrowings under bank line of credit.
    Variable interest rate averaging 6.7% at
    October 31, 1997, payable quarterly or
    specified duration period.  Principal due
    upon expiration on April 28, 2000..................      5,000

Mortgage payable.  Interest at 8%.
    Collateralized by a 72,000 sq. ft.
    newly constructed building and related
    land.  Principal and interest payments
    of $25,000 per month through 2011..................      2,422      2,523

Mortgage payable.  Interest at 7.5%.
    Collateralized by a 65,000 sq. ft. newly
    constructed building and related land
    leased to Flex Products.  Principal and
    interest payments of $28,000 per month
    through 2011.......................................      2,821      2,945

Land improvement assessment. Interest at an
    average rate of 7.2%. Principal and
    interest payable in semiannual installments
    of $77,000 through 1998............................        150        276

Scottish Development Agency building
    loan, with a conditional interest moratorium
    from February 1, 1995 through January 31, 1998
    with interest at 9.5% thereafter. Semiannual
    principal payments of approximately $100,000
    are payable through January 1998 with
    subsequent payments of $331,000, comprising
    principal and interest, through 2006.
    Collateralized by the land and building of
    the Company's Scottish subsidiary..................      3,877      3,996

Notes payable to private parties in connection
    with the purchase of the Company's wholly-owned
    subsidiary in Germany (OCLI/MMG Division).
    Principal and interest at 8% payable
    over ten years in quarterly installments.
    Refinanced in May 1997.............................      6,188

Unsecured bank note.  Interest at 5.6%.
    Quarterly principal and interest
    payments of  approximately $300,000
    through December 2002..............................      4,568

Bank loans of OCLI/MMG Division with interest
    rates ranging from 4.5% to 7.5%. Payable in
    semiannual and annual installments
    through 2020.  Partly collateralized by
    mortgages on OCLI/MMG Division land and
    buildings and liens on equipment...................      3,618      3,760

Present value of obligations under capital
    leases at imputed interest rates from
    8.0% to 9.5% payable in monthly
    installments through 2004..........................      2,007         81

                                                            48,863     50,769
Less current maturities ...............................     (7,888)    (4,981)

       Total long-term debt,
         net of current maturities.....................    $40,975    $45,788

    

Annual debt maturities and capital lease payments for the ensuing five
years are as follows:

                        YEAR                 PAYMENT
                                      (Amounts in thousands)

                        1998                $ 7,888
                        1999                  9,909
                        2000                 12,765
                        2001                  5,710
                        2002                  5,401
                        Thereafter            7,190

                                            $48,863



The Company has a $32 million unsecured credit facility comprised of a $10
million term loan and a $20 million revolving line of credit (increased
from $15 million in 1997).  The revolving line of credit carries a
commitment fee of .375% per year on the unused portion of the facility and
expires on April 28, 2000.  The Company has a surety bond for $903,000 to
satisfy the Company's workers' compensation self-insurance requirements.
The surety bond carries a fee of 1.00% per year.

During 1997, the Company replaced its 8%, $5 million note payable to
private parties with a 5.6% bank note.  Payments of principal and interest
under the new note are denominated in German marks and are approximately
$300,000 per quarter through December 2002.  In connection with the note
payable to private parties, the Company carried an incremental credit
facility to cover a surety letter for approximately $2.5 million issued to
secure 50% of the Company's obligation arising from the purchase of MMG.
As the new note does not require a surety letter, the $2.5 million surety
letter was canceled.

During 1997, the Company recorded capital leases totaling $2,037,000 to
finance the hardware, software and integration costs of a new computer
system that is to be implemented in 1998.  Lease terms run through February
2002 with payments totaling approximately $50,000 per month.

The Company's subsidiary in Scotland has a credit arrangement of up to
approximately $490,000 at market interest rates and has outstanding letters
of credit of approximately $330,000 to guarantee import duties.  There were
no borrowings under the credit arrangement in fiscal years 1997 or 1996.

The Company's subsidiary in Germany has various credit facilities with
local banks totaling approximately $381,000 which are used for working
capital requirements.  These credit facilities are utilized as part of
normal local payment practices.

During 1996, the Company entered into three sale/lease-back arrangements
for a newly acquired continuous coating machine and related equipment and
for two newly acquired coating machines to be used in the manufacturing
operations of Flex Products.  Cash proceeds from the sale/lease-back
arrangements exceeded the company's cost by approximately $750,000 which
was recorded as deferred revenue and is being amortized against lease
expenses at the rate of approximately $125,000 per year.  The lease terms
are six years with monthly payments totaling approximately $290,000 and
buyout provisions at the end of each lease.

The Company has certain financial covenants and restrictions under its bank
credit arrangements and the unsecured senior notes.

4.    ACQUISITIONS

FLEX PRODUCTS, INC. Flex Products was founded as a division of the Company
in the early 1980's, and in 1988, was established as a joint venture
between the Company and ICI Americas, Inc. ("ICIA"), an affiliate of
Imperial Chemical Industries PLC, with ICIA owning 60% and the Company
owning 40%. Upon formation of the 1988 joint venture, the Company received
proceeds in excess of the carrying amount of the assets contributed to the
joint venture. The proceeds were allocated first to reduce the carrying
amount of the Company's investment to zero, with the remaining proceeds
reported as gain on sale of equity in affiliated company.  Since the
Company carried its investment in the joint venture at zero and was not
obligated to make further investment in the joint venture, it did not
recognize losses attributable to its equity position in the joint venture.

In May 1995, the Company acquired controlling ownership of Flex Products
with the purchase of an additional 20% interest in Flex Products from ICIA
and ICIA sold its remaining 40% interest to SICPA Holdings S.A. ("SICPA"),
a privately held Swiss corporation headquartered in Lausanne, Switzerland.
SICPA is the largest manufacturer of printing inks in the world and the
major customer of Flex Products.

