<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K

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

                                      OR

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

       For the transition period from July 4, 1999, to December 31, 1999

                        Commission File Number: 1-9716

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

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

    49 West Third Street, Holland,                   49423-2813
               Michigan                              (Zip Code)
    (Address of principal executive
               offices)

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

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

<TABLE>
<CAPTION>
                                              Name of each exchange on which
              Title of each class                       registered
              -------------------             ------------------------------
      <S>                                  <C>
              Class A Common Stock               New York Stock Exchange
</TABLE>

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

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 $75,075,165 as of February 29, 2000.

Number of shares outstanding of each of the registrant's classes of common
stock, as of February 29, 2000.
  6,016,523 shares of Class A Common Stock par value, $.10 per share
  4,136,889 shares of Class B Common Stock par value, $.10 per share
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                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement for its annual meeting of
shareholders to be held May 16, 2000, are incorporated by reference into Part
III of this report.

                                    PART I.

ITEM 1. BUSINESS

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The terms "believe,"
"anticipate," "intend," "goal," "expect," and similar expressions may identify
forward-looking statements. 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, (iv) market
development of specific products of the Company, including electrochromic
mirrors, (v) whether the Company successfully implements its European
restructuring, (vi) fluctuations in foreign currencies and (vii) other risks
and uncertainties. The Company does not intend to update these forward-looking
statements.

ITEM 1 (a) GENERAL DEVELOPMENT OF BUSINESS

Donnelly Corporation ("the Company"), incorporated in Michigan in 1936, is a
technology driven, customer focused, international supplier of automotive
parts and component systems through manufacturing operations and various joint
ventures in North and South America, Europe and Asia. The Company primarily
supplies automotive customers around the world with rearview mirror systems,
modular window systems and handle products. The Company has experienced
approximately a 16% compounded growth rate in net sales since fiscal 1989 due
to its strong positions in the Company's traditional product markets and the
acquisition in fiscal 1995 of Donnelly Hohe GmbH & Co. KG ("Donnelly Hohe").
Management believes that based on information available, the Company is the
largest exterior rearview mirror manufacturer in the world and has the largest
market share in the U.S. for interior rearview prismatic mirror and modular
window systems.

The Company has developed a strategic plan designed to improve shareholder
value by focusing on the following key areas:

  1. Developing core automotive products, primarily by increasing dollar
     content per vehicle through the expansion of market share of existing
     products, introduction of new technologies and increasing volume through
     penetration into new and emerging markets;
  2. Improving the overall operating performance of the Company's European
     Operations;
  3. Extending the Company's capabilities in value-added electronics
     technologies; and
  4. Repositioning non-core businesses through action of merging or divesting
     these businesses.

1. Developing Core Automotive Products:

The Company's core automotive product offerings have experienced more than a
16% compounded growth rate in net sales since fiscal 1989. The increase in net
sales has been due to growth in the Company's established products of complete
outside mirrors, modular encapsulated windows and value-added features on
interior mirrors; introduction of new products and technologies such as
electrochromic mirrors, bonded hardware modular window systems and door handle
products; and through acquisitions, primarily of Donnelly Hohe in

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Europe. The Company has also benefited from content on strong selling vehicles
such as the DaimlerChrysler minivan, the Ford Expedition and Ford Taurus in
North America and the Volkswagen Passat and Volkswagen Polo in Europe. The
continued penetration of the Company's products in existing and new markets
and its offerings of value-added innovative technologies are an important
strategy to the Company's overall financial performance.

The continued introduction of new advanced technologies is part of the
Company's strategy. Over the past five years, the Company has introduced many
new mirror technologies including various lighting, electronic and mechanical
features that improve the overall safety and functionality of the vehicle's
mirror system. In November 1999, the Company announced that it received a
major order for business in which it will integrate advanced electronic
features into interior rearview mirrors (both base prismatic and
electrochromic mirrors) to support General Motors' new OnStar(R) system.
Management believes that the Company is the only company with the capabilities
to integrate the electronics into both prismatic and electrochromic mirrors.
Both kinds of mirrors may also include additional electronic features such as
compass and temperature displays and precision interior map lighting. In
November 1999, the Company introduced the Solid Polymer Matrix ("SPM(TM)")
technology to produce electrochromic automatic-dimming rearview mirrors that
the Company believes are more durable than competing products available on the
market. A recent product offering is the Company's SmartRelease(TM) trunk
release system, which uses advanced electronic sensors to detect heat and
motion and automatically opens the trunk if it senses a person trapped inside.
The Company has received an order from General Motors for the Company's Smart
Release(TM) system, which will debut on the mid-year 2000 Chevrolet Impala and
Monte Carlo. General Motors has announced that automatic emergency trunk
release systems will be included on all of their vehicles with trunks by 2003.
In modular windows, the Company has most recently developed flush surface
window systems involving various bonding and encapsulation systems that allow
for greater design flexibility and reduced cost to the automotive vehicle
manufacturers. In addition, the Company recently commercialized technology for
an integrated sliding window system popular in the light truck market segment
and through its 50/50 joint venture, Donnex, the Company intends to produce
and deliver complete, ready-to-install windows and window systems to
automotive customers on a just-in-time basis and in sequence. 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 it to provide
sophisticated integrated modules and systems and to perform the increased
responsibilities automotive suppliers are expected to manage.

The global market position of the Company's automotive products has been
enhanced through various joint ventures in the emerging markets of Asia and
South America. In Asia, the Company operates four joint ventures for the
manufacture and sale of the Company's automotive products into the Asian and
Australian markets; Varitronix EC (Malaysia) Sdn. Bhd. ("Varitronix EC") for
electrochromic mirror cells; Shanghai Donnelly Fu Hua Window Systems Company
Ltd. ("Shanghai Donnelly Fu Hua") for window systems; Shunde Donnelly Zhen Hua
Automotive Systems Co. Ltd. ("Shunde Donnelly Zhen Hua"); and Shanghai
Donnelly Ganxiang Automotive Systems Company, Ltd. ("Shanghai Donnelly
Ganxiang") for exterior mirror products. In South America, the Company
operates Donnelly/Arteb, LTDA ("Donnelly/Arteb") for the manufacture and sale
of interior, exterior and electrochromic mirror products into this market.
These joint ventures provide the Company with key entries into emerging
automotive markets, which are expected to have a combined overall rate of
increase in industry automotive production greater than the markets in North
America and Europe. See Item 1 (c) "Narrative Description of Business--Joint
Ventures" for additional information concerning these joint ventures.

2. Improving Operating Performance of European Operations:

During the past five years, the Company has significantly expanded its
presence in Europe. The Company's strategy to penetrate European markets has
been primarily through acquisitions, the most significant of which was
Donnelly Hohe in March 1995, and through market penetration of the Company's
electrochromic mirrors and modular window systems. Donnelly Hohe, based in
Germany, serves many of the main auto producers in Europe. These include BMW,
Renault, Volkswagen, Audi, Volvo, Opel and Ford in exterior mirrors. The

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Company also offers interior mirrors and offers certain non-automotive
products through three operating facilities in Germany and one in Spain.

In September 1998, the Company's senior management team made the commitment to
dedicate additional management resources from North America to assist in the
improvement in the Company's European operations by assigning three senior
executives to long-term assignments for Europe. Two of those senior managers
remain in Europe full-time. In February 1999, the Company announced a European
turnaround plan. The turnaround plan was based on a strategy to improve the
overall operating efficiency and customer service of the European organization
by 1) re-organizing certain manufacturing and customer service functions into
a customer focused structure; 2) consolidating two of the German manufacturing
facilities; 3) implementing throughout Europe the Donnelly Production System,
the Company's approach to lean manufacturing processes; and 4) by re-aligning
sales and engineering functions throughout Europe. The Company combined the
remaining actions of the 1997 restructuring which primarily consisted of the
elimination and outsourcing of redundant operations in Germany with the new
European turnaround initiative. In the fourth quarter of fiscal 1997, the
Company recorded a $10.0 million pretax restructuring charge, or $4.0 million
at net income, for this plan. An adjustment of $1.1 million was recorded to
the restructuring reserve in fiscal 1998 associated with changes to the
restructuring plan.

In the third quarter of fiscal 1999, an $8.8 million pretax restructuring
charge, or $3.5 million at net income, was recorded for the European
turnaround plan. The restructuring charge included $1.4 million for the
impairment of assets and a reserve of $7.4 million for anticipated incremental
cash expenditures for the severance and voluntary incentive programs for
approximately 200 production, production support, sales and engineering
employees. The Company is also funding approximately $4.3 million for the
construction of shipping and warehousing facilities, relocation of employees
and new material handling and storage equipment associated with the turnaround
plan. These costs do not qualify as restructuring under Emerging Issues Task
Force ("EITF") 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)," and therefore are included in the Company's capital
expenditures and operating expenses. As of December 31, 1999, $1.4 million was
expended for the completion of these facilities with the remaining
expenditures expected to be made by the end of May 2000, the majority of which
will be capitalized. It is expected that all actions associated with the plan
will be substantially completed by the end of calendar year 2000.

As of December 31, 1999, cash payments of $6.8 million (including the impact
of exchange rate adjustments) had been incurred for the termination of 146
employees associated with the plan. In addition, the Company has experienced a
net reduction of approximately 15 employees through natural attrition. Cash
payments of approximately $8.5 million are expected to be required over the
next twelve months to support these plans primarily for the payment of future
severance and voluntary termination benefits.

3. Extending the Company's Electronics Capabilities:

New applications in electronics continue to play an increasing role in the
Company's future. As vehicles become more electronically sophisticated, auto
manufacturers are looking for opportunities to package value-added features
into new areas of the car. In response to this continued market development,
the Company invested in a new venture, Donnelly Electronics, Inc. ("Donnelly
Electronics"), located in Holly, Michigan, which specializes in the design and
manufacture of electronic components and sub-assemblies. See Item 1 (c)
"Narrative Description of Business--Joint Ventures" for a more detailed
discussion of this joint venture. In addition, in the first quarter of 2000,
the Company purchased assets in Ireland, which will be operated by Donnelly
Electronics, for the manufacture of electronic components in Europe.

The Company has developed independently or acquired technology for a number of
critical electronic product modules for use in the Company's mirror systems or
for independent sale. These products include memory devices for actuators,
power fold modules, ground illumination features, electronic remote entry
systems and other products. The Company is a leader in developing "plug and
play" modules that are flexible and allow

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vehicle manufacturers to offer different configurations of features through
the same module. An example of these modules is an interior electrochromic
mirror offered to a luxury vehicle manufacturer in Europe. The mirror
functions as a communications node for the 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.

In November 1999, the Company announced a major new order for business in
which the Company will package and integrate advanced electronic features into
interior rearview mirrors to support General Motors' new OnStar(R) system. The
Company expects to begin shipping product on this order in mid-2000 with the
electronic content included in a mix of base prismatic and electrochromic
mirrors. Both kinds of mirrors may also include additional electronic features
such as compass and temperature displays and precision interior map lighting.

A recent product offering is the Company's SmartRelease(TM) trunk release
system, which uses advanced electronic sensors to detect heat and motion and
automatically open the trunk if it senses a person trapped inside. The
SmartRelease(TM) will debut on the mid-year 2000 Chevrolet Impala and Monte
Carlo. This technology marks an evolution in the auto industry's efforts to
make vehicles a safer environment. General Motors has announced that an
automatic emergency trunk release system will be included on all of their
vehicles with trunks by 2003. The SmartRelease(TM) system is more
sophisticated than the manual emergency trunk release handles that the Company
developed and currently supplies to automakers. The electronic sensors require
very little movement on the part of a person trapped in a trunk to activate.

