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

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


                     For the Fiscal Year ended June 28, 1997
                                       OR

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


          For the transition period from _____________ to _____________

                         Commission File Number: 1-9716

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

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

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes __X__  No_____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of  registrant's  knowledge in definitive  proxy or information  statements
incorporated  by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. __X__
         
The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
registrant was $167,187,001 as of August 29, 1997.
                                                                             
Number of  shares  outstanding  of each of the  registrant's  classes  of common
stock, as of August 29, 1997.

       5,421,693 shares of Class A Common Stock par value, $.10 per share
       4,462,433 shares of Class B Common Stock par value, $.10 per share
                                                                              
<PAGE>
                       DOCUMENTS INCORPORATED BY REFERENCE

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

                                     PART I.

ITEM 1.           BUSINESS

ITEM 1 (a)        GENERAL DEVELOPMENT OF BUSINESS

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

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

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

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

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

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

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

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

ITEM 1 (b)        FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS 

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

ITEM 1 (c)        NARRATIVE DESCRIPTION OF BUSINESS 

PRODUCTS, SERVICES, MARKETS AND METHODS OF DISTRIBUTION 

Automotive Rearview Mirror Systems 

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

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

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

The  Company is in the  process of  developing  electronic  vision  systems  for
vehicles  that make use of advanced  sensors and video  microchip  technology to
control  dimmable  interior  and  exterior  mirror  systems.  Although  not  yet
commercialized,  the  development  of this  technology  is part of the Company's
strategy to be a technology leader in the market for automotive  rearview vision
systems.
 
Exterior  Rearview  Mirrors.  The Company has used its  expertise  and  customer
relationships  in the  interior  mirror  market to develop its product  line and
increase  its share of the market for  complete  exterior  mirror  systems.  The
recent  expansion  of  the  Company's  European   operations  has  substantially
increased  the  Company's  production  capacity  and sales of exterior  rearview
mirrors,  particularly  in the European  market.  The Company  believes that its
increased  presence in the European market will assist the Company in increasing
its sales of exterior  rearview mirrors in North America and other markets.  The
Company supplies exterior  rearview mirror  assemblies  primarily to Honda, Ford
and Mazda in the United States and to major European  automakers  including BMW,
Volkswagen, SEAT, Renault and Audi in Europe. The Company also supplies exterior
rearview mirror systems to automakers  throughout  southern China through one of
it's  Chinese  joint  ventures.  Exterior  rearview  mirrors are  combined  with
automatic or manua adjusting mechanisms,  wire harnesses and other hardware into
an  injection-molded,  color-matched  housing  and are more  complex  than  base
interior  rearview  mirrors.  The per vehicle  sales  price of exterior  mirrors
substantially  exceeds  that of  interior  rearview  mirrors  due to the greater
complexity of exterior  rearview mirrors and the fact that most new vehicles are
equipped with two exterior rearview mirrors.

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

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

Modular Windows

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

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

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

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

Interior Lighting and Trim

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

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

Door Handles

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

Non-Automotive Businesses

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

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

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

Non-Consolidated Joint Ventures

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

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

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

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

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

KAM Truck Components,  Inc. ("KAM").  The Company owns 19% of KAM which supplies
GLARESTOPPER(R) solid state electrochromic  mirrors for large trucks. The mirror
permits truck  drivers to manually  adjust the glare of their mirrors by a range
of up to ten times.
                                     
Applied Films  Corporation  ("AFC").  AFC is a major  manufacturer  of thin-film
glass coatings and related production equipment used in the production of liquid
crystal displays (LCD's). LCD's are widely used in watches,  games,  calculators
and  instrumentation.  AFC is  located  in  Boulder,  Colorado.  The  Company is
currently a 50 %  shareholder  of AFC.  AFC has  recently  filed a  Registration
Statement for an initial  public stock offering with the Securities and Exchange
Commission.  The  Company  plans to sell all of its shares in AFC in this public
offering.

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

In North  America and Europe,  the Company  markets its  automotive  products by
combining  the  engineering  product  expertise  of  members  of  the  Company's
engineering  staff with a customer  focused sales force,  who work together with
the Company's customers' design teams early in the design process. The Company's
wholly owned  European  subsidiaries  employ a sales force located in Europe and
Japan,  and also sell through a trading  company in Japan.  Nearly all sales are
made  directly to  automakers  with the  exceptio of some  interior and exterior
mirror glass components.
                                