Pursuant to the terms of the Stock and Note Purchase Agreement dated May 1,
1995, by and among the Company, SICPA, ICIA and Flex Products, the Company
acquired the incremental 20% interest in Flex Products for a cash payment
of $8.4 million and paid ICIAH approximately $7.0 million in cash to
acquire a 60% interest in an $11.7 million promissory note previously
issued by Flex Products to ICIA to fund Flex Products' working capital
requirements. SICPA acquired the balance of the note. The Company's
incremental investment in Flex Products was recorded as a purchase
transaction.

The following pro forma consolidated results of operations for 1995 assume
that the transaction took place at the beginning of 1995.

(Amounts in thousands, except per share amounts)                        1995

Revenue...........................................................  $181,389
Net income applicable to common stock.............................     6,887
Net income per common and common equivalent share.................      $.72

During fiscal 1996, SICPA, the 40% joint owner of Flex Products, filed suit
in Delaware Chancery Court seeking injunctive and other relief against
OCLI, Flex Products and certain of Flex Products' directors.  In the suit,
SICPA alleged that Flex Products could not proceed with an initial public
offering of its common stock without the consent of SICPA and that SICPA
had the right to purchase OCLI's 60% ownership of Flex Products pursuant to
a call option beginning after May 8, 1998. In January 1997, the Delaware
Chancery Court rendered a decision that upheld the position of OCLI and
Flex Products that a simple majority of Flex Products' Board of Directors
had the legal authority to authorize a public offering of Flex Products
securities without the approval of SICPA.

   

Subsequent to fiscal year end 1997, OCLI and SICPA reached settlement of
the pending litigation.  Under the terms of the settlement agreement, OCLI
and SICPA have agreed to modify their co-ownership agreement to allow OCLI
to more effectively manage the day-to-day operations of Flex Products, to
to allow for the public financing of Flex Products' operations and to
modify the License and Supply Agreement between Flex Products and SICPA
to provide for more attractive scheduled pricing discounts on higher
volume purchases.  In addition, OCLI purchased Flex Products' working
capital loan of $2.6 million from SICPA which was recorded as a decrease
to minority interest.

    

NETRA CORPORATION.  In February 1995, the Company acquired the assets and
liabilities of Netra Corporation, a precision injection molded plastic
optics manufacturer, for a total purchase price of approximately $3.1
million.  The purchase price consisted of a cash payment of $1.5 million
and the balance of approximately $1.6 million paid by the issuance of
164,735 shares of the Company's common stock. The acquisition was recorded
as a purchase. If the acquisition of Netra had occurred at the beginning of
fiscal 1995, the results of operations would not have been materially
different.

GOODWILL. At October 31, 1997, other assets and investments includes $5.2
million of goodwill, of which $4.6 million is attributed to the purchase of
MMG and is being amortized over fifteen years and $500,000 is attributed to
the purchase of Netra and is being amortized over five years.

5.    STOCKHOLDERS' EQUITY

STOCKHOLDER RIGHTS PLAN. On December 16, 1997, the Board of Directors of
the Registrant adopted a new Stockholder Rights Plan (the "Plan") to
succeed the Stockholder Rights Plan first adopted on November 25, 1987.
Under the terms of the Plan, which expires in November 1999, the Company
declared a dividend of preferred stock purchase rights which only become
exercisable, if not redeemed, ten days after a person or group has acquired
20% or more of the Company's common stock or the announcement of a tender
offer which would result in a person or group acquiring 30% or more of the
Company's common stock.  Under certain circumstances, the plan allows
stockholders, other than the acquiring person or group, to purchase the
Company's common stock or the common stock of the acquirer at an exercise
price of half the market price.

PREFERRED STOCK. The Company has authorized 100,000 shares of preferred
stock at $.01 par value of which 10,000 shares were designated Series A
Preferred Stock in connection with the Company's Stockholder Rights Plan.
None of the Series A Preferred Stock is issued.  Additionally, 15,000
shares were designated Series B Preferred Stock, of which 8,350 shares were
issued and subsequently converted to common stock on call for redemption.
None of the Series B Preferred Stock is currently issued and outstanding.

In 1995, as part of the financing of the acquisition of a controlling
interest in Flex Products, Inc., the Company issued 12,000 shares of 8%
Series C Convertible Redeemable Preferred Stock (the "Series C Preferred
Stock") in consideration for $1,000 per share.  The Series C Preferred
Stock is convertible into common stock at any time by the holders at a
conversion price of $10.50 per common share (subject to adjustment in
certain circumstances).  The Series C Preferred Stock is redeemable at the
option of the Company commencing two years from the date of issuance (if
the Company's common stock is trading at $17 per share or more for any 20
consecutive day period) and, after three years, unconditionally, at 108% of
the purchase price per share, declining to 100% over four years. The
holders of the Series C Preferred Stock are entitled to receive a
cumulative annual dividend of $80 per share, which is payable quarterly and
has preference to any other dividends being paid by the Company.

The holders of shares of Series C Preferred Stock are not entitled to
notice of any stockholders' meetings or to vote on any matter, except as
provided by law or as otherwise specified in the Series C Preferred Stock
Certificate of Designation, Preferences and Rights.  If, however, dividends
on the Series C Preferred Stock are in arrears in an amount equal to four
quarterly dividends, a default period would begin in which the holders of
the Series C Preferred Stock, voting as a class, would have the right to
elect the greater of 2 directors or a number of directors not less than 25%
of the total number of authorized directors.  Such right terminates upon
expiration of the default period.  The holders of the Series C Preferred
Stock are entitled to a liquidation preference equal to $1,000 per share
plus accrued and unpaid dividends.  The Company may not create any series
or class of capital stock ranking prior or equal to the Series C Preferred
Stock unless the terms of any such series or class is approved by the
holders of not less than sixty-six and two-thirds percent (66-2/3%) of the
outstanding shares of Series C Preferred Stock, voting separately as a
class.

Pursuant to the terms of a Stock Purchase Agreement entered into with the
holders of the Series C Preferred Stock, the Company may not pay any
dividends or make any other distributions in respect of, or redeem or
repurchase any, securities of the Company to the extent such payments
exceed 25% of the difference between (a) aggregate "Net Income" (as such
term is defined in the Stock Purchase Agreement) of the Company after
January 31, 1995 and (b) all losses suffered by the Company during such
period.