4. Repositioning Non-core Businesses

As part of the Company's commitment to focus on its core automotive
businesses, the Company has continued initiatives to re-position its non-core
businesses. During calendar years 1998 and 1999, the Company has executed the
following actions associated with these businesses:

  On September 14, 1999, the Company sold its 50% interest in Lear Donnelly
  Overhead Systems, LLC ("Lear Donnelly") to Lear Corporation ("Lear"), its
  partner in the joint venture, resulting in a pretax gain of $14.1 million,
  or $0.82 per share, after tax. At the closing, in consideration for its
  interest in Lear Donnelly, the Company received a Lear Donnelly product
  line and other net proceeds of $28.4 million, which consisted of $24.2
  million in cash as well as certain assets, net of liabilities assumed. The
  Company's equity in the financial results of Lear Donnelly are no longer
  included in the Company's financial statements after September 1999.

  At the time of the sale, the value of the product line transferred to the
  Company and other related issues remained in negotiation or arbitration for
  determination of final valuation. Management recorded an estimate at the
  time of the sale for the expected outcome of these negotiations based on
  the best information available. In December 1999, the Company completed the
  final negotiation of these issues, which included the purchase of another
  product line for cash of $2.4 million. The final negotiated settlement
  resulted in an additional pretax gain to the Company of $4.4 million, or
  $0.29 per share, after tax, which was recognized in the second quarter of
  the transition period.

  Lear Donnelly operated by selling its products to Lear and the Company,
  which in turn sold them to their customers. Due to the transfer to Lear of
  the Company's interior lighting and trim sales contracts manufactured by
  Lear Donnelly, future annual net sales are expected to be reduced by
  approximately $60 million to $65 million. Since the joint venture operated
  at approximately break-even since its formation, the sale is not expected
  to have a material impact on the Company's future results of operations.
  However, gross profit and operating margins as a percent of sales for
  future periods should be favorably impacted.

  In April 1999, the Company formed Schott-Donnelly LLC Smart Glass Solutions
  ("Schott Donnelly"), a 50-50 joint venture with Schott North America
  Manufacturing, Inc. ("Schott"), a wholly owned subsidiary of Schott Glas,
  which is based in Germany and is one of the world's leading producers of
  specialty glass products. The joint venture is developing electrochromic
  glass for automotive and architectural applications. The Company
  contributed certain assets and liabilities upon the formation of the joint
  venture and received

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  $2 million in cash, which was recorded as a pretax gain. In accordance with
  the LLC operating agreement, losses generated by the joint venture will be
  allocated to Schott until Schott has contributed $9.5 million.

  In the second and third quarters of fiscal 1999, the Company sold its
  remaining interest in VISION Group plc ("VISION Group"). The Company
  received $8.6 million in proceeds and recognized a combined pretax gain of
  approximately $5.5 million, or $0.35 per share, after tax. In the second
  quarter of fiscal 1997, the Company sold a portion of its investment in
  VISION Group in conjunction with a public offering of VISION Group shares,
  resulting in a $0.9 million pretax gain. The Company's equity in the
  financial results of VISION Group is no longer included in the Company's
  financial statements after November 1, 1998.

  In December 1998, the Company merged its wholly owned subsidiary, Donnelly
  Optics Corporation ("Optics"), into a wholly owned subsidiary of Applied
  Image Group, Inc. ("AIG"), a New York Corporation. In the merger, the
  Company received a 13% interest in AIG and a $5 million convertible note.
  AIG develops and manufactures opto-imaging products for the lighting,
  automotive, optical and photonics industries. The Company accounts for its
  investment in AIG on the cost method; therefore, the financial results of
  Optics are no longer included in the Company's financial statements after
  December 1, 1998.

Through repositioning these businesses, management has been able to realize
the strong return to shareholders for the investments made to develop them. As
a result of these transactions, the operating results of VISION Group, Optics
and Lear Donnelly are no longer included in the Company's combined
consolidated financial statements. In addition, the Company's net sales are
subject to fluctuations in industry car and light truck build, primarily for
North America and Europe. North American industry build has been particularly
strong in calendar 1998 and calendar 1999. Adjusted for car and light truck
build at standard industry volumes and the impact of the acquisition of
Donnelly Hohe, the Company believes that new booked orders will be consistent
with historical growth levels. Over the next several months, overall sales
growth may appear lower due to the Company's sale of its 50% interest in Lear
Donnelly. Due to the transfer to Lear of the Company's interior lighting and
trim sales contracts included in the joint venture, future annual net sales
are expected to be reduced by approximately $60 million to $65 million. In
addition, the Company expects door handle product sales to be lower due to the
Company's decision to replace existing capacity for certain door handle
programs with higher value-added complete outside mirror products. Future
booked sales for outside mirrors and inside mirror products with strong value-
added content, and products with innovative electronic capabilities, are
expected to provide the main growth for the Company in the foreseeable future.
Many of these new programs are expected to launch during mid-calendar 2000.
See Item 1 (b) "Financial Information About Industry Segments" and Item 1 (c)
"Narrative Description of Business" for a more thorough discussion about the
Company's product and market segmentation.

The strategic initiatives highlighted, 1) Developing Core Automotive Products,
2) Improving European Operations, (3) Extending the Company's Electronics
Capabilities and 4) Repositioning Non-Core Business, have established the
foundation for the Company's ability to improve shareholder value. This can be
evidenced by a reported net income from operations of $17.8 million for the
twelve months ended December 31, 1999, a record for the Company. These
financial developments combined with the strong commercial developments for
new orders booked (initially launching in late calendar 2000) and the
continued introduction of advanced technologies support the Company's ability
to grow shareholder value. Management remains committed to the overall
strategies of continued implementation of the Company's operational systems,
introducing new and innovative technologies, focusing on core businesses and
developing and enabling highly skilled people.

ITEM 1 (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

The Company is primarily managed based on geographic segments and the product
markets they serve. The Company has two reportable segments: North American
Automotive Operations ("NAAO") and European Automotive Operations ("EAO"). The
operating segments are managed separately as they each represent a strategic
operational component that offers the Company's product lines to customers in
different geographical markets. Although each segment offers all of the
Company's automotive product lines, the majority of the Company's net sales
from modular windows and handle products originate from NAAO. Operating
financial

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information is available that is evaluated regularly by the Company's
corporate management team, in deciding how to allocate resources and in
assessing each segments' performance. The corporate management team, which
establishes the overall strategy and policy standards for the Company,
includes the chief executive officer, chief operating officers and senior
executives in administration, finance, operations and technology. The chief
operating officer of each segment, each of whom is a member of the corporate
management team, is responsible for the management of profitability and cash
flow for each respective segments' operations. In addition, the Company
provides products to certain non-automotive markets, none of which are
reportable segments. See Note 4 to the consolidated financial statements for
further financial information related to business segments.

ITEM 1 (c) NARRATIVE DESCRIPTION OF BUSINESS

FISCAL YEAR AND SEASONAL NATURE OF BUSINESS

Effective July 4, 1999, the Company changed the date of its fiscal year end
from the Saturday nearest June 30 to December 31. The fiscal years ended July
3, 1999; June 27, 1998; and June 28, 1997; each consisted of 53, 52 and 52
weeks, respectively. The six-month periods ended December 31, 1999, and
January 2, 1999, consisted of 26 and 27 weeks, respectively. The six-month
period ended December 31, 1999, is referred to as the transition period. All
year and quarter references relate to the Company's prior fiscal years and
fiscal quarters, unless otherwise stated.

Also in 1999, the Company changed the fiscal year ends of its German and
Spanish subsidiaries from May 31 to December 31. Prior to this change, these
subsidiaries reported their results of operations on a one-month lag. The
Company's results of operations for the transition period ended December 31,
1999, include the results of these subsidiaries for the six-months ended
November 30, 1999. The results of operations for the period of December 1 to
December 31, 1999, for these subsidiaries were charged to retained earnings in
order to report only six months of operating results. Cash flow activity for
this same period is reflected as a single line item in the Combined
Consolidated Statement of Cash Flows.

The Company's net sales and net income may be subject to significant
fluctuations attributable primarily to production schedules of the Company's
major automotive customers. In addition, the Company has benefited from strong
product content on light trucks, including sport utility vehicles ("SUVs"), as
compared to automobiles. These factors cause results to fluctuate from period
to period and year to year. The comparability of the Company's results on a
period to period basis is also affected by the Company's formation and
disposition of subsidiaries, joint ventures and alliances, and acquisitions
and investments in new product lines.

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 of interior and exterior rearview mirror
products and believes it is the world's largest producer of automotive
rearview mirror systems.

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

The Company markets, sells, manufactures and distributes EC day/night
automotive mirror systems, which are electrically dimmable to reduce the glare
from the headlights of other vehicles approaching from the rear. The Company
has continued to actively develop newer and more advanced EC technologies for
the automotive marketplace and has developed or licensed a number of
technologies, of which several are already available for commercial use.

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The Company produces GLAREFREE(TM) EC mirrors for Ford, Volkswagen, Audi, BMW,
PSA, DaimlerChrysler, General Motors, Volvo, Renault, Honda, Subaru,
Mitsubishi, Porsche, Jaguar and Daewoo. These purchase agreements illustrate
the Company's position as a strong player in a global market for
electrochromic mirrors that industry sources expect to grow to $1 billion. The
Company believes it is the only exterior mirror manufacturer that is
vertically integrated with EC cell manufacturing capability. With strong
technologies to offer and having favorably settled the patent issues that had
hampered its ability to compete in recent years, the Company has set ambitious
goals for increasing its EC mirror market share in the years ahead. During the
last twelve months the Company has doubled its production of EC mirrors, and
is on track to double EC volumes again within the next twenty-four months.

In November 1999, the Company introduced the SPM(TM) technology to produce EC
automatic-dimming rearview mirrors that the Company believes are more durable
than competing products available on the market. Over time, the Company
expects that most or all of its EC mirror products will be based on SPM(TM)
technology. EC mirrors using the SPM(TM) technology are expected to appear on
production vehicles in North America and Europe in calendar 2000.

In April 1999, the Company formed Schott Donnelly, a 50-50 joint venture, with
Schott, one of the world's leading producers of specialty glass products. The
joint venture is developing electrochromic glass for automotive and
architectural applications.

Interior Rearview Mirrors. The Company has a predominant share of the U.S.
market for interior rearview prismatic mirrors and in calendar 1999 sold
approximately 25.9 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, electronic compasses, temperature and other displays.

In November 1999, the Company announced a major new order for business in
which the Company will package and integrate advanced electronic features into
interior rearview mirrors as part of General Motors' new OnStar(R) system. The
Company expects to begin shipping product on this order in mid-2000 with the
electronic content included in a mix of base prismatic and electrochromic
mirrors. Management believes that the Company is the only company with the
capabilities to integrate the electronics into both prismatic and
electrochromic mirrors. Both kinds of mirrors may also include additional
electronic features such as compass and temperature displays and precision
interior map lighting.

The Company manufactures and markets automotive interior rearview mirrors
using 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 represented approximately 20%
and 8% of all interior rearview mirrors sold by all suppliers to original
equipment manufacturers in the North American and European markets,
respectively, for the 1999 model year. The market for electrochromic mirrors
continues to grow and in 1999, electrochromic mirrors were offered on
approximately 52 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
replace 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 rear-vision
systems. This sophisticated camera system made its debut on the General
Motors' Precept concept vehicle and represents the most technologically
advanced rear-vision product that the Company has ever produced. The Company
has been engaged in a research program with certain key customers for the
development and commercialization of this technology.