The Company markets its  non-automotive  products through a sales force who also
work in  conjunction  with the  Company's  engineers.  The  Company  works  with
potential  customers  on the  development  of new  applications  for  electronic
information display products.
                        
NEW PRODUCT OR INDUSTRY SEGMENT INFORMATION 

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

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

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

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

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

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

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

SOURCES AND AVAILABILITY OF RAW MATERIALS

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

PATENTS, LICENSES, ETC.

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

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

SEASONAL NATURE OF BUSINESS

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

WORKING CAPITAL

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

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

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

IMPORTANCE OF LIMITED NUMBER OF CUSTOMERS

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

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

BACKLOG OF ORDERS

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

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

COMPETITION

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

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

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

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

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

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

RESEARCH AND DEVELOPMENT

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

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

HUMAN RESOURCES

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

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

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

ENVIRONMENTAL MATTERS

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

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

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

"SAFE HARBOR" PROVISIONS

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

ITEM 1 (d)        INFORMATION ABOUT FOREIGN OPERATIONS

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

North  American  revenues are revenues  produced by assets located in the United
States and Mexico. Export revenues are foreign revenues produced by identifiable
assets  located  in the  United  States.  European  revenues  are  generated  by
identifiable  assets at the  Company's  majority-owned  subsidiaries  located in
Germany,  Ireland,  Spain and France.  The Company  operates one  subsidiary  in
Germany,  Donnelly Hohe GmbH & Co. KG; three  subsidiaries in Ireland,  Donnelly
Mirrors Limited,  Donnelly Visions Systems Europe Limited and Donnelly  Eurotrim
Limited;  one in Spain,  Donnelly  Hohe  Espana  S.A.;  one in France,  Donnelly
EuroGlas Systems; and one in Mexico,  Donnelly De Mexico, S.A. de C.V. A summary
of the Company's operations by geographic area follows:
<TABLE>
In thousands   Year ended     1997         1996         1995 
Revenues:
<S>                        <C>          <C>          <C>    
North American:
     United States .....   $ 390,852    $ 338,355    $ 320,431
       Export:
         Americas ......      54,302       49,655       25,016
         Asia ..........       2,825          532          981
         Europe ........       1,829        1,917        2,786
         Other .........          76         --             15
                             449,884      390,873      349,229
European ...............     221,413       49,112       34,111
                           $ 671,297    $ 439,571    $ 383,340

Operating Income (Loss):

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

Identifiable Assets:

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

ITEM 2.           PROPERTIES

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

LOCATION


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

     *Leased  facilities.  Three of the ten  Holland,  Michigan  facilities  are
     leased.  Approximately  165,000 square feet of the  Dorfprozelten,  Germany
     facility is leased.  One of the two Schleiz,  Germany facilities is leased.
     One of the two Collenberg, Germany facilities is leased.
     **Owned or leased by a joint venture.
 
The Company believes its facilities are modern,  well-maintained  and adequately
insured and are primarily  utilized.  Because of its rapid growth in sales,  the
Company is continually evaluating the need for additional office,  manufacturing
and warehouse space.

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

ITEM 3.           LEGAL PROCEEDINGS

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

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

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

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

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

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

ADDITIONAL ITEM - EXECUTIVE OFFICERS OF THE REGISTRANT

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

                                       Positions and          Year First Elected
Name                           Age     Offices Held            Executive Officer

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

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

Officers are elected annually.

                                    PART II.

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

The Common  Shares are  traded on the New York Stock  Exchange  under the symbol
DON.  Prior to March 10,  1997,  the Common  Shares were traded on the  American
Stock  Exchange  under the symbol DON.  The  following  table sets forth for the
fiscal periods  indicating the high and low sale prices of the Common Shares, as
reported by the New York Stock Exchange, beginning on March 10, 1997, and by the
American  Stock  Exchange  prior to March 10, 1997,  and dividends  declared per
share.
<TABLE>
                                                                
     Fiscal                      1997                         Dividends
     Quarter              High             Low                 Declared
<S>                   <C>                <C>                   <C>   
First                 $14.70             $ 11.80               $ .08
Second                 17.90               14.10                 .08
Third                  20.00               16.00                 .10
Fourth                 17.38               14.38                 .10


Fiscal                           1996                        Dividends
Quarter                High             Low                   Declared

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

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

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

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

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

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

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

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

         Combined Consolidated Statements of Income - Page 26.