During fiscal 1997, 5,750 shares of the Company's 8% Series C Convertible
Redeemable Preferred Stock, plus accrued dividends on those shares, were
converted into approximately 555,000 shares of common stock at a conversion
price of $10.50 per share.

6.    INCENTIVE COMPENSATION PLANS, STOCK OPTION PLANS AND WARRANTS

Pursuant to the terms of the Company's employee stock option plans, an
aggregate of 2,292,865 shares of Company common stock has been issued or
reserved for issuance upon the exercise of options granted to qualified
employees.  Options are granted with exercise prices equal to the market
price of the Company's common stock at the date of grant.  Option terms are
five years and vesting periods are from one to three years.  At October 31,
1997, outstanding option prices ranged from $6.125 to $13.25 per share with
weighted average remaining lives of 2.85 years.

In May, 1997, the Board of Directors approved a stock option repricing
program under which stock options with exercise prices above $14.00 per
share were repriced to the then current market value of the Company's
common stock of $9.63.  A total of 162,000 shares with exercise prices
ranging from $14.13 per share to $17.38 per share were exchanged under this
program.  The exchange of such options is presented in the following table
as cancellations and subsequent grants.

Stock option activity for the three years ended October 31, 1995, 1996 and
1997 was:
                                                                    WEIGHTED
                                                                     AVERAGE
                                                     NUMBER OF      EXERCISE
                                                       SHARES          PRICE

BALANCE AT NOVEMBER 1, 1994                         1,343,595          $7.38
Granted                                               459,500           7.11
Exercised                                            (261,295)          6.23
Canceled                                              (25,000)          8.85

BALANCE AT OCTOBER 31, 1995                         1,531,800           7.47
Granted                                               546,450          11.81
Exercised                                            (229,800)          7.45
Canceled                                              (13,770)          9.16

BALANCE AT OCTOBER 31, 1996                         1,835,250           8.75
Granted                                               708,800          10.48
Exercised                                            (268,849)          8.52
Canceled                                             (272,792)         12.53

BALANCE AT OCTOBER 31, 1997                         2,002,409           8.88
EXERCISABLE AT OCTOBER 31, 1997                     1,176,346          $7.77

The Company's 60% owned subsidiary, Flex Products, has a non-qualified
stock option plan under which it has authorized for issuance 10,000 shares
of common stock against 100,000 shares outstanding of Flex Products, Inc.,
a non-public company, to key members of Flex Products' management. The
options have vesting periods from two to four years with five year terms.
During 1996, options were granted to purchase 10,271 shares at their
calculated market value on the date of grant (weighted average exercise
price of $444.37 per share) and options to purchase 446 shares at a
weighted average exercise price of $443.52 were cancelled during 1997.  At
October 31, 1997, Flex Products had shares under option of 9,825 at an
average exercise price of $444.41 and weighted average remaining lives of
3.6 years with 3,180  options exercisable at a weighted average exercise
price of  $445.69.  The assets of Flex Products represent 12% and 10% of
consolidated total assets of the Company at the end of fiscal years 1997
and 1996.

In 1997, the Company adopted the disclosure requirements of SFAS 123 which
provide for the disclosure of pro forma net earnings and net earnings per
share as if the fair value method of accounting were adopted at the
beginning of fiscal 1996.  If compensation expense had been determined for
stock options granted in 1997 and 1996 using the fair value method at the
date of grant, consistent with the provisions of SFAS 123, the Company's
pro forma net earnings and earnings per share would have been as follows:

 (Amounts in thousands)                                         1997    1996

Net income as reported .................................... $  7,125  $5,196
Pro forma compensation adjustment..........................   (2,812) (1,642)
  Pro forma net income.....................................   $4,313  $3,554

Net income per share, as reported.......................... $   0.60  $ 0.41
Pro Forma compensation adjustment..........................    (0.15)  (0.09)

  Pro forma net income per share...........................  $  0.45  $ 0.32

Because SFAS 123 is applicable only to options granted subsequent to
October 31, 1995, its pro forma effects will not be fully reflected until
1998. The weighted average fair value of options granted during 1997 and
1996 was $5.60 and $6.25, respectively.  The weighted average fair value of
Flex Products' options granted during 1996, which was the only year of
grant, was $68.82. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1997 and 1996:

Expected dividend yield.................................................0.7%
Expected volatility..................................................... 59%
Risk-free interest rate.................................................5.6%
Expected term following vest date (years)                               .87

7.    INCOME TAXES

The provision for income taxes consisted of:
 (Amounts in thousands)                                 1997     1996    1995

CURRENT:
   Federal ...........................................$2,537  $ 2,120 $ 3,617
   State..............................................   225      309     964
   Foreign ...........................................   116     (149)    609

                                                       2,878    2,280   5,190
DEFERRED:
   Federal............................................ 1,061    1,535     626
   State..............................................   598     (369)   (586)
   Foreign............................................    85      (21)    253

                                                       1,744    1,145     293
                                                      $4,622   $3,425  $5,483


The reconciliation of the effective income tax rates to the federal statutory
rates was as follows:
                                                         1997     1996    1995

Statutory federal income tax rate.....................   34.0%    34.0%  34.0%
State taxes, net of federal tax benefit ..............    5.7      7.1    6.3
Foreign income taxes at rates different
  than U.S. statutory rates...........................   (0.5)     4.8     .8
Business tax credits (state tax
  credits net of federal tax effect)..................   (2.9)   (10.3)  (3.1)
Tax benefit from foreign sales corporation ...........   (2.7)    (1.7)  (1.0)
Non-deductible expenses, primarily foreign losses.....    4.2      3.3    3.0
Other.................................................   (0.5)    (0.2)   0.1

  Effective tax rate..................................   37.3%    37.0%  40.1%


DEFERRED TAX ASSETS (LIABILITIES).  The Company's deferred tax assets and
liabilities at October 31, 1997 and 1996 under SFAS 109 arise from the
following temporary differences in accounting for financial versus tax
reporting purposes:

(Amounts in thousands)                                         1997      1996

CURRENT:
Valuation reserves and accruals not deductible
  for tax purposes until paid or utilized .................. $5,527   $ 4,112
Intercompany profit eliminated for financial
  reporting purposes which is taxable currently.............    266       440
Domestic net operating losses available
  for carryforward..........................................    983       521
Asset valuation difference between financial and
  tax reporting basis due to purchase accounting............    131       189
State tax credits eligible for carryforward related
  to purchased equipment....................................              118
Other                                                           (54)     (215)

  Total deferred tax assets (liabilities)...................  6,853     5,165


NONCURRENT:
Domestic net operating losses available for carryforward....  2,678     4,655
Foreign net operating losses available for carryforward.....  2,686     2,273
Tax depreciation greater than financial
  reporting depreciation.................................... (4,045)   (2,825)
Intangible assets, difference between financial
  and tax reporting basis and periods.......................   (816)     (858)
Burden and interest on self-constructed assets
  expensed for tax purposes and depreciated for financial
  reporting purposes........................................   (555)     (548)
Plant and equipment written off for financial
  reporting purposes, depreciable for tax purposes..........    125       308
Costs required to be capitalized under the
  uniform capitalization tax rules which are deducted
  for financial reporting purposes..........................    169       389
Liability for postretirement health benefits
  not deductible for tax purposes until paid................    747       690
State tax credits eligible for carryforward
  related to purchased equipment............................    614       678
Other.......................................................    296        77

                                                              1,899     4,839
Less valuation allowance.................................... (2,684)   (2,192)

                                                               (785)    2,647

  Total deferred tax balances...............................$ 6,068   $ 7,812

The Company has provided a valuation allowance related to the deferred tax
asset resulting from the operating loss carryforwards of certain of its
foreign subsidiaries until the realization of the loss carryforwards is
more likely than not. The 1997 valuation allowance increase is primarily
due to losses reported in 1997 by certain of those subsidiaries.

The Company has recognized benefits in 1997, 1996 and 1995 for research and
development tax credits and in 1997 and 1996 for California manufacturers'
investment credits.

Income taxes have not been provided on approximately $7.1 million of
unremitted earnings of the Company's subsidiary in Scotland. The Company
intends to continue to reinvest these amounts in the subsidiary's
operations.  Should any of these amounts be distributed to the Company, any
taxes on these distributions would be substantially offset by foreign tax
credits.

During 1995, the Company recorded $873,000 of deferred tax assets related
to the purchase of Netra and $4.7 million of deferred tax assets with the
consolidation of Flex Products.  These deferred tax assets have been
recorded under the guidelines of SFAS No. 109, Accounting for Income Taxes,
on the premise that future taxable income will more likely than not be
adequate to realize future tax benefits of the available net operating loss
carryforwards giving rise to these deferred tax assets.

8.    EMPLOYEE BENEFIT PLANS

U.S. OPERATIONS.  The Company has a 401(k)/Employee Stock Ownership Plan
("ESOP") defined contribution retirement plan for its non-Flex Products
employees and a 401(k) plan with a Company match for the employees of Flex
Products.  Company contributions for non-Flex Products employees are a
combination of a 401(k) matching contribution of 25% of the first 6% of
employee contributions plus a contribution to the ESOP plan based on the
Company's proportional share of pre-tax profits.  Prior to fiscal 1997, all
Company contributions to non-Flex employees were to the ESOP and were
determined under a profit sharing formula.  Company contributions for Flex
Products employees are 75% of the first 6% of employee contributions.
Company matching contributions to the 401(k) plans are funded in cash.
Company contributions to the ESOP are contributed in cash for the purchase
of Company common stock or are contributed in the form of original issued
shares of Company common stock.  In fiscal 1997, 1996 and 1995, the Company
contributed and charged to operations $1,211,000, $787,000 and $1,309,000
as contributions to its U.S. retirement plans.  The 1995 U.S. retirement
plan contribution includes Flex Products' six month contribution of $84,000
from the date the Company began consolidating Flex Products.

SCOTTISH OPERATIONS.  The Company's Scottish subsidiary maintains a
contributory defined benefit pension program covering most of its
employees.  Benefits are primarily based on years of service and
compensation. The program is funded in conformity with the requirements of
applicable U.K. government regulations.  Plan assets are invested in fixed
interest and balanced fund units which are primarily comprised of corporate
equity securities.

The funded status of the plan at October 31, 1997, 1996 and 1995 is
as follows:

(Amounts in thousands)                                 1997     1996     1995

Plan assets at fair value ......................    $ 7,617  $ 6,704   $5,464
Projected benefit obligation....................     (8,856)  (6,250)  (5,575)

Plan assets greater (less) than
  projected benefit obligation..................     (1,243)     454     (111)
Unrecognized net loss...........................      1,842      301      870
Unrecognized transition asset being
  amortized over 19 years.......................       (423)    (453)    (473)

      Prepaid pension cost included
        in other assets.........................      $ 176    $ 302    $ 286


At October 31, 1997, 1996 and 1995, the projected benefit obligations
include accumulated benefit obligations of $8,043,000, $5,658,000 and
$5,344,000 of which $8,006,000, $5,643,000 and $5,323,000 are vested.

A discount rate of 7% was used in determining the present value of the
projected benefit obligation.  The expected long-term rate of return on
assets was 9% and the assumed rate of increase in future compensation
levels was 5%.

The net pension expense for the Company's Scottish subsidiary recorded in
1997, 1996 and 1995 included the following components:

(Amounts in thousands)                                1997     1996     1995

Service-cost benefits earned during the period...... $ 415    $ 364    $ 313
Interest cost on projected benefit obligation.......   506      474      439
Actual return on plan assets........................  (616)    (674)    (318)
Net amortization and deferral.......................   (13)     163     (160)
 Net pension expense................................  $292     $327    $ 274

9.    POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company sponsors a contributory defined benefit postretirement plan for
its U.S. operations which provides medical, dental and life insurance
benefits to employees who meet age and years of service requirements prior
to retirement and who agree to contribute a portion of the cost.  The
Company has the right to modify or terminate these benefits at any time.