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Exterior Rearview Mirrors. The Company believes it is the largest exterior
rearview mirror manufacturer in the world and considers itself a technology
and manufacturing leader with manufacturing facilities in the United States,
Germany, Spain, Ireland, Brazil and China. Through these manufacturing
locations, the Company has a strong presence in each major automotive market
in the world. The Company has booked significant new orders in recent years
that will make this product line the fastest growing business for the Company.
In calendar year 2000, the Company will launch new business with annual sales
of approximately $40 million, including orders for twelve General Motors'
vehicles, the largest single exterior rearview mirror order in the Company's
history.

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 Company believes that its strong
presence in the automotive markets of North America and Europe are augmented
by the manufacturing locations in the emerging markets of South America and
Asia. In addition, the Company believes that a global presence in product
development, sales, marketing, manufacturing and distribution in the markets
provides a strong competitive advantage. 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, Renault,
Audi and Ford in Europe. In addition, the Company is launching its largest
outside mirror order in the Company's history with General Motors in calendar
2000. The Company also supplies exterior rearview mirror systems to automakers
throughout southern China through its Chinese joint ventures and South America
through its joint venture in Brazil.

Exterior rearview mirrors are combined with automatic or manual adjusting
mechanisms, wire harnesses and other hardware within 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 also manufactures and markets dimmable electrochromic exterior
rearview mirrors. The Company believes that electrochromic rearview mirrors
currently represent only 9% of all exterior rearview mirrors in the North
American market for the 1999 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.

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 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. Other innovative
product offerings by the Company are 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 windshields. The Company produces modular windows for
DaimlerChrysler, Ford, General Motors, Honda, Isuzu and Toyota in North
America and DaimlerChrysler and Isuzu in Europe. The Company's modular windows
are used on many popular vehicles such as the DaimlerChrysler Caravan/Voyager
minivan, the Jeep Grand Cherokee, the Ford Expedition and the Ford
Taurus/Sable.

The Company believes that its materials technology and manufacturing
capabilities provide a significant competitive advantage in the market for
modular windows. The Company offers a variety of modular window technologies
including molded-in body color panels, flush bonded hardware as well as single
and double sided

                                       8
<PAGE>

encapsulation. Modular windows can be molded using polyvinyl chloride ("PVC")
or a urethane reaction injection molding process. 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 has invested in Donnex, a 50-50 joint venture with Essex Specialty
Products, Inc., the world's leading producer of automotive adhesives and
sealants. Donnex was established for the marketing, manufacture and delivery
of complete, ready-to-install windows and window systems to automotive
customers on a just-in-time basis and in sequence.

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, particularly in the North American market for light trucks
and SUVs. The Company expects continued growth in the modular window market,
as evidenced by the number of modular windows that automakers have specified
for future models.

Handle Products

The Company produces a wide variety of interior and exterior handle products
for Ford, Honda, Mazda, Nissan and Volvo. This product line was established
based on the Company's capabilities in color-matched painting and plastic
injection molding. The Company supplies various handle products designs
including plastic, diecast and chrome-plated door handles as well as products
with value-added electronic features. As a part of the overall strategy of the
Company, handle product sales are expected to decrease due to the Company's
decision to replace existing capacity for certain door handle programs with
higher value-added complete outside mirror products. Handle products are
synergistic to the Company's complete exterior rearview mirror product line,
and are marketed by combining the Company's capabilities in design, painting
and added features, such as electronics for both product lines.

Interior Lighting and Trim

In September 1997, the Company entered into an agreement with Lear 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. Through the Lear Donnelly joint venture, the Company has manufactured
various interior trim products including dome lights, interior door lights,
map lights, courtesy lamps, lighted and non-lighted grab handles, visors and
trim components such as overhead consoles. In September 1999, the Company sold
its interest in this joint venture to Lear. As a result of this transaction,
the operating results of Lear Donnelly are no longer included in the Company's
combined consolidated financial statements. With the exception of one existing
order with an European customer, the Company has exited this product area. See
Item 1 (c) "Narrative Description of Business--Joint Ventures" for a more
complete discussion on the sale of the Company's interest in Lear Donnelly.

Non-Automotive Businesses

The Company believes Information Products, Inc. ("Information Products"), its
subsidiary based in Holland, Michigan, 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. Sales of Information Products have represented less
than 4% of total net sales for each of the last three years.

Joint Ventures

Schott Donnelly. In April 1999, the Company formed Schott Donnelly, a 50-50
joint venture with Schott, which is based in Germany and is one of the world's
leading producers of specialty glass products. The joint venture is

                                       9
<PAGE>

developing electrochromic glass for automotive and architectural applications.
The Company contributed certain assets and liabilities upon the formation of
the joint venture and received $2 million in cash, which was recorded as a
pretax gain. In accordance with the LLC operating agreement, losses generated
by the joint venture will be allocated to Schott until Schott has contributed
$9.5 million.

AIG. In December 1998, the Company merged its wholly owned subsidiary, Optics
into a wholly owned subsidiary of AIG, a New York corporation. In the merger,
the Company received a 13% interest in AIG and a $5 million convertible note.
AIG develops and manufactures opto-imaging products for the lighting,
automotive, optical and photonics industries. The Company accounts for its
investment in AIG on the cost method and therefore, the financial results of
Optics are no longer included in the Company's financial statements after
December 1, 1998.

Lear Donnelly. In November 1997, the Company formed Lear Donnelly, a 50% owned
joint venture with Lear. Lear Donnelly was engaged in the design, development
and production of overhead systems and components for the global market,
including complete overhead systems, headliners, consoles and lighting
components, vehicle electrification interfaces, electronic components, visors
and assist handles. The Company and Lear each contributed certain
technologies, assets and liabilities for the creation of the joint venture.

On September 14, 1999, the Company sold its 50% interest in Lear Donnelly to
Lear, its partner in the joint venture, resulting in a pretax gain of $14.1
million, or $0.82 per share, after tax. At the closing, in consideration for
its interest in Lear Donnelly, the Company received a Lear Donnelly product
line and other net proceeds of $28.4 million, which consisted of $24.2 million
in cash as well as certain assets, net of liabilities assumed. The Company's
equity in the financial results of Lear Donnelly is no longer included in the
Company's financial statements after September 1999.

At the time of the sale, the value of the product line transferred to the
Company and other related issues remained in negotiation or arbitration for
determination of final valuation. Management recorded an estimate at the time
of the sale for the expected outcome of these negotiations based on the best
information available. In December 1999, the Company completed the final
negotiation of these issues, which included the purchase of another product
line for cash of $2.4 million. The final negotiated settlement resulted in an
additional pretax gain to the Company of $4.4 million, or $0.29 per share,
after tax, which was recognized in the second quarter of the transition
period.

Lear Donnelly operated by selling its products to Lear and the Company, which
in turn sold them to their customers. Due to the transfer to Lear of the
Company's interior lighting and trim sales contracts manufactured by Lear
Donnelly, future annual net sales are expected to be reduced by approximately
$60 million to $65 million. Since the joint venture operated at approximately
break-even since its formation, the sale is not expected to have a material
impact on the Company's future results of operations. However, gross profit
and operating margins as a percent of sales for future periods should be
favorably impacted.

Donnelly/Arteb. In fiscal 1998, the Company formed Donnelly/Arteb, a 50-50
joint venture with Industrias Arteb S.A., to produce interior and exterior
mirrors for the South American automotive industry. Donnelly/Arteb is located
near Sao Paulo, Brazil. In 1999, Donnelly/Arteb began producing replacement
parts for distribution within the South American market and is in the process
of launching new programs for the Brazilian production of several General
Motors' vehicles. Donnelly/Arteb is continuing to focus on strategically
growing its presence in the South American market.

Varitronix EC. In 1998, the Company formed Varitronix EC, a 50% owned and
controlled joint venture, with the Malaysian subsidiary of Varitronix
International Ltd. Varitronix EC is located in Penang, Malaysia, within a
world-class manufacturing facility that began producing electrochromic cells
in the first quarter of 1999. With this production startup, the Company is the
only automotive supplier in the world with EC manufacturing or assembling
capabilities in North America, Europe and Asia. Due to the Company having
board control of this joint venture, the financial statements of Varitronix EC
are consolidated with those of the Company. In 1999, the Company began
consolidating the financial statements of Varitronix EC.

                                      10
<PAGE>

Donnex. The Company has signed a joint venture agreement to form a new
company, Donnex, a 50-50 joint venture between the Company and Essex Specialty
Products, Inc., the world's leading producer of automotive adhesives and
sealants. Donnex intends to produce and deliver complete, ready-to-install
windows and window systems to automotive customers on a just-in-time basis and
in sequence. It is expected that Donnex will base its initial operations in
the Detroit, Michigan, metropolitan area. This company is in the marketing
phase of this innovative technology.

Shunde Donnelly Zhen Hua. In the first quarter of 1997, the Company formed
Shunde Donnelly Zhen Hua, based in the Chinese city of Shunde, in Guangdong
Province, a joint venture with Shunde Zhen Hua Automotive Parts Co. Ltd.
("Shunde Zhen Hua"). The Company has a 30% interest in the Shunde Donnelly
Zhen Hua joint venture, which manufactures interior and exterior mirror
systems for automakers throughout southern China, including the Chinese
operations of Volkswagen, DaimlerChrysler and Isuzu. Disputes have arisen
between the Company and its joint venture partner. The parties have entered
into an agreement to resolve the disputes and reorganize the joint venture
company. The agreement will be effective upon approval of municipal
authorities in China, approval of which is expected by the parties. Shunde
Zhen Hua has agreed to sell its portion of the joint venture to a new partner,
Ganxiang Automobile Mirror Company ("Ganxiang"), the largest automotive mirror
supplier in China. The Company has agreed to sell a 5% interest in the joint
venture to Ganxiang. The sale of the interest to Ganxiang is in process
pending approval from the Chinese authorities.

Shanghai Donnelly Ganxiang. In the fourth quarter of calendar 1999, the
Company formed Shanghai Donnelly Ganxiang with Ganxiang for the sale,
manufacture and distribution of outside mirrors primarily for the Chinese
automotive market. The Company owns a 25% interest in Shanghai Donnelly
Ganxiang at December 31, 1999. The Company contributed technology to acquire a
13% interest. In addition, a 12% interest is being funded when the Company
sells the 5% interest of Shunde Donnelly Zhen Hua to Ganxiang. This sale of
the interest to Ganxiang is in process pending approval from Chinese
authorities.

Donnelly Electronics. In the first quarter of 1997, the Company invested in a
joint venture, Donnelly Electronics, with an individual partner offering
expertise in automotive electronics technology. The Company owns 18% of
Donnelly Electronics with the option to acquire up to 100% over time. The
joint venture, based in Holly, Michigan, specializes in the design and
manufacture of electronic components and sub-assemblies, and produces the
electrical components that the Company uses for products such as
electrochromic rearview mirrors and electronic compass systems. The firm has
provided and will provide electronics development for future products of the
Company that may include rear-vision camera systems and others. In addition to
supporting the automotive electronics needs of the Company, Donnelly
Electronics pursues business with other automotive suppliers that are not
competitors of the Company as well as other non-automotive customers. In
addition, Donnelly Electronics will operate assets purchased by the Company in
Ireland, for the manufacture of electronic components in Europe.