         Combined Consolidated Balance Sheets - Page 27.

         Combined Consolidated Statements of Cash Flows - Page 28.

         Combined Consolidated Statements of Shareholders' Equity - Page 29.

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

         Management's Responsibility for Financial Reporting - Page 41.

         Report of Independent Certified Public Accountants - Page 41.

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

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

Not applicable.

                                    PART III.

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

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

ITEM 11.          EXECUTIVE COMPENSATION

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

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                                    PART IV.

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

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

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

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

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

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

(b)  REPORTS ON FORM 8-K

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

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

(d)  FINANCIAL STATEMENT SCHEDULES

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

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

DONNELLY CORPORATION



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

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



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

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

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

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

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

/s/Donald R. Uhlmann 
Director 


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

Donnelly Corporation
Holland, Michigan


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

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



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

                                  Exhibit Index

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

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

10.1      Amended and Restated First Chicago Revolving Credit Loan Agreement was
          filed as part of Form 10-K for the fiscal year  ending June 29,  1996,
          as Exhibit 10.1 and is hereby incorporated by reference.
 
10.2      Nationwide Life Insurance  Company Debt Agreement was filed as part of
          Form 10-K for the fiscal year ended July 1, 1995,  as Exhibit 10.1 and
          is hereby incorporated herein by reference.
 
10.3      An English  language  summary of an Acquisition  Agreement and related
          documents  written in German  between the  Registrant,  Donnelly GmbH,
          Hohe GmbH & Co. KG ("Hohe") and other related  parties,  dated May 25,
          1995,  was filed as  Exhibit  2 to a Form 8-K  dated on June 9,  1995,
          which  has been  subsequently  amended  and that  Exhibit  2 is hereby
          incorporated herein by reference.
 
10.4      Nationwide Life Insurance  Company Debt Agreement was filed as part of
          Form 10-K for the fiscal year ended July 2, 1994,  as Exhibit 10.1 and
          is hereby incorporated herein by reference.

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

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

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

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

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

10.10     The Donnelly Corporation Non Employee Director's Stock Option Plan was
          filed as part of a  Registration  Statement on Form S-8  (Registration
          No.  33-55499)  as  Exhibit  99,  and the same is hereby  incorporated
          herein by reference.
 
10.11     The Donnelly Corporation Executive Compensation Plan was filed as part
          of Form 10-K/A for the fiscal year  ending June 29,  1996,  as Exhibit
          10.11 and is hereby incorporated by reference.
 <PAGE>
10.12     The Donnelly Corporation Unfunded Deferred Director Fee Plan was filed
          as part of Form 10-K/A for the fiscal year  ending June 29,  1996,  as
          Exhibit 10.12 and is hereby incorporated by reference.

10.13     The Donnelly  Corporation Pension Plan for Outside Directors was filed
          as part of Form 10-K/A for the fiscal year  ending June 29,  1996,  as
          Exhibit 10.13 and is hereby incorporated by reference.
 
10.14     The Donnelly  Corporation  Supplemental  Retirement  Plan was filed as
          part of Form  10-K/A for the fiscal  year  ending  June 29,  1996,  as
          Exhibit 10.14 and is hereby incorporated by reference.

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

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

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

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

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

13        Certain  portions of the Donnelly  Corporation  1997 Annual  Report to
          Shareholders.   This   information  was  delivered  to  the  Company's
          Shareholders  in  compliance  with  Rule  14(a)-3  of  the  Securities
          Exchange Act of 1934, as amended.
 
21        Schedule of Affiliates.
 
23        Consent of BDO Seidman, LLP, independent public accountants.
 
27        Financial Data Schedule.

<PAGE>
                                                                       EXHIBIT 4

48658
                                                                          SHARES
NUMBER

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


             THIS CERTIFIES THAT

             IS THE OWNER OF

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


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


     [DONNELLY CORPORATION SEAL]


     Dated


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


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


                                                          AUTHORIZED SIGNATURE
<PAGE>
                              DONNELLY CORPORATION


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


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


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


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

For value received, _______________hereby sell, assign and transfer unto


   PLEASE INSERT SOCIAL SECURITY OR OTHER
      INDENTIFYING NUMBER OF ASSIGNEE



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



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


irrevocably constitute and appoint______________________________________________


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


Dated, ___________________



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

                      DONNELLY CORPORATION AND SUBSIDIARIES

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

GENERAL

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

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

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

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

RESULTS OF OPERATIONS

Comparison of 1997 to 1996

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

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

The Company  utilizes  interest  rate swaps and foreign  exchange  contracts  to
manage exposure to fluctuations in interest and foreign currency exchange rates.
The risk of loss to the  Company  in the  event of  nonperformance  by any party
under these agreements is not material.