The Company's contribution is a set amount per retiree depending on the
retiree's years of service and dependent status at the date of retirement
and the age of the retiree and dependents when benefits are provided.  Cost
increases are paid by the retiree.

The postretirement plan's benefit obligation was as follows for the years
ended October 31, 1997, 1996 and 1995:

(Amounts in thousands)                                1997     1996     1995


Accumulated postretirement benefit obligation:
Retirees............................................$1,017   $1,058   $1,012
Fully eligible plan participants ...................   341      336      243
Other active plan participants......................   810      756      744

      Total accumulated postretirement
        benefit obligation unfunded................. 2,168    2,150    1,999
Unrecognized loss...................................  (168)    (279)    (227)

      Accrued postretirement benefit obligation.... $2,000   $1,871   $1,772

The following components were included in net periodic postretirement benefit
cost for the years ended October 31, 1997, 1996 and 1995:

(Amounts in thousands)                                1997     1996     1995


Service-cost benefits earned during the period......$   71    $  69    $  50
Interest cost on accumulated post
  retirement benefit obligation.....................   165      141      133
Net amortization and deferral.......................    10       55

  Net postretirement benefit cost...................  $246     $265     $183


Because the Company has established a maximum amount it will pay per
retiree under the plan, health care cost trends do not affect the
calculation of the accumulated benefit obligation or the net postretirement
benefit cost. The weighted average discount rate used in determining the
accumulated benefit obligation was 8.0% in 1997 and 1996 and 7.25% in 1995.


10.   CONTINGENCIES AND COMMITMENTS

LITIGATION. During the past several years, the Company has been engaged in
litigation in the United Kingdom (U.K.) involving infringement of a Company
patent by a U.K. company. The Company won its action at the Patents County
Courts level but lost on appeal to the U.K. House of Lords.  During the
injunction period, the U.K. company submitted a claim for damages totaling
approximately $1.6 million for lost profits. The Company and legal counsel
are in the process of reviewing the claim.  Management believes that the
amount of the claim is substantially overstated and that the ultimate
settlement will not have a material adverse effect on the financial
statements.

In 1997, Optical Corporation of America (OCA) and certain of its directors
and officers (Affiliates) commenced suit against the Company.  The
complaint arises out of a letter of intent executed by the Company and OCA
in March 1996 and an ensuing merger agreement executed by the Company and
OCA in June 1996.  Under the merger agreement, the Company would acquire
OCA.  The complaint seeks damages for costs and expenses incurred by OCA in
pursuing the merger transaction with the Company due to the Company's
alleged negligent misrepresentations to OCA and Affiliates and the
Company's alleged breach of its letter of intent with OCA.  The Company has
filed counterclaims against OCA and the Affiliates based on OCA's breach of
the merger agreement and is seeking damages based on the difference between
the value of OCA's business to the Company and the agreed upon purchase
price under the merger agreement.  The Company does not believe that this
litigation will have any material adverse effect on its future operating
results or financial condition.

In 1997, Flex Products filed a suit in United States District Court for the
Eastern District of Michigan alleging that BASF Corporation (BASF) and BASF
AG have infringed Flex's patents covering optically variable thin film
flakes. The complaint requests that the Court enjoin BASF from importing,
making, using, selling or offering to sell the infringing pigment in the
United States.  The complaint also seeks damages for the infringement,
including treble damages if the infringement is found to be willful. BASF
Corporation has filed a counterclaim seeking a declaration that the patent
in question is invalid.  Both BASF companies have requested that they be
awarded their attorneys' fees and costs. Management remains confident in
the validity of Flex Products' patent, and based upon the information
currently available, that the BASF product is , in fact, covered by the
patent.

During 1997 and 1996, the Company was engaged in litigation with SICPA
Holding S.A., the 40% joint owner of Flex Products.  See Note 4.

CONCENTRATIONS OF CREDIT RISK.  The Company grants credit to customers,
subject to credit approval, for most of its sales.  At October 31, 1997,
accounts receivable from customers in foreign countries, was $16.6 million,
or 47%, of accounts receivable with approximately $5.7 million receivable
from customers in Asia and approximately $10.9 million receivable from
customers in Europe and other countries.

OPERATING LEASE AGREEMENTS.  The Company and its subsidiaries lease
computer equipment, manufacturing space and warehouse space.  The operating
lease payments are recorded as rental expense and totaled $6,351,000,
$4,881,000 and $2,481,000 for 1997, 1996 and 1995. Future minimum operating
lease payments amount to $23.1 million, and for the years 1998 through 2002
are $5,595,000, $5,110,000, $4,253,000, $3,864,000 and $1,973,000 under
operating lease agreements in effect at October 31, 1997. During 1996, the
Company entered into three operating lease arrangements to finance the cost
of a continuous coating machine and related equipment and to finance the
cost of two coating machines to be used in the manufacturing operations of
Flex Products.  The lease terms are six years with monthly payments
totaling approximately $290,000 and buyout provisions at the end of each
lease term.

EMPLOYMENT AGREEMENTS.  The Company has approved employment agreements for
officers and employment assurance agreements for certain management and
technical employees, as well as increases in severance benefits for full-
time employees, to be effective in the event of certain changes in control
of the Company.  These agreements are currently effective through 1999.