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. ("Shanghai Fu Hua"), which produces window systems for
automotive customers in Asia and Australia. Shanghai Fu Hua is itself a joint
venture between Ford Motor Company and Shanghai Yao Hua Glass Works. The joint
venture began manufacturing encapsulated and framed glass products in 1998.

KAM Truck Components, Inc. ("KAM"). The Company owns 17.1% of KAM, which
supplies mirrors for large trucks, including GLARESTOPPER(R) solid state
electrochromic mirrors, which permit truck drivers to manually adjust the
glare of their mirrors by a range of up to ten times.

Donnelly Yantai Electronics Corporation Limited. This 50% owned venture
produces coated glass for use in the Chinese LCD market. This operation is
located on the Yantai Peninsula of the People's Republic of China.

                                      11
<PAGE>

MARKETING STAFF

In North America, Europe, South America and Asia, 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, which
works together with the Company's customer design teams early in the design
process. The Company's wholly owned European subsidiaries employ a sales force
located in Europe and also sell through a trading company in Japan. Nearly all
sales are made directly to automakers with the exception 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.

SOURCES AND AVAILABILITY OF RAW MATERIALS

The Company's primary raw materials are glass, paints, resins and adhesives.
Glass is supplied by third-party glass manufacturers and by glass
manufacturers affiliated with automakers. Paints used by the Company are
supplied primarily by four suppliers. Most of the resins the Company uses are
supplied by four primary suppliers. The Company believes that alternative
suppliers are available for paints and resins. Generally, the Company has
multiple sources of supply for the important materials and components used in
its products. Certain adhesives for the Company's flush window systems are
supplied solely by Essex Specialty Products, Inc. and the Company believes
that an alternative source of supply is not readily 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 350 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 manufacturing know-how,
design of its own manufacturing equipment and development of manufacturing
processes are more important than its patents. 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 attributable primarily to production schedules of the Company's
major automotive customers. The Company generally reports higher net sales and
net income from January to June than from July to December because domestic
automotive production is generally lower during the last two quarters of the
calendar year.

WORKING CAPITAL

The Company's current ratio was 1.2 on December 31, 1999; 1.1 at July 3, 1999;
and 1.5 at June 27, 1998. Working capital was $25.3 million at December 31,
1999; compared to $7.3 million at July 3, 1999; and $58.3 million at June 27,
1998. The most significant factor causing variances in working capital is the
timing of customer payments relative to the balance sheet dates. The Company's
North American customers provide payment on pre-established dates ranging from
the 28th to the 30th of each month. Therefore, a number of customer payments
were not received by June 27, 1998, resulting in higher accounts receivable at
that date. The receipt of customer payments, combined with more active working
capital management, provided funds that were used to reduce revolving lines of
credit as of July 3, 1999. Working capital was also impacted by the
restructuring charge taken in the third quarter of 1999. Working capital at
December 31, 1999, was impacted by higher inventory levels compared to
previous periods, due to year 2000 contingency planning and inventory builds
for program transitions. At December 31, 1999, the total restructuring reserve
of $9.1 million was classified as short-term. At July 3, 1999, the
restructuring reserve was $10.1 million, of which $7.7 million was classified
as short-term.

                                      12
<PAGE>

At December 31, 1999; July 3, 1999; and June 27, 1998; $38.4 million, $40.4
million and $40.3 million, respectively, had been sold under the Company's
accounts receivable securitization agreement. Proceeds received under this
agreement were used to reduce revolving lines of credit. The sales are
reflected as a reduction of accounts receivable and an increase to operating
cash flows. The agreement expires in December 2000, however is renewable for
one-year periods at the option of the Company. The Company expects to extend
the current agreement or replace it on comparable terms.

The Company's $160 million multi-currency global revolving credit agreement
had borrowings against it of $42.5, $22.5 and $47.5 million as of December 31,
1999; July 3, 1999; and June 27, 1998; respectively. Total long-term borrowing
increased by $20.3 million at December 31, 1999, compared to July 3, 1999
primarily to support higher working capital and capital expenditure
requirements.

Other than the items 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

During the transition period ended December 31, 1999, approximately 76% of the
Company's net sales were to the following major automobile manufacturers:

<TABLE>
      <S>                                                                    <C>
      Ford..................................................................  28%
      DaimlerChrysler.......................................................  21
      General Motors........................................................   8
      Honda.................................................................   7
      BMW...................................................................   6
      Volkswagen............................................................   6
                                                                             ---
      Total.................................................................  76%
                                                                             ===
</TABLE>

The loss of any one of these customers would have a material adverse effect on
the Company.

BACKLOG OF ORDERS

As of December 31, 1999; July 3, 1999; and June 27, 1998; the Company's
backlog of orders was approximately $193, $181 million and $149 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
orders 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.

                                      13
<PAGE>

Interior Rearview Mirrors. While the Company has a predominant share of the
U.S. interior rearview prismatic mirror market, the Company is aware of many
competitors in this market. The Company knows of one principal competitor in
the U.S. electrochromic market and one in the U.S. 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 a number of other manufacturers of complete interior rearview
mirror assemblies.

Exterior Rearview Mirrors. The Company has many competitors in the worldwide
exterior rearview mirror market. Through the Company's operations in North
American and Europe, the Company is a leading producer of automotive exterior
rearview mirrors.

The Company has one competitor in the U.S. market for automatic exterior
electrochromic mirror components. This competitor provides electrochromic
mirror cells to other Tier 1 exterior mirror manufacturers which are
competitors of the Company. The Company is the only manufacturer of both
complete exterior electrochromic rearview mirrors and electrochromic mirror
cells.

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 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.

Handle Products. The Company has many competitors in the worldwide door handle
market. Certain competitors already supply (or are well positioned to supply
in the future) broader interior trim or exterior ornamentation sets, often
working in concert with door systems integrators. The Company will continue to
use handle products to leverage capacity and to strategically support exterior
mirrors through the sale of coordinated "door sets" of exterior mirrors and
handle products.

Other Products. 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. The Company also
supplies a number of small-volume, non-automotive products in Europe; however,
the Company is not a predominant market leader for any of these products.
Competition in all of these product areas 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 it to provide
sophisticated integrated modules and systems and to perform the increased
responsibilities automotive suppliers are expected to manage.

In fiscal 1999, 1998 and 1997, research and development expenditures were
$34.2, $36.4 million and $32.5 million, respectively, or 3.8%, 4.8% and 4.8%
of the Company's net sales for those years. For the six-month period ending
December 31, 1999, these expenses were $16.4 million, or 3.9% to net sales.
These expenses are lower primarily due to the Lear Donnelly joint venture, the
formation of the Schott Donnelly joint venture, the Optics merger and Donnelly
Electronics. Operating expenses for the respective businesses and technologies
contributed by the Company to these ventures were transferred to the newly
formed companies, which are accounted for under the equity or cost method of
accounting. The Company plans to spend approximately 4% of its net sales each
year on research and development. Over 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.
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

                                      14
<PAGE>

manufacturing know-how, design of its own manufacturing equipment and
development of manufacturing processes are other important competitive
advantages.

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. Environmental Laws relating to workplace
safety and worker health also govern the Company's operations. 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 of policies by regulatory authorities, may give rise to
additional expenditures or liabilities that could be material.

HUMAN RESOURCES

The Company believes its human resources are one of its fundamental strengths.
The Company has operated for over 50 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 is
nationally recognized as a leader in the application of participative
management principles and systems. The Company currently has approximately
6,100 employees worldwide, of whom approximately 3,300 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, Spain
and Malaysia. 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 and Malaysia 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 workforces. In the third calendar quarter of 1999, the Company
completed re-negotiation of a labor contract that is effective through 2003,
covering the majority of its German workforce. This labor contract allows for
greater work flexibility rules, broader productivity guidelines and a delay in
certain wage increases until certain income profitability targets are
accomplished. The Company negotiates wages approximately 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 plans. See Item 7,
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations."


                                      15
<PAGE>

ITEM 1 (d) INFORMATION ABOUT FOREIGN OPERATIONS

During the transition period from July 4, 1999, to December 31, 1999,
approximately 33% of combined consolidated net sales were derived from the
Company's foreign operations. Approximately 14% 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 also licensed
certain technologies to companies in Europe and Asia to manufacture and sell
in foreign markets using the Company's technology.

North American revenues are revenues resulting from sales originating from the
United States. U.S. and export sales are classified based on where the sales
are made. Foreign revenues are generated from sales originating from the
Company's various foreign locations. The Company has various foreign
subsidiaries located in Germany, Ireland, Spain, France, Mexico and Malaysia.
The Company operates two subsidiaries in Germany, Donnelly Hohe GmbH & Co. KG
and Donnelly Hohe Schleiz GmbH & Co. KG; three subsidiaries in Ireland,
Donnelly Mirrors Limited, Donnelly Vision Systems Europe Limited and Eurotrim
Limited; one in Spain, Donnelly Hohe Espana S.A.; one in France, Donnelly
EuroGlas Systems SARL; one in Mexico, Donnelly de Mexico, S.A. de C.V.; and
one in Malaysia, Varitronix EC.

The Company has various non-controlled 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--Joint Ventures", the Company has three
joint ventures located in China: Shanghai Donnelly Fu Hua, Shunde Donnelly
Zhen Hua, and Shanghai Donnelly Ganxiang, and one in Brazil: Donnelly/Arteb.

A summary of the Company's operations by geographic area follows and does not
include sales of joint ventures in which the Company holds a non-controlling
ownership interest:

<TABLE>
<CAPTION>
                                          Six Months      Fiscal Years Ended
                                            Ended     --------------------------
                                         December 31, July 3,  June 27, June 28,
In thousands                                 1999       1999     1998     1997
--------------------------------------------------------------------------------
<S>                                      <C>          <C>      <C>      <C>
Revenues:
North American:
  United States.........................   $223,791   $482,062 $420,544 $390,852
  Export:
    Americas............................     53,754    122,513   76,433   54,302
    Asia................................      4,853      6,847    3,313    2,825
    Europe..............................        488      1,355    2,002    1,829
    Other...............................        140        386      350       76
                                           --------   -------- -------- --------
                                           $283,026   $613,163 $502,642 $449,884
Germany.................................   $ 79,329    177,196  173,857  138,215
Ireland.................................     30,431     61,682   43,245   43,076
Other Foreign...........................     28,855     52,928   43,567   40,122
                                           --------   -------- -------- --------
                                           $421,641   $904,969 $763,311 $671,297
                                           ========   ======== ======== ========

<CAPTION>
                                         December 31, July 3,  June 27,
In thousands                                 1999       1999     1998
--------------------------------------------------------------------------------
<S>                                      <C>          <C>      <C>      <C>
Long-Lived Assets:
United States...........................   $125,750   $116,409 $ 99,518
Germany.................................     44,437     46,944   47,923
Ireland.................................      9,563      8,203    8,522
Other Foreign...........................     19,381     18,076   13,962
                                           --------   -------- --------
                                           $199,131   $189,632 $169,925
                                           ========   ======== ========
</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.