"Safe Harbor" Provisions

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

Recently Issued Accounting Standards

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

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

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

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

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

Additional paid-in capital ...........................      28,765       25,158
Cumulative foreign currency translation adjustment....      (6,038)        (771)
Retained earnings ....................................      69,578       63,147
                                                         ---------    ---------
     Total shareholders' equity ......................      93,827       88,852
                                                         ---------    ---------
     Total liabilities and shareholders' equity.......   $ 358,293    $ 271,492
                                                         =========    =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DONNELLY CORPORATION AND
SUBSIDIARIES
-------------------------------------------------------------------------------
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
                                        June 28,      June 29,      July 1,
In thousands          Year ended         1997          1996         1995
-------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S>                                     <C>         <C>         <C>
Net income ..........................   $ 10,020    $  8,454    $ 11,009
Adjustments to reconcile net
income to net cash from
     (for) operating activities:
Depreciation and amortization .......     21,460      12,984      11,184
Gain on sale of property and ........       (605)          0           0
equipment
Gain on sale of affiliate stock .....       (872)          0           0
Deferred pension cost and ...........      5,315       4,934       2,742
postretirement benefits
Deferred income taxes ...............     (4,723)     (2,386)     (2,108)
Minority interest income (loss) .....     (1,646)       (186)        371
Equity in (earnings) losses of ......        765       1,160        (453)
affiliated companies
Restructuring charges (gain) ........      9,965       2,399      (2,265)
Changes in operating assets and
liabilities, net of
     effects of sale of businesses:
Sale of accounts receivable .........     44,604           0           0
Accounts receivable .................    (17,661)    (22,792)     (3,736)
Inventories .........................     (2,101)     (2,186)     (2,841)
Prepaid expenses and other current ..     (2,074)     (6,117)     (3,304)
assets
Accounts payable and other current ..      9,416       3,134       6,320
liabilities
Other ...............................     (4,149)        189         131
                                        --------    --------    --------
        Net cash from (for) .........     67,714        (413)     17,050
        operating activities
                                        --------    --------    --------
INVESTING ACTIVITIES
Capital expenditures ................    (35,151)    (20,585)    (29,154)
Investments in and advances to equity     (4,537)    (13,966)    (18,824)
affiliates
Purchase of minority interest .......          0      (2,100)       --
Proceeds from sale of businesses ....          0        --        14,200
Proceeds from sale of property and ..      3,078           0           0
equipment
Proceeds from sale of affiliate stock        974           0           0
Proceeds from sale-lease back .......          0        --        10,513
Change in unexpended bond proceeds ..      1,344         316      (1,015)
Cash increase due to consolidation of      9,963           0           0
subsidiary
Other ...............................       (884)       (854)       (601)
                                        --------     -------    --------
        Net cash for investing ......    (25,213)    (37,189)    (24,881)
        activities
                                        --------     -------    --------
FINANCING ACTIVITIES
Proceeds from long-term debt ........      8,433      36,195      15,000
Repayments on long-term debt ........    (39,887)       --        (1,764)
Resources provided by minority ......          0        --           491
interest
Common stock issuance ...............        925         706         478
Dividends paid ......................     (3,039)     (3,220)     (2,524)
Other financing .....................       (415)          0           0
                                         -------     -------    --------
        Net cash from (for) .........    (33,983)     33,681      11,681
        financing activities
                                         -------     -------    --------
Effect of foreign exchange rate .....     (1,253)          0           0
changes on cash
Increase (decrease) in cash and cash       8,518      (3,921)      3,850
equivalents
Cash and cash equivalents, beginning       1,303       5,224       1,374
of year
                                         -------     -------    --------
Cash and cash equivalents, end of ...   $  8,568    $  1,303    $  5,224
year                                     =======     =======    ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
DONNELLY CORPORATION AND SUBSIDIARIES
-----------------------------------------------------------------------------------------------------------------------------------
COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY  
                                                        Common Stock                                        Cumulative
                                                                                                              foreign
                                                                                 Donnelly      Additional    currency
                                             Preferred                            Export        paid-in     translation    Retained
In thousands, except share data                Stock       Class A    Class B    Corporation    capital     adjustment     Earnings
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>        <C>        <C>           <C>          <C>            <C>
Balance, July 2, 1994 ....................   $    531      $  415     $   358    $   4         $ 20,730    ($  640)        $ 49,428
Net Income ...............................                                                                                   11,009
Foreign currency translation adjustment ..                                                                     794
Cash dividends declared:
Preferred stock - $.75 per share .........                                                                                      (40)
Common stock:
Class A - $.26 per share .................                                                                                   (1,337)
Class B - $.26 per share .................                                                                                   (1,147)
Common stock issued under employee
     benefit plans .......................                      3                                   475
Change in investment in VISION Group plc .                                                        2,317
                                                                                                              