11.   INFORMATION ON OPERATIONS

INVENTORIES.  Inventories as of October 31, 1997 and 1996 consisted of:

(Amounts in thousands)                                         1997     1996

Raw materials and supplies ...............................  $ 7,541  $ 7,483
Work-in-process ..........................................   12,308    8,797
Finished goods............................................    2,980    2,421

      Total inventories...................................  $22,829  $18,701


ACCRUED EXPENSES.  Accrued expenses at October 31, 1997 and 1996 consisted of
the following:

(Amounts in thousands)                                         1997     1996

Workers' compensation reserve .............................  $  555   $  659
Ground water remediation reserve...........................     759      659
Other accrued liabilities..................................   5,540    5,248

      Total accrued expenses...............................  $6,854   $6,566

INTEREST.  Interest expense and amounts capitalized were as follows for the
years ended October 31, 1997, 1996 and 1995:

(Amounts in thousands)                                 1997    1996     1995

Interest costs incurred..........................    $4,249  $4,696   $4,326
Less amounts capitalized.........................       219   1,172      779

      Net interest expense.......................    $4,030  $3,524   $3,547


SALES INFORMATION.  Significant customers and sales to the federal
government were as follows:

The Company's largest customer in 1997 is also a 40% owner of Flex
Products.  Sales to this customer were 14% of consolidated sales for 1997,
13% of consolidated sales for 1996 and 12% of consolidated sales for the
six months of 1995 in which Flex Products' sales were consolidated. The
Company's fifth largest customer in 1997 is also an approximate 10% common
stockholder.  Sales to this customer accounted for approximately 3% of
sales in 1997, 5% of sales in 1996 and 8% of sales in 1995.

Sales of products and services to the federal government, primarily under
subcontracts, were 6%, 9% and 10% of net revenues in 1997, 1996 and 1995.
Certain of these contracts are subject to cost review by various
governmental agencies.  Management believes that adjustments, if any, will
not be material to the operating results of the Company.

FOREIGN OPERATIONS.  Certain information regarding the Company's  domestic
and foreign revenues  is as follows


                                UNITED  EUROPE
(Amounts in thousands)          STATES  AND OTHER   ASIA  ELIMINATIONS  TOTAL

FISCAL YEAR ENDED OCTOBER 31,1997:

Domestic revenues and revenues
of foreign operations          $116,720   $31,411  $ 8,296  $(2,709) $153,718
Export sales from the U.S.                 47,036   29,718  (12,642)   64,112
Transfers between regions        (2,709)   (6,669)  (5,973)  15,351

Revenues from customers        $114,011   $71,778  $32,040           $217,829



FISCAL YEAR ENDED OCTOBER 31,1996:

Domestic revenues and revenues
 of foreign operations          $99,543   $38,795          $   (815) $137,533
Export sales from the U.S.                 36,131  $24,911   (9,370)   51,672
Transfers between regions          (815)   (9,370)           10,185

Revenues from customers         $98,728   $65,556  $24,911           $189,195



FISCAL YEAR ENDED OCTOBER 31,1995:

Domestic revenues and revenues
  of foreign operations          $90,529  $42,840           $(1,269) $132,100
Export sales from the U.S.                 23,248  $21,305   (7,236)   37,317
Transfers between regions         (1,269)  (7,236)            8,505
Revenues from customers          $89,260  $58,852  $21,305           $169,417

Transfers between regions represent intercompany sales of products and
intercompany compensation for services.

Certain information regarding the Company's operations by region is as
follows:
                               UNITED  EUROPE
(Amounts in thousands)         STATES  AND OTHER   ASIA  ELIMINATIONS  TOTAL

FISCAL YEAR ENDED OCTOBER 31,1997

Income from operations       $  16,206    $  385  $(316)   $ (328) $ 15,947

Identifiable assets           $170,443   $32,646 $ 5,570 $(25,166) $183,493



FISCAL YEAR ENDED OCTOBER 31,1996:

Income from operations        $  12,812   $ (410)                    $12,402

Identifiable assets            $146,869   $ 9,715         $(33,813) $172,771



FISCAL YEAR ENDED OCTOBER 31,1995:

Income from operations        $  14,284   $ 2,286                   $ 16,570

Identifiable assets            $137,702   $50,806         $(18,674) $169,834




               OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
                       SUPPLEMENTAL FINANCIAL INFORMATION

                                  (Unaudited)

Results of operations for each quarter of fiscal 1997 were as follows:

                                               THREE MONTHS ENDED

                                    JAN 31,  APR 30, JULY 31, OCT 31,  FISCAL
(Amounts in thousands,
except per share data)                1997     1997     1997    1997     1997

Revenues                          $ 45,720  $ 53,516  $59,997 $58,596 $217,829
Gross profit                        15,521    18,674   19,790  20,637   74,622
Income before provision for
  income taxes and
  minority interest                  1,573     2,759   3,912    4,134   12,378
Net income                             907     1,513   1,994    2,711    7,125
Net income applicable
to common stock                   $    667   $ 1,326 $ 1,853  $ 2,586  $ 6,432
Net income per common and common
  equivalent share                $   0.07  $   0.13 $ 0 .17  $  0.23  $  0.60


Weighted average number of common
  and common equivalent shares
  outstanding (in thousands)        10,165    10,410  10,965   11,148   10,673



Results of operations for each
quarter of fiscal 1996 were as follows:

                                                        THREE MONTHS ENDED

                                  JAN 28,  APR 28, JUL 28,  OCT 31,   FISCAL
(Amounts in thousands, except       1996     1996    1996     1996      1996
  per share amounts)

Revenues                        $ 43,911 $ 48,451 $48,772  $48,061   $189,195

Gross profit                      14,416   17,799  15,419   14,792     62,426
Income before provision for
  income taxes and
  minority interest                1,797    4,058   3,315       87      9,257
Net income                           740    2,071   2,033      352      5,196
Net income applicable
  to common stock               $    500 $  1,831 $ 1,793  $   112   $  4,236


Net income per common and common
  equivalent share              $    .05 $   .18 $   .17   $   .01   $    .41


Weighted average number of common
  and common equivalent shares
  outstanding (in thousands)      10,119  10,158  10,550    10,358     10,301



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, the
information called for in Part III, Items 10, 11, 12 and 13 of Form 10-K is
omitted since the Company will file with the Securities and Exchange
Commission, not later than 120 days after the close of the fiscal year
ended October 31, 1997, a definitive proxy statement pursuant to Regulation
14A in connection with its 1998 Annual Meeting of Stockholders. The
information contained under the caption "Executive Officers of the
Registrant" in Part I of this Form 10-K is incorporated by reference into
Item 10.