                                      16
<PAGE>

ITEM 2. PROPERTIES

The Company, solely or through several joint ventures, owns or leases
facilities which are located throughout North America, Europe, Asia and South
America. The location, square footage and use of the most significant
facilities at February 29, 2000, were as follows:

<TABLE>
<CAPTION>
                                    Combined
Location of Facility             Square Footage                 Use
--------------------             --------------                 ---

<S>                              <C>            <C>
North American Automotive Operations:
Holland, Michigan (10)*             963,000     Manufacturing, Warehouse and Office
Grand Haven, Michigan               156,000     Manufacturing, Warehouse and Office
Newaygo, Michigan*                  177,000     Manufacturing, Warehouse and Office
Norton Shores, Michigan*             24,000     Manufacturing and Office
Detroit, Michigan*                    4,000     Sales and Marketing Office
Mt. Sterling, Kentucky               45,000     Manufacturing, Warehouse and Office
Monterrey, Mexico                   132,000     Manufacturing, Warehouse and Office
Tokyo, Japan*                           200     Sales and Marketing Office

European Automotive Operations:
Naas, Ireland                        88,000     Manufacturing, Warehouse and Office
Manorhamilton, Ireland               25,000     Manufacturing, Warehouse and Office
Longford, Ireland*                   37,000     Manufacturing, Warehouse and Office
Langres, France*                     40,000     Manufacturing, Warehouse and Office
Nanterre, France*                     2,000     Sales and Marketing Office
Collenberg, Germany (2)*            228,000     Manufacturing, Warehouse and Office
Dorfprozelten, Germany*             319,000     Manufacturing, Warehouse and Office
Schleiz, Germany (2)*                95,000     Manufacturing, Warehouse and Office
Barcelona, Spain                     60,000     Manufacturing, Warehouse and Office
Palmela, Portugal                    17,000     Warehouse and Office
Goteborg, Sweden*                     3,000     Sales, Marketing and Design Office

Other Segments:
Holly, Michigan**                    35,000     Manufacturing, Warehouse and Office
Tucson, Arizona (3)**                66,000     Manufacturing, Warehouse and Office
Shunde, China**                      68,000     Manufacturing, Warehouse and Office
Shanghai, China**                    99,000     Manufacturing, Warehouse and Office
Yantai, China**                     143,000     Manufacturing, Warehouse and Office
Penang, Malaysia**                   23,000     Manufacturing and Office
Sao Bernardo do Compo, Brazil**      12,000     Manufacturing and Office
</TABLE>

*Leased facilities. Four of the ten Holland, Michigan, facilities are leased.
   Approximately 165,000 square feet of the Dorfprozelten, Germany, facility
   is leased. One of the two Collenberg, Germany, as well as, one of the two
   Schliez, Germany, facilities are 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 December 31, 1999, the Company had capital expenditure purchase
commitments outstanding of approximately $12.3 million.

The Company provides a guarantee for $7.2 million in municipal funding for the
construction of a manufacturing facility.

                                      17
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

On May 12, 1998, Metagal Industria E Cornercio Ltda ("Metagal") filed a
complaint against the Company in the U.S. District Court for the Eastern
District of Michigan. The complaint requests a declaratory judgment of non-
infringement and invalidity of certain Company patents related to lights
integrated into automotive mirrors. The Company believes that this litigation
will not have a material adverse effect on the Company's financial condition,
results of operation or liquidity.

On October 6, 1998, the Company filed a complaint against Metagal in the U.S.
District Court for the Western District of Michigan. The lawsuit alleges that
the production and sale by Metagal of certain automotive rearview mirrors
incorporating lights infringes one of the Company's patents. The Company seeks
an injunction against Metagal, as well as unspecified damages. Metagal has
denied infringement and asserts that the Company's patent is invalid. This
lawsuit has recently been transferred to the Eastern District of Michigan,
where Metagal's declaratory judgment action described above is pending. The
Company believes that this litigation will not have a material adverse effect
on the Company's financial condition, results of operations or liquidity.

On January 5, 2000, Sekurit Saint-Gobain U.S.A., Inc. ("Sekurit") filed a
complaint against the Company in the U.S. District Court for the Eastern
District of Michigan. The complaint alleges that the Company has induced
infringement and contributorily infringed a patent relating to window
assemblies for use in vehicles. The Company has not yet responded to this
complaint. The Company believes that this litigation will not have a material
adverse effect on the Company's financial condition, results of operations or
liquidity.

The Company and its subsidiaries are involved in certain other legal actions
and claims incidental to its business, including those arising out of alleged
defects, breach of contracts, product warranties, employment-related matters
and environmental matters. An estimated loss from a legal action or claim is
accrued when events exist that make the loss probable and the loss can be
reasonably estimated. Although the Company maintains accruals for such claims
when warranted, there can be no assurance that such accruals will continue to
be adequate. The Company believes that accruals related to such litigation and
claims are sufficient and that these items will be resolved without material
effect on the Company's financial position, results of operations or
liquidity, individually and in the aggregate.

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

At the Annual Shareholders' Meeting held November 5, 1999, the shareholders
voted on one proposal presented in the Company's 1999 definitive proxy
statement. All Nominees for director were elected, each to serve until the
2000 annual meeting of shareholders, by the following votes:

<TABLE>
<CAPTION>
                                                                                  Broker
Class A Common Stock                For                   Withheld               Non-Vote
--------------------             ----------               --------               --------
<S>                              <C>                      <C>                    <C>
John A. Borden                   5,238,125                 39,871                  0
R. Eugene Goodson                5,233,734                 44,262                  0
Donald R. Uhlmann                5,242,770                 35,226                  0

<CAPTION>
Class B Common Stock
--------------------
<S>                              <C>                      <C>                    <C>
J. Dwane Baumgardner             30,253,917                34,993                  0
Arnold F. Brookstone             30,253,917                34,993                  0
B. Patrick Donnelly, III         30,253,917                34,993                  0
Joan E. Donnelly                 30,253,917                34,993                  0
Thomas E. Leonard                30,253,917                34,993                  0
Gerald T. McNeive Jr.            30,253,917                34,993                  0
Rudolph B. Pruden                30,252,397                36,513                  0
</TABLE>


                                      18
<PAGE>

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:

<TABLE>
<CAPTION>
                                                                                Year
                                                                                First
                                                                               Elected
                                                                              Executive
Name                       Age Positions and Offices Held                      Officer
---------------------------------------------------------------------------------------
<S>                        <C> <C>                                            <C>
J.
 Dwane Baumgardner, Ph.D.  59  Director, Chairman, CEO, President               1978
John F. Donnelly Jr.       47  COO of Europe                                    1986
Maryam Komejan             49  Senior Vice President, Administration            1993
                                and Corporate Secretary
Niall R. Lynam, Ph.D.      45  Senior Vice President, CTO                       1992
Scott E. Reed              42  Senior Vice President, CFO                       1998
Russell B. Scaffede        50  Senior Vice President, Global Manufacturing      1995
Donn J. Viola              54  COO of North America                             1996
Ronald L. Winowiecki       33  Chief Accounting Officer, Corporate Controller   1998
</TABLE>

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.

Dwane Baumgardner has been Chief Executive Officer and a director since 1982,
Chairman of the Board since 1986 and President since 1994. John F. Donnelly
Jr. was elected Chief Operating Officer of the Company's European operations
in September 1998. Prior to that time he was Senior Vice President from 1993
through 1998. 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. 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. Scott Reed joined the Company as Senior
Vice President and Chief Financial Officer in September of 1998. Prior to
joining the Company, he served as Director of International Finance for
Chrysler Corporation from 1995 to 1998 and was Manager of Finance, Production
Platform from 1993 to 1995 for Chrysler Corporation. Russ Scaffede has been
Senior Vice President since April 1998 and Vice President since October 1995.
Prior to joining the Company, he was employed from 1993 to 1995, by RWD
Technologies, Inc., a consulting firm engaged in the development and
implementation of lean manufacturing systems. Ron Winowiecki was elected
Corporate Controller in August 1998. Prior to that time he was Controller of
North American Operations since December 1996 and Assistant Controller since
1993.

Officers are elected by the Board of Directors.

                                   PART II.

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

The Company's common stock is traded on the New York 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:

                                      19
<PAGE>

     Six months ended December 31, 1999
<TABLE>
     ----------------------------------------------------------------------------------------------
<CAPTION>
      Fiscal                                                                              Dividends
      Quarter                High                           Low                           Declared
     ----------------------------------------------------------------------------------------------
      <S>                   <C>                            <C>                            <C>
      First                 $17.25                         $14.00                           $.10
      Second                 15.13                          13.00                           $.10
     ----------------------------------------------------------------------------------------------

     Fiscal year ended July 3, 1999
     ----------------------------------------------------------------------------------------------
<CAPTION>
      Fiscal                                                                              Dividends
      Quarter                High                           Low                           Declared
     ----------------------------------------------------------------------------------------------
      <S>                   <C>                            <C>                            <C>
      First                 $18.88                         $14.13                           $.10
      Second                 16.00                          12.50                            .10
      Third                  15.25                          12.13                            .10
      Fourth                 17.50                          12.88                            .10
     ----------------------------------------------------------------------------------------------

     Fiscal year ended July 27, 1998
     ----------------------------------------------------------------------------------------------
<CAPTION>
      Fiscal                                                                              Dividends
      Quarter                High                           Low                           Declared
     ----------------------------------------------------------------------------------------------
      <S>                   <C>                            <C>                            <C>
      First                 $23.75                         $16.75                           $.10
      Second                 22.44                          17.50                            .10
      Third                  19.31                          16.25                            .10
      Fourth                 22.38                          18.00                            .10
     ----------------------------------------------------------------------------------------------
</TABLE>

As of February 29, 2000, the Company had approximately 942 holders of record
of shares of Class A Common Stock.

ITEM 6.SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                  Fiscal Years
In thousands, except              --------------------------------------------
per share data            1999*     1999     1998     1997     1996     1995
-------------------------------------------------------------------------------

<S>                      <C>      <C>      <C>      <C>      <C>      <C>
Net sales                $421,641 $904,969 $763,311 $671,297 $439,571 $383,340
Income before taxes on
 income                    27,137    9,693   19,179   12,005   12,349   16,823
Net Income                 18,031   10,592   13,009   10,020    8,454   11,009
Net income per common
 share--Basic                1.78     1.05     1.30     1.01     0.86     1.14
Net income per common
 share--Diluted              1.77     1.04     1.29     1.00     0.85     1.12
Dividends declared per
 common share                0.20     0.40     0.40     0.36     0.32     0.26
Total assets              428,863  395,101  377,885  358,293  271,492  223,788
Debt including current
 maturities               107,477   92,215  123,761  122,901  101,916   66,802
Preferred stock               531      531      531      531      531      531
Shareholders' equity
 (total)                  123,795  108,331  103,282   93,827   88,852   82,900
Restructuring and other
 charges (gain)                --    8,777    3,468    9,965    2,399   (2,265)
</TABLE>

*For the transition period from July 4, 1999, to December 31, 1999.

The selected financial data for the Company for each of the five years has
been derived from the combined consolidated financial statements of the
Company, which have been audited by the Company's independent auditors, BDO
Seidman, LLP. The data should be read in conjunction with the combined
consolidated financial statements and related notes thereto, "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
"Financial Statements and Supplementary Data" presented in Items 7 and 8 of
this Form 10-K.

                                      20
<PAGE>

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

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The terms "believe,"
"anticipate," "intend," "goal," "expect," and similar expressions may identify
forward-looking statements. 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, (iv) market
development of specific products of the Company, including electrochromic
mirrors, (v) whether the Company successfully implements its European
restructuring, (vi) fluctuations in foreign currencies and (vii) other risks
and uncertainties. The Company does not intend to update these forward-looking
statements.

OVERVIEW

Effective July 4, 1999, the Company changed the date of its fiscal year end
from the Saturday nearest June 30 to December 31. The years ended July 3,
1999; June 27, 1998; and June 28, 1997; each consisted of 53, 52 and 52 weeks,
respectively. The six-month periods ended December 31, 1999, and January 2,
1999, consisted of 26 and 27 weeks, respectively. The six-month period ended
December 31, 1999, is referred to as the transition period. All year and
quarter references relate to the Company's prior fiscal years and fiscal
quarters, unless otherwise stated.