Balance, July 1, 1995 ....................        531         418         358        4           23,522        154           57,913
Net Income ...............................                                                                                    8,454
Foreign currency translation adjustment ..                                                                    (925)
Cash dividends declared:
Preferred stock - $.75 per share .........                                                                                      (40)
Common stock:
Class A - $.32 per share .................                                                                                   (1,690)
Class B - $.32 per share .................                                                                                   (1,435)
Common stock issued under employee
     benefit plans .......................                      7                                   699
Change in investment in VISION Group plc .                                                          937
Other ....................................                                                                                      (55)
                                                                                                           
Balance, June 29, 1996 ...................        531         425         358        4           25,158       (771)          63,147
Net Income ...............................                                                                                   10,020
Foreign currency translation adjustment ..                                                                     564
Foreign currency trasaction adjustments on
   long-term advances to affiliates ......                                                                  (5,831)
Cash dividends declared:
Preferred stock - $.75 per share .........                                                                                      (40)
Common stock:
Class A - $.36 per share .................                                                                                   (1,941)
Class B - $.36 per share .................                                                                                   (1,608)
Issuance of common stock in a five-for-
           four stock split ..............                    108          88                      (204)
Common stock issued under employee
     benefit plans .......................                      8                                   925
Change in investment in VISION Group plc .                                                        2,886
Balance, June 28, 1997 ...................      $ 531       $ 541       $ 446     $  4         $ 28,765   ($ 6,038)        $ 69,578
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION

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

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

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

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR

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

USE OF ESTIMATES

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

FOREIGN CURRENCY TRANSLATION

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

REVENUE RECOGNITION

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

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

INVENTORIES

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

CUSTOMER TOOLING TO BE BILLED

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

PROPERTY, PLANT AND EQUIPMENT

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

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

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

INCOME TAXES

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

INCOME PER SHARE OF COMMON STOCK

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

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

IMPAIRMENT OF LONG-LIVED ASSETS

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

RECLASSIFICATIONS

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


3.   INVESTMENTS IN AND ADVANCES TO AFFILIATES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.   INVENTORIES

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

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

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

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

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

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

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

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

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

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

8.   ACCOUNTS RECEIVABLE SECURITIZATION

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

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

9.   FINANCIAL INSTRUMENTS

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

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

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

A. Pension Benefits

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

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

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

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

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

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

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

11.  TAXES ON INCOME

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A. Litigation

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

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

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

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

B. Other

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

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

16.  COMMON STOCK PRICE PER SHARE - UNAUDITED

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

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


                                    SCHEDULE OF AFFILIATES

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

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

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

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

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

DONNELLY HOLDING GmbH             ORGANIZED UNDER                       100%
                                  THE LAWS OF GERMANY

DONNELLY INTERNATIONAL, INC.      MICHIGAN                              100%

DONNELLY TECHNOLOGY, INC.         MICHIGAN                              100%

DONNELLY INVESTMENTS, INC.        MICHIGAN                              100%

DONN-TECH INC.                    MICHIGAN                              100%

DONNELLY RECEIVABLES              MICHIGAN                              100%
CORPORATION

DONNELLY OPTICS CORPORATION       MICHIGAN                              100%

INFORMATION PRODUCTS, INC.        MICHIGAN                              100%


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

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

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

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

DONNELLY HAPPICH                  MICHIGAN                              60%
TECHNOLOGIES, INC.

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

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

APPLIED FILMS CORPORATION         COLORADO                              50%

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

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


Consent of Independent Certified Public Accountants


Donnelly Corporation
Holland, Michigan

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



/s/BDO Seidman, LLP

Grand Rapids, Michigan
September 23, 1997
<PAGE>