                                    PART IV

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

(A)      1. CONSOLIDATED FINANCIAL STATEMENTS:
            The following consolidated financial statements of Optical
            Coating Laboratory, Inc. are included in Item 8:

                                                                PAGE(S)
            Independent Auditors' Reports...................... 24-25
            Consolidated Balance Sheets........................    26
            Consolidated Statements of Income..................    27
            Consolidated Statements of Cash Flows.............. 28-29
            Consolidated Statements of Common
            Stockholders' Equity ..............................    30
            Notes to Consolidated Financial Statements.........    31
            Supplemental Financial Information.................    45

(A)     2.  FINANCIAL STATEMENT SCHEDULES

            The following consolidated financial statement schedules are
            included in Item 14(d):

            Schedule II - Valuation and Qualifying accounts....    50

All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
consolidated financial statements or the accompanying notes.


(A)     3.  LISTING OF EXHIBITS

The following are filed as Exhibits to this Annual Report on Form 10-K. The
numbers refer to the Exhibit Table of Item 601 of Regulation S-K.

EXHIBIT
NO.                                 DESCRIPTION

3.1   Restated Certificate of Incorporation. Incorporated by reference to
      Exhibit (4)(a) of the Registrant's Form 10-Q for the quarter ended
      July 31, 1988.

3.2   By-Laws.  Incorporated by reference to Exhibit (3)(b) of the
      Registrant's Form 8-K under Item 5 dated November 20, 1987.

4.1*  Stockholder Rights Agreement between the Registrant and ChaseMellon
      Shareholder Services L.L.C. dated December 16, 1997.

4.2   Note Purchase Agreement(s) dated as of May 27, 1994 for the private
      placement of $18,000,000 of 8.71% Senior Notes due June 1, 2002
      between the Registrant and Connecticut Mutual Life Insurance
      Company, Modern Woodman of America and American Life and Casualty
      Insurance Company. Incorporated by reference to Exhibit (4)(a) of
      the Registrant's Form 10-Q for the quarter ended July 31, 1994.

4.3   Stock Purchase Agreement dated as of February 8, 1995 by and between
      the Registrant, Netra Corporation and the Sellers as identified on
      the signature page of said agreement, each a shareholder of Netra
      Corporation, for the purchase by the Registrant of all of the shares
      of common and preferred stock of Netra Corporation.  Incorporated by
      reference to Exhibit (4) of the Registrant's Form 10-Q for the
      quarter ended April 30, 1995.

4.4   Optical Coating Laboratory, Inc. 12,000 shares of 8% Series C
      Convertible Redeemable Preferred Stock Purchase Agreement among the
      Registrant and the investors named therein dated as of May 1, 1995.
      Incorporated by reference to Exhibit 4(e) of Registrant's Form S-8
      dated July 6, 1995.
4.5   Certificate of Designation, Preferences and Rights of Series C
      Convertible Redeemable Preferred Stock of Optical Coating
      Laboratory, Inc. dated May 2, 1995.  Incorporated by reference to
      Exhibit 4(f) of Registrant's Form S-8 dated July 6, 1995.

4.6   Credit Agreement dated as of May 24, 1995 among the Registrant, Bank
      of America NT&SA as agent, and Letter of Credit Issuing Bank and the
      other Financial Institutions party thereto arranged by BA
      Securities, Inc. Incorporated by reference to Exhibit (4)(a) of the
      Registrant's Form 10-Q for the quarter ended July 31, 1995.

4.7   First Amendment to Credit Agreement dated as of May 24, 1995 between
      Optical Coating Laboratory, Inc., Bank of America, NT&SA, as agent
      for itself and the Banks, and the several financial institutions
      party to the Credit Agreement, which amendment is dated as of
      December 15, 1995. Incorporated by reference to Exhibit 4.9 of the
      Registrant's Form 10-K for the year ended October 31, 1995.

4.8   Third Amendment to Credit Agreement dated as of May 24, 1995 between
      Optical Coating Laboratory, Inc. and Bank of America NT&SA, as agent
      for itself and the Banks, and the several financial institutions
      party to the Credit Agreement, which amendment is dated as of May
      23, 1997. Incorporated by reference to Exhibit (4.1) of the
      Registrant's Form 10-Q for the quarter ended April 30, 1997.

4.9   Secured Promissory Note between Optical Coating Laboratory, Inc. and
      Aid Association for Lutherans dated November 8, 1995.  Incorporated
      by reference to Exhibit 4.8 of the Registrant's Form 10-K for the
      year ended October 31, 1995.

4.10  Capital Equipment Lease Agreement dated as of February 20, 1996
      between Optical Coating Laboratory, Inc. and Fleet Credit
      Corporation. Incorporated by reference to Exhibit 4.10 of the
      Registrant's Form 10-K for the year ended October 31, 1996.

4.11  Capital Equipment Lease Agreement dated as of June 19, 1996 between
      Flex Products, Inc. and Fleet Credit Corporation.  Incorporated by
      reference to Exhibit 4.11 of the registrant's Form 10-K for the year
      ended October 31,1996.

4.12  Credit Agreement dated as of May 20, 1997 between Optical Coating
      Laboratory, Inc. as Borrower and ABN AMRO Bank N.V. as bank.
      Incorporated by reference to Exhibit 4.2 of the Registrant's form
      10-Q for the quarter ended April 30, 1997.

9     Not applicable.

10.0  Registrant's Employee Stock Ownership Plan (OCLI ESOP+), as amended.
      Incorporated by reference to Exhibit (10)(c) of the Registrant's
      Form 10-K for the year ended October 31, 1988.