Also in 1999, the Company changed the fiscal year ends of its German and
Spanish subsidiaries from May 31 to December 31. Prior to this change, these
subsidiaries reported their results of operations on a one-month lag. The
Company's results of operations for the transition period ended December 31,
1999, include the results of these subsidiaries for the six months ended
November 30, 1999. The results of operations for the period of December 1 to
December 31, 1999, for these subsidiaries were charged to retained earnings in
order to report only six months of operating results. Cash flow activity for
this same period is reflected as a single line item in the Combined
Consolidated Statement of Cash Flows.

Unaudited financial information for the comparable six-month period ended
January 2, 1999, is presented in footnote 2 to the Combined Consolidated
Financial Statements and includes any adjustments (consisting of normal,
recurring adjustments) which are, in the opinion of management, necessary for
a fair presentation.

The Company's net sales and net income are subject to significant fluctuations
attributable primarily to production schedules of the Company's major
automotive customers. In addition, the Company has strong product content on
light trucks, including sport utility vehicles ("SUVs"), as compared to
automobiles. These factors cause results to fluctuate from period to period
and year to year. The comparability of results on a period-to-period basis is
also affected by the formation and disposition of subsidiaries, joint ventures
and alliances, and acquisitions and investments in new product lines.

The Company has two reportable segments: North American Automotive Operations
("NAAO") and European Automotive Operations ("EAO"). The operating segments
are managed separately as they each represent a strategic operational
component that offers the Company's product lines to customers in different
geographical markets.

Mergers, Joint Ventures and Sale of Investments

On September 14, 1999, the Company sold its 50% interest in Lear Donnelly
Overhead Systems, LLC ("Lear Donnelly") to Lear Corporation ("Lear"), its
partner in the joint venture, resulting in a pretax gain of $14.1

                                      21
<PAGE>

million, or $0.82 per share, after tax. At the closing, in consideration for
its interest in Lear Donnelly, the Company received a Lear Donnelly product
line and other net proceeds of $28.4 million, which consisted of $24.2 million
in cash as well as certain assets, net of liabilities assumed. The Company's
equity in the financial results of Lear Donnelly is no longer included in the
Company's financial statements after September 1999.

At the time of the sale, the value of the product line transferred to the
Company and other related issues remained in negotiation or arbitration for
determination of final valuation. Management recorded an estimate at the time
of the sale for the expected outcome of these negotiations based on the best
information available. In December 1999, the Company completed the final
negotiation of these issues, which included the purchase of another product
line for cash of $2.4 million. The final negotiated settlement resulted in an
additional pretax gain to the Company of $4.4 million, or $0.29 per share,
after tax, which was recognized in the second quarter of the transition
period.

Lear Donnelly operated by selling its products to Lear and the Company, which
in turn sold them to their final customers. Due to the transfer to Lear of the
Company's interior lighting and trim sales contracts manufactured by Lear
Donnelly, future annual net sales are expected to be reduced by approximately
$60 million to $65 million. Since the joint venture operated at approximately
break-even since its formation, the sale is not expected to have a material
impact on the Company's future results of operations. However, gross profit
and operating margins as a percent of sales for future periods should be
favorably impacted.

In April 1999, the Company formed Schott-Donnelly LLC Smart Glass Solutions
("Schott Donnelly"), a 50-50 joint venture with Schott North America
Manufacturing, Inc. ("Schott"), a wholly owned subsidiary of Schott Glas,
which is based in Germany and is one of the world's leading producers of
specialty glass products. The joint venture is developing electrochromic glass
for automotive and architectural applications. The Company contributed certain
assets and liabilities upon the formation of the joint venture and received $2
million in cash, which was recorded as a pretax gain. In accordance with the
LLC operating agreement, losses generated by the joint venture will be
allocated to Schott until Schott has contributed $9.5 million.

In 1999, the Company began consolidating the financial statements of
Varitronix EC (Malaysia) Sdn. Bhd. ("Varitronix EC"). Varitronix EC is based
in Malaysia and is the Company's 50-50, controlled joint venture with the
Malaysian subsidiary of Varitronix International Ltd. ("Varitronix").
Varitronix, based in Hong Kong, is a global leader in the market for liquid
crystal displays and electronic systems. Varitronix EC provides support for
the Company's worldwide electrochromic mirror production.

In the second and third quarters of 1999, the Company sold its remaining
interest in VISION Group plc ("VISION Group"). The Company received $8.6
million in proceeds and recognized a combined pretax gain of approximately
$5.5 million, or $0.35 per share, after tax. In the second quarter of 1997,
the Company sold a portion of its investment in VISION Group in conjunction
with a public offering of VISION Group shares, resulting in a $0.9 million
pretax gain. The Company's equity in the financial results of VISION Group is
no longer included in the Company's financial statements after November 1,
1998.

In December 1998, the Company merged its wholly owned subsidiary, Donnelly
Optics Corporation ("Optics"), into a wholly owned subsidiary of Applied Image
Group, Inc. ("AIG"), a New York Corporation. In the merger, the Company
received a 13% interest in AIG and a $5 million convertible note. AIG develops
and manufactures opto-imaging products for the lighting, automotive, optical
and photonics industries. The Company accounts for its investment in AIG on
the cost method and therefore, the financial results of Optics are no longer
included in the Company's financial statements after December 1, 1998.

In the second quarter of 1998, the Company sold its 50% interest in Applied
Films Corporation ("AFC") during an initial public offering. The Company
received $7.9 million in net proceeds, after taxes and related out of pocket
fees, and recognized a pretax gain of approximately $4.6 million, or $0.22 per
share, after tax. The Company's equity in the financial results of AFC is no
longer included in the Company's financial statements.

                                      22
<PAGE>

Restructuring

In February 1999, the Company announced a European turnaround plan. The
turnaround plan was based on a strategy to improve the overall operating
efficiency and customer service of the European organization by 1) re-
organizing certain manufacturing and customer service functions into a
customer focused structure, 2) consolidating two of the German manufacturing
facilities, 3) implementing throughout Europe the Donnelly Production System,
the Company's approach to lean manufacturing processes, and 4) by re-aligning
sales and engineering functions throughout Europe. The Company has combined
the remaining actions of the 1997 restructuring, which primarily consisted of
the elimination and outsourcing of redundant operations in Germany, with the
new European turnaround initiative. In the fourth quarter of 1997, the Company
recorded a $10.0 million pretax restructuring charge, or $4.0 million at net
income, for this plan. A reduction of $1.1 million was recorded to the
restructuring reserve in 1998 associated with changes to the restructuring
plan.

In the third quarter of fiscal 1999, an $8.8 million pretax restructuring
charge, or $3.5 million at net income, was recorded for the European
turnaround plan. The restructuring charge included $1.4 million for the
impairment of assets and a reserve of $7.4 million for anticipated incremental
cash expenditures for the severance and voluntary incentive programs for
approximately 200 production, production support, sales and engineering
employees. The Company is also funding approximately $4.3 million for the
construction of shipping and warehousing facilities, relocation of employees
and new material handling and storage equipment associated with the turnaround
plan. These costs do not qualify as restructuring under Emerging Issues Task
Force ("EITF") 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)," and therefore are included in the Company's capital
expenditures and operating expenses. As of December 31, 1999, $1.4 million was
expended for the completion of these facilities with the remaining
expenditures expected to be made by the end of May 2000, the majority of which
will be capitalized. It is expected that all actions associated with the plan
will be substantially completed by the end of calendar year 2000.

As of December 31, 1999, cash payments of $6.8 million (including the impact
of exchange rate adjustments) had been incurred for the termination of 146
employees associated with the plan. In addition, the Company has experienced a
net reduction of approximately 15 employees through natural attrition. Cash
payments of approximately $8.5 million are expected to be required over the
next twelve months to support these plans primarily for the payment of future
severance and voluntary termination benefits.

RESULTS OF OPERATIONS

Comparison of the six-month periods ended December 31, 1999, and January 2,
1999

North American Automotive Operations ("NAAO")

NAAO net sales increased approximately 3% for the six-month period ended
December 31, 1999, compared to the same period of calendar 1998. For the
three-month period ended December 31, 1999, net sales decreased $5.3 million,
or 4%. North American car and light truck build increased approximately 6% for
the six-month period while the three-month October to December period was
flat, compared to the same periods in calendar 1998. The decrease in NAAO net
sales was primarily due to lower sales for modular window and door handle
products and a 26 week and 13 week periods versus 27 week and 14 week
comparable periods. The Company expects sales for each of these product groups
to be flat or slightly lower in calendar 2000. Modular window sales were lower
primarily due to glass price decreases, which impact the final customer sales
price, and flat unit sales of light truck and SUVs that include the Company's
products. Although modular window sales may be effected due to changes in
glass pricing from customer directed suppliers, gross profit is not impacted
because these price changes are passed through to the customer. While modular
window unit sales are expected to remain strong, total net sales for these
products are expected to remain at current levels. The Company has benefited
from strong penetration and content in the light truck and SUV market segment
which is expected to remain flat. Door handle product sales are lower due to
the Company's decision to replace existing capacity for certain door

                                      23
<PAGE>

handle programs with higher value-added complete outside mirror products.
Future sales for outside mirrors and inside mirror products with strong value-
added content are expected to provide the main growth for NAAO in the
foreseeable future.

NAAO gross profit margins were flat for the six-month period and slightly
higher for the three-month period ending December 31, 1999, compared to the
same periods in the previous year. Margins improved primarily due to a more
favorable product mix and operational performance in modular windows. Gross
profit margins were also positively influenced by after-market sales for
complete outside mirrors. The Company expects gross profit margins to remain
consistent with current performance levels. The ability of the Company to
maintain gross profit margins is dependent upon the successful launch of new
booked business and offsetting continued customer pricing pressures. In
addition, the Company may experience changes in gross profit margins based on
the sales growth or change in mix between lower-margin and that of higher-
margin products. It is expected that future changes in revenue will be
balanced between higher- and lower-margin products.

The Company's North American operating margins were slightly improved in both
the six- and three-month periods compared to the same periods last year.
Improved gross profit margins and lower selling, general and administrative
expenses primarily accounted for the improvement. During 1999, NAAO
implemented a cost reduction program to focus administrative functional groups
on best-in-class performance. This program resulted in reduced spending levels
at NAAO for these expenses.

European Automotive Operations ("EAO")

EAO net sales decreased approximately 3% and 8% for the six- and three-month
periods, respectively, compared to the same periods last year. The decrease in
net sales is primarily due to a stronger dollar relative to European
currencies compared to the same period last year, lower complete outside
mirror product sales in Germany, lower prism component sales in Ireland and an
increase to warranty reserves in the period. If exchange rates in the six- and
three-month periods were consistent with the same periods last year, EAO net
sales would have been slightly positive for the six-month period with
approximately a 4% decrease for the three-month period ended December 31,
1999. The lower sales in complete outside mirrors and prism components are
primarily due to management's strategy to exit unprofitable products in these
markets. European car build, while relatively flat for the period, remained
strong.

EAO gross profit margins were slightly improved for the six- and three-month
periods compared to the same periods of calendar 1998. EAO experienced
improvements in gross profit margins in operating facilities in both Ireland
and Germany. Overall sales price pressures in Europe were offset by
improvements in purchase material costs, impact of restructuring initiatives
and general operational productivity improvements.

EAO operating income was improved for the six-month and three-month periods
ending December 31, 1999, compared to the same periods in the previous year.
Improved gross profit margins, lower selling, general, administrative and
research and development costs offset the impact of lower sales volumes for
both the six- and three-month periods.

Company

Net sales were $421.6 million for the six-month period ended December 31,
1999, compared to $428.7 million in the same period last year, a decrease of
approximately 1.6%. Net sales for the three-month period decreased $26.4
million, or 11%. The decrease in net sales is mainly due to the sale of the
Company's interest in Lear Donnelly, a stronger dollar relative to European
currencies, lower sales in certain automotive products or markets and 26 week
and 13 week periods versus 27 week and 14 week comparable periods. Suppliers
in the automotive industry continue to experience significant price demands
from their customers. While these price demands continue to place significant
pressure on the Company's gross profit and operating margins, they did not
have a material impact on net sales for the six-month periods reported. The
impact of price demands on gross profit margins is dependant upon the ability
of the Company to offset these decreases by improvements in purchase material
prices, product design changes and overall operations productivity
improvements.

                                      24
<PAGE>

Gross profit margin for the six months ended December 31, 1999, was 15.3%
compared to 14.4% in the same period last year. Gross profit margin for the
three-month period ended December 31, 1999, was 16.5% compared to 14.7% in the
same period last year. The improved gross profit margins are primarily due to
the sale of Lear Donnelly and stronger gross profit margins in Europe.

Selling, general and administrative expenses were $37.3 million, or 8.8% of
net sales, for the six-month period ended December 31, 1999, compared to $40.6
million, or 9.5% of net sales, in the same period last year. The 8% reduction
is primarily a result of the Company's reduction of these expenses in both
North America and Europe by focusing on best-in-class performance and the
impact of the Optics merger effective December 1, 1998.

Research and development expenses were $16.5 million, or 3.9% of net sales,
for the six-month period ended December 31, 1999, compared to $19.1 million,
or 4.4% of net sales, in the same period last year. These expenses were lower
due to the formation of Schott Donnelly and the Optics merger.

Operating income was $10.8 million for the six-month period ended December 31,
1999, compared to $2.2 million for the same period last year. Operating income
for the respective quarters was $7.8 million, or 3.7% of net sales, compared
to $3.3 million, or 1.4% of net sales. Operating income as a percent of net
sales was stronger due to stronger gross profit margins and lower selling,
general and administrative expenses.

Interest expense was $2.9 million for the six-month period ended December 31,
1999, compared to $4.2 million for the same period last year. Interest expense
was lower primarily due to lower average debt and capitalization of certain
interest costs during the periods presented.

On September 14, 1999, the Company sold its 50% interest in Lear Donnelly to
Lear, its partner in the joint venture, resulting in a one-time pretax gain of
$14.1 million, or $0.82 per share, after tax. At the time of the sale, the
value of the product line transferred to the Company and other related issues
remained in negotiation or arbitration for determination of final valuation
and ownership. Management recorded an estimate at the time of the sale for the
expected outcome of these negotiations based on the best information
available. In December 1999, the Company completed the final negotiation of
these issues, and purchased another product line for cash of $2.4 million. The
final negotiated settlement resulted in an additional pretax gain to the
Company of $4.4 million, or $0.29 per share, after tax, which was recognized
in the second quarter of the transition period.

Income tax expense for the six-month period ended December 31, 1999, was $9.6
million, on a pretax income of $27.1 million, for an effective tax rate of
35.3%. The Company's effective tax rate will vary based on the level and mix
in pretax earnings in countries with varying effective tax rates, availability
of tax benefits and unusual pretax gains or losses.

The Company has recorded $14.6 million and $12.4 million of deferred tax
assets on foreign non-expiring net operating loss carry-forwards at December
31, 1999, and July 3, 1999, respectively. A significant portion of the loss
carry-forwards resulted from the European restructuring charges. These tax
assets are expected to be realized based on the improvements from the
restructuring initiative, which is expected to be substantially complete by
the end of calendar 2000, and continuous improvement in overall operational
earnings from the implementation of the Company's production system throughout
Europe.

Minority interest in net (income) loss of subsidiaries was $0.9 million for
the six-month period ended December 31, 1999, compared to ($0.1) million for
the same period last year. The change is primarily due to operating losses at
Varitronix EC.

Equity in earnings (losses) of affiliated companies improved to $0.6 million
for the six-month period ended December 31, 1999, from ($0.4) million in the
same period last year. This is primarily related to the sale of the Company's
interest in VISION Group, which was incurring operating losses, operational
improvements at the Company's joint ventures in China and Lear Donnelly.


                                      25
<PAGE>

Effective July 4, 1999, the Company adopted Statement of Position ("SOP") 98-
5, "Reporting on Costs of Start-up Activities". SOP 98-5 requires companies to
expense costs of start-up activities and organization costs as incurred. A
one-time charge of $1.0 million, net of tax, was taken against net income as a
cumulative effect of a change in accounting principle for the write-off of
previously capitalized start-up and organization costs.

The Company is committed to improving shareholder value with a strategic plan
focussed on the following key areas: developing core automotive products,
primarily by increasing dollar content per vehicle through the expansion of
market share of existing products, introduction of new technologies and
increasing volume through penetration into new and emerging markets; improving
the overall operating performance of the Company's European Operations;
extending the Company's capabilities in value-added electronics technologies;
and repositioning non-core businesses, as appropriate, through merging or
divesting these businesses.

The Company believes that these strategic initiatives have established the
foundation for the Company's ability to improve shareholder value. Excluding
unusual and non-recurring items, the unaudited net income from operations for
calendar 1999 was $17.8 million, a record for the Company. These financial
developments combined with the strong commercial developments for new orders
booked (initially launching in late calendar 2000) and the continued
introduction of advanced technologies support the Company's ability to grow
shareholder value. Management remains committed to the overall strategies of
continued implementation of the Company's operational systems, introducing new
and innovative technologies, focusing on core businesses and developing and
enabling highly skilled people.

Comparison of 1999 to 1998

North American Automotive Operations

NAAO net sales increased approximately 15.4% in 1999 compared to 1998. The
increase was primarily due to programs launched in 1998 running at full
production volumes in 1999, new product introductions in the modular window
product line, stronger North American car and light truck build and a 53 week
versus 52 week year. North American car and light truck build increased
approximately 6% in 1999 compared to 1998.

NAAO gross profit was higher in 1999 compared to 1998 primarily due to the
stronger sales levels. However, gross profit margins decreased as a percent of
net sales due to significant customer pricing pressures and a more rapid rate
of revenue growth in modular window net sales, relative to the net sales
growth of other products, such as mirrors, which have higher gross profit
margins. Improvements in purchased material costs partially offset pressures
on gross profit margins. A favorable arbitration award also offset costs
associated with visor programs and also improved margins in 1998.

NAAO operating margins were flat in 1999 compared to 1998. Higher sales
volumes and lower selling, general and administrative and research and
development costs as a percent to net sales were offset by an unfavorable mix
of lower margin products and significant customer pricing pressures.

European Automotive Operations

EAO net sales increased approximately 7.3% in 1999 compared to 1998. This was
primarily due to the launch of new electrochromic mirrors and product content
on strong selling vehicles. European car build, while relatively flat in 1999
compared to 1998, remained strong. Exchange rates did not have a material
effect on the comparability of net sales between 1999 and 1998.

EAO gross profit margin increased slightly in 1999 compared to 1998. Gross
profit performance at the operations in Spain and France continued to remain
strong. EAO gross profit margins improved despite inventory write-offs and
other expenses associated with the 1999 European turnaround plan and an
increase to warranty reserves. Improvements in purchased material costs and a
one-time supplier rebate in the third quarter of 1999 partially offset these
expenses.


                                      26
<PAGE>

In the third quarter of fiscal 1999, an $8.8 million pretax restructuring
charge, or $3.5 million at income, was recorded for the European turnaround
plan. The restructuring charge included $1.4 million for the impairment of
assets and a reserve of $7.4 million for anticipated incremental cash
expenditures for the severance and voluntary incentive programs for
approximately 200 production, production support, sales and engineering
employees.

EAO operating income was lower in 1999 compared to 1998 primarily due to the
European turnaround plan. EAO operating income was also impacted by
approximately $0.9 million of costs associated with the year 2000 remediation
process.

Company

Net sales were $905.0 million in 1999 compared to $763.3 million in 1998, an
increase of approximately 19%. While customer price demands continued to place
significant pressure on gross profits and operating margins, they did not have
a material impact on net sales for 1999 or 1998.

Gross profit margin was 14.8% in 1999 compared to 17.1% in 1998. The lower
gross profit margin is primarily due to Lear Donnelly (which is accounted for
under the equity method), relatively greater revenue growth of products with
lower profit margins at NAAO, significant global pricing pressures and
inventory write-offs and other expenses associated with the 1999 European
turnaround plan.

Selling, general and administrative expenses were flat at 9.2% of net sales in
1999 and 1998, primarily as a result of the Company's ability to leverage
these expenses on higher sales volumes. In addition, these expenses were lower
for the year due to the Optics merger effective December 1, 1998.

Research and development expenses were $34.2 million in 1999, compared to
$36.4 million in 1998. These expenses were lower for the year primarily due to
Lear Donnelly, the formation of Schott Donnelly and Donnelly Electronics, Inc.
and the Optics merger.

In the fourth quarter of 1998, the Company recognized a $3.5 million pretax
charge against operating income, or $2.3 million after tax, due to the
cancellation of a customer order at Optics relating to market dynamics in the
digital imaging sector of the computer industry. The charge primarily
consisted of a write-off of tooling and other current assets and severance of
approximately 25 manufacturing and administrative personnel. The severance
cash payments were completed in the second quarter of 1999.

Operating income was $8.1 million in 1999 compared to $20.4 million in 1998,
or 0.9% and 2.7% of net sales, respectively. Operating margins were lower in
1999 primarily due to the restructuring charge and costs associated with the
1999 European turnaround plan and higher growth in sales at NAAO of lower
margin products. Operating income in 1998 benefited from the favorable
arbitration settlement, which offset costs on certain visor programs. However,
1998 was unfavorably impacted by the charge at Optics. Lear Donnelly did not
have a material impact on the Company's operating margins for the twelve-month
period.

Interest expense were $7.9 million and $8.3 million in 1999 and 1998,
respectively. Interest expense were lower primarily due to lower average debt
during 1999 compared to 1998. Royalty income was $0.8 million and $0.1 million
in 1999 and 1998, respectively.

Other income, net were $2.6 million and $1.9 million in 1999 and 1998,
respectively. In the fourth quarter of 1999, the Company formed Schott
Donnelly and received $2 million in cash at the time of the joint venture
formation, which was recorded as a pretax gain.

In the second and third quarters of fiscal 1999, the Company sold its
remaining interest in VISION Group. The Company received $8.6 million in
proceeds and recognized a combined pretax gain of approximately $5.5 million,
or $0.35 per share, after tax. The Company's equity in the financial results
of VISION Group is no longer included in the Company's financial statements
after November 1, 1998.


                                      27
<PAGE>

In the second quarter of 1998, the Company sold its 50% interest in AFC during
an initial public offering. The Company received $7.9 million in net proceeds,
after taxes and related out of pocket fees, and recognized a pretax gain of
approximately $4.6 million, or $0.22 per share, after tax. The Company's
equity in the financial results of AFC is no longer included in the Company's
financial statements.