10.1  Registrant's 1996 Incentive Compensation Plan. Incorporated by
      reference to Exhibit A of the Registrant's Proxy Statement dated
      March 8, 1996.(1)

10.2  Registrant's 1995 Incentive Compensation Plan. Incorporated by
      reference to Exhibit A of the Registrant's Proxy Statement dated
      March 10, 1995. (1)

10.3  Registrant's 1993 Incentive Compensation Plan. Incorporated by
      reference to Exhibit A of the Registrant's Proxy Statement dated
      March 8, 1993. (1)

10.4  Registrant's 1992 Incentive Compensation Plan. Incorporated by
      reference to Exhibit  A of the Registrant's Proxy Statement dated
      March 8, 1992. (1)

10.5  Registrant's 1991 Incentive Compensation Plan. Incorporated by
      reference to Exhibit  A of the Registrant's Proxy Statement dated
      February 25, 1991. (1)

10.6  Form of Directors' and Officers' Indemnification Agreement.
      Incorporated by reference to Exhibit (10)(j) of the Registrant's
      Form 10-K for the year ended October 31, 1987. (1)

10.7* Form of Change in Control Employment Agreements between the
      Registrant and its Executive Officers dated November 20, 1997.(1)

10.8* Form of Employment Assurance Agreements between the Registrant and
      its key technical and professional employees dated as of November
      20, 1997. (1)

10.9  Mortgage Agreement between the Scottish Development Agency and
      Registrant's Scottish Subsidiary. Incorporated by reference to
      Exhibit (10)(o) of the Registrant's Form 10-K for the year ended
      October 31, 1987.

EXHIBIT
NO.                                 DESCRIPTION

10.10 Stock and Note Purchase Agreement by and among OCLI, SICPA Holding
      S.A., ICIA, ICIAH and Flex Products, Inc.  Incorporated by reference
      to the Registrant's Form 8-K dated May 23, 1995 and Registrant's
      Form 8-K/A dated April 11, 1996.

10.11 Employment Agreement Letter between John McCullough and the
      Registrant dated October 31, 1995. Incorporated by reference to
      Exhibit 10.18 of the Registrant's Form 10-K for the year ended
      October 31, 1995. (1)

10.12*1998 Management Incentive Plan (1)

   

10.13*Settlement Agreement between the Registrant, SICPA Holding S.A. and
      Flex Products, Inc. dated November 27, 1997 (Confidential treatment
      has been requested on portions of this document.)

10.14*Agreement by and between JDS FITEL Inc. and the Registrant
      dated February 1, 1997. (Confidential treatment has been requested
      on portions of this document.)

    

11*   Computation of earnings (loss) per share for the years ended October
      31, 1997, 1996 and 1995.

12    Not applicable
13    Not applicable
16    Not applicable
18    Not applicable
21*   Subsidiaries of the Registrant
22    Not applicable
23*   Independent Auditors' Consent and Report on Schedules
24    Not applicable
27*   Financial Data Schedule
28    Not applicable
99    Not applicable
*     Items not previously filed are designated by an asterisk.
(1)   Designates management contracts or compensatory plan arrangements
      required to be filed as exhibits pursuant to Item 14(c) of Form 10-
      K.

(b)   REPORTS ON FORM 8-K
      None



               OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
       SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (S-X, RULE 12-09)

                             (AMOUNTS IN THOUSANDS)
COLUMN A             COLUMN B         COLUMN  C         COLUMN D     COLUMN E
                                      ADDITIONS

                    BALANCE AT    CHARGED TO  CHARGED
                    DEDUCTIONS    BALANCE
                    BEGINNING     COSTS AND   TO OTHER    AMOUNTS      AT END
DESCRIPTION         OF PERIOD     EXPENSES    ACCOUNTS  CHARGED OFF  OF PERIOD


ALLOWANCE FOR DOUBTFUL ACCOUNTS:
 Year ended
 October 31, 1997     $1,775        $  642      $(31)(a)    $  502    $1,884


 Year ended
 October 31, 1996     $1,229        $  674      $(7)(a)     $  121    $1,775


 Year ended
 October 31, 1995     $1,810        $  369      $136(a)     $1,086    $1,229



VALUATION RESERVES FOR INVENTORY:
 Year ended
 October 31, 1997     $2,112        $  155      $-0-        $  -0-    $2,267


 Year ended
 October 31, 1996     $  616        $1,496      $-0-        $  -0-    $2,112


 Year ended
 October 31, 1995     $   765       $  -0-       $-0-       $   149    $  616

(a)The 1995 balance consists primarily of amounts recorded in connection with
   the acquisition of Flex Products. The 1997 and 1996 balances consist of
   recoveries and foreign currency translation effects.



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(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.

DATE: JANUARY 29, 1998              OPTICAL COATING LABORATORY, INC.


                                    BY:     /S/CRAIG B. COLLINS

                                        Craig B. Collins
                                        Chief Financial Officer

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 and
in the capacities and on the dates indicated:

SIGNATURE                               TITLE                            DATE


                               CHAIRMAN OF THE BOARD AND
                                CHIEF EXECUTIVE OFFICER
/S/HERBERT M. DWIGHT,        (Principal Executive Officer)    JANUARY 29, 1998

Herbert M. Dwight, Jr.

                                  DIRECTOR, PRESIDENT
                              AND CHIEF OPERATING OFFICER
/S/CHARLES J. ABBE           (Principal Operating Officer)    JANUARY 29, 1998

Charles J. Abbe

                                VICE PRESIDENT, FINANCE
/S/CRAIG B. COLLINS           AND CHIEF FINANCIAL OFFICER     JANUARY 29, 1998

Craig B. Collins             (Principal Financial Officer)


/S/HOLLY D. NEAL                  CORPORATE CONTROLLER        JANUARY 29, 1998

Holly D. Neal                (Principal Accounting Officer)



/S/JOHN MCCULLOUGH            DIRECTOR AND VICE PRESIDENT     JANUARY 29, 1998

John McCullough



/S/ DOUGLAS C. CHANCE                   DIRECTOR              JANUARY 29, 1998

Douglas C. Chance


/S/ SHOEI KATAOKA                       DIRECTOR              JANUARY 29, 1998

Shoei Kataoka


/S/JULIAN SCHROEDER                     DIRECTOR              JANUARY 29, 1998

Julian Schroeder


/S/RENN ZAPHIROPOULOS                  DIRECTOR               JANUARY 29, 1998

Renn Zaphiropoulos