The Company's effective tax rate was 15.8% in 1999, compared to 26.3% in 1998.
The lower effective tax rate is the result of tax benefits recognized on
domestic export sales and domestic U.S. research tax credits. While these
items were equal to 1998 levels, the relative percent to the Company's lower
pretax earnings was higher. In addition, local trade tax benefits in Germany
favorably impacted the Company's effective tax rate. These benefits were
partially offset by foreign operating losses at Varitronix EC for which no net
operating loss carryforward can be utilized due to tax treatment relating to
start-up companies in Malaysia.

Minority interest in net loss of subsidiaries increased to $3.2 million in
1999, compared to $0.4 million in 1998, primarily due to the restructuring
charge and operating losses at the Company's German operations.

Equity in losses of affiliated companies improved to $0.8 million in 1999
compared to $1.5 million in 1998, primarily related to the sale of the
Company's interest in VISION Group, which was incurring operating losses, and
operational improvements at the Company's joint ventures in China.

Net income was $10.6 million in 1999 compared to $13.0 million in 1998.

Comparison of 1998 to 1997

North American Automotive Operations

NAAO net sales increased by approximately 4.8% in 1998 compared to 1997. The
increase was primarily due to programs launched in 1997 running at full
production volumes in 1998 and new product introductions in the modular
window, door handle and interior trim product lines. The increase in North
American net sales occurred despite the fact that automotive industry
production increased less than 3%.

NAAO gross profit and operating margins were lower in 1998 due to stronger
sales on products with lower margins, primarily modular windows, and continued
customer pricing pressures. In addition, a favorable arbitration award in 1998
offset costs associated with visor programs and improved margins in 1998.

European Automotive Operations

EAO net sales increased by approximately 17.8% in 1998 compared to 1997,
primarily due to the consolidation of the Company's German subsidiary,
Donnelly Hohe GmbH and Co. K.G. ("Donnelly Hohe"). As a result of acquiring a
controlling interest in the general partner of Donnelly Hohe, the Company
began consolidating the financial statements of Donnelly Hohe beginning in the
second quarter of 1997. EAO net sales as reported in the local currencies for
these operations increased moderately in 1998 compared to 1997, including
Donnelly Hohe for the entire twelve-month period for both years. However, due
to the increased strength of the dollar relative to the German mark, Irish
punt and French franc in 1998 compared to 1997, the reported net sales in
dollars for EAO were down slightly compared to 1997.

EAO gross profit was higher in 1998 due to the consolidation of Donnelly Hohe.
EAO gross profit margins were slightly lower in 1998 compared to 1997. The
inclusion of Donnelly Hohe for a full twelve months in 1998 unfavorably
impacted margins due to the first quarter performance of this operation being
included in 1998. Margins for Donnelly Hohe are traditionally lower in the
first quarter due to lower sales volumes caused by industry shutdowns. On a
comparable twelve-month basis, the gross profit margins at Donnelly Hohe were
flat. Gross profit margins at the Company's Irish operations improved in 1998
compared to 1997 due to launch issues in 1997, partially offsetting the impact
of Donnelly Hohe.

                                      28
<PAGE>

In May 1997, the Company announced a European restructuring plan to realign
manufacturing capacity, improve operating efficiencies and to reduce future
operating costs. A $10.0 million pretax restructuring charge, or $4.0 million
charge to net income, was recorded for this plan.

EAO operating income increased in 1998 compared to 1997 primarily due to the
impact of the restructuring charge in 1997.

Company

Net sales were $763.3 million in 1998 compared to $671.3 million in 1997, an
increase of approximately 13.7%, which was primarily the result of the
consolidation of Donnelly Hohe for the entire twelve-month period and stronger
NAAO sales. Pro forma net sales for 1997 were approximately $719.5 million
including Donnelly Hohe's net sales for the first quarter. Price pressures
from the Company's customers did not have a material impact on net sales for
1998 or 1997.

Gross profit margin was 17.1% in 1998 compared to 18.9% in 1997. Gross profit
margins are lower primarily due to the formation of Lear Donnelly, lower NAAO
gross profit margins and the consolidation of Donnelly Hohe.

Selling, general and administrative expenses decreased to 9.2% of net sales in
1998 from 9.9% of net sales in 1997, primarily due to the formation of Lear
Donnelly. These costs are lower as a percent to sales due to certain general
and administrative functions to support the interior trim and lighting
business being transferred to Lear Donnelly, which is accounted for under the
equity method.

Research and development expenses were $36.4 million in 1998 compared to $32.5
million in 1997. These expenses were flat as a percent of sales in 1998
compared to 1997.

In the fourth quarter of 1998, Optics recognized a $3.5 million pretax charge
against operating income, or $2.3 million, after tax (see Note 5).

Operating income increased from $17.7 million in 1997 to $20.4 million in
1998. However, operating income was lower in 1998 as a percent of net sales,
primarily due to losses associated with the start-up of Optics, an unfavorable
product mix in NAAO and the $3.5 million pretax charge at Optics. The
formation of Lear Donnelly did not have a significant impact on operating
margins.

Interest expense was $8.3 million in 1998 compared to $9.5 million in 1997.
Interest expense was lower primarily due to lower average debt during 1998
compared to 1997. In the second quarter of 1997, the Company entered into an
agreement to sell an interest in a defined pool of trade accounts receivable
with the proceeds used to reduce revolving lines of credit.

Royalty income was $0.1 million in 1998 compared to $1.5 million in 1997.
Royalty income declined due to the completion of various licensing agreements
with companies in Asia.

Other income was $1.9 million in 1998 compared to $0.8 million in 1997. Other
income was higher primarily due to grant income and foreign currency
transaction gains recognized in EAO.

In the second quarter of 1997, the Company sold 2.5% of its holding in VISION
Group resulting in a $0.9 million pretax gain. In the second quarter of 1998,
the Company sold its 50% interest in AFC during an initial public offering.
The Company received $7.9 million in net proceeds, after taxes and related out
of pocket fees, and recognized a pretax gain of approximately $4.6 million, or
$0.22 per share, after tax.

The Company's effective tax rate was 26.3% in 1998, compared to 23.2% in 1997.
The lower tax rate in 1997 was due to operating losses in Germany at higher
tax rates.

                                      29
<PAGE>

Minority interest in net loss of subsidiaries was $0.4 million in 1998
compared to $1.1 million in 1997. Equity in losses of affiliated companies was
($1.5) million in 1998 compared to ($0.3) million in 1997. Equity earnings of
affiliated companies were significantly lower in 1998 due to losses incurred
at VISION Group, which were incurred due to slower than anticipated consumer
acceptance for VISION Group's integrated camera microchip products. In the
second and third quarters of 1999, the Company sold its entire interest in
VISION Group.

Net income was $13.0 million in 1998 compared to $10.0 million in 1997. Net
income for 1998 included a $2.2 million net gain, after taxes associated with
the sale of AFC, offset by a $2.3 million, after tax charge at Optics.

LIQUIDITY AND CAPITAL RESOURCES

The Company's current ratio was 1.2 on December 31, 1999; 1.1 at July 3, 1999;
and 1.5 at June 27, 1998. Working capital was $25.3 million at December 31,
1999; compared to $7.3 million at July 3, 1999; and $58.3 million at June 27,
1998. The most significant factor causing variances in working capital is the
timing of customer payments relative to the balance sheet dates. The Company's
North American customers provide payment on pre-established dates ranging from
the 28th to the 30th of each month. Therefore, a number of customer payments
were not received by June 27, 1998, resulting in higher accounts receivable at
that date. The receipt of customer payments, combined with more active working
capital management, provided funds that were used to reduce revolving lines of
credit as of July 3, 1999. Working capital was also impacted by the
restructuring charge taken in the third quarter of 1999. Working capital at
December 31, 1999, was impacted by higher inventory levels compared to
previous periods, due to year 2000 contingency planning and inventory builds
for program transitions. At December 31, 1999, the total restructuring reserve
of $9.1 million is classified as short-term. At July 3, 1999, the
restructuring reserve was $10.1 million, of which $7.7 million was classified
as short-term.

At December 31, 1999; July 3, 1999; and June 27, 1998; $38.4 million, $40.4
million and $40.3 million, respectively, had been sold under the Company's
accounts receivable securitization agreement. Proceeds received under this
agreement were used to reduce revolving lines of credit. The sales are
reflected as a reduction of accounts receivable and an increase to operating
cash flows. The agreement expires in December 2000, however it is renewable
for one-year periods at the option of the Company. The Company expects to
extend the current agreement or replace it on comparable terms.

Capital expenditures for the six months ended December 31, 1999, and January
2, 1999, were $21.7 million and $26.5 million, respectively. Capital
expenditures in 1999, 1998 and 1997 were $57.8 million, $46.2 million and
$35.2 million, respectively. Capital spending was primarily to support new
business orders; the implementation of new manufacturing, distribution and
administrative information systems; and to support continuous improvement
activities of the Company. Capital spending the next twelve to eighteen months
is expected to remain near current spending levels to support the continued
launch of new business orders, the implementation of new manufacturing,
distribution and administrative information systems globally, and capital
expenditures related to the 1999 European turnaround plan.

The Company's $16 million multi-currency global revolving credit agreement had
borrowings against it of $42.5 million, $22.5 million and $47.5 million as of
December 31, 1999; July 3, 1999; and June 27, 1998; respectively. Total long-
term borrowing increased by $20.3 million at December 31, 1999, compared to
July 3, 1999, primarily to support higher working capital and capital
expenditure requirements.

The Company announced significant restructuring plans in fiscal 1997 and 1999
to improve the overall profitability of EAO (see Note 5). Cash payments of
approximately $8.5 million are expected to be required over the next twelve
months to support these plans, primarily for the payment of severance and
voluntary termination benefits. In addition, the Company will also require
approximately $2.9 million for the remaining construction of shipping and
warehousing facilities, relocation of employees and new material handling and
storage equipment associated with the 1999 European turnaround plan, the
majority of which will be capitalized.

                                      30
<PAGE>

The Company believes that its long-term liquidity and capital resource needs
will continue to be provided principally by funds from operating activities,
supplemented by borrowings under existing 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.

The Company's primary foreign investments are in Germany, Ireland, Spain,
France, Mexico, China, Brazil and Malaysia. 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 and
are included in accumulated other comprehensive income. For the 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.

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

Recently Issued Accounting Standards

Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives in the balance sheet at fair
value. It also requires that unrealized gains and losses resulting from
changes in fair value be included in income or comprehensive income, depending
on whether the instrument qualifies as a hedge. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not expect the implementation of this new standard to have a material
impact on its results of operations or financial position.

No other recently issued accounting standards are expected to have a material
impact on the Company.

Year 2000 Data Conversion

The Company successfully completed the appropriate assessment, remediation and
testing processes necessary to resolve the year 2000 issue in a timely
fashion. No significant issues were identified by management and no
interruption to the Company's business systems, product performance or supply
to customers was experienced.

The Company's operations in North America replaced their existing
manufacturing, distribution and administrative applications with new software,
which is year 2000 compliant, as well as modified their current legacy systems
to make them year 2000 compliant. The decisions to replace these systems were
primarily based on ongoing and expected future industry requirements and the
inability of the current applications to meet these expectations. The Company
did not accelerate the plans to replace these systems because of the year 2000
issue. A contingency plan had been developed which included continuing use of
current legacy system manufacturing and distribution software, which had been
remediated to be year 2000 compliant. Total cost for all North American year
2000 efforts was less than $0.5 million.

In Europe, the Company had completed the remediation process for facilities,
embedded systems and information systems. None of the existing business
application systems were replaced. The total cost of the remediation process
for Europe was approximately $0.9 million.

                                      31
<PAGE>

All joint ventures of the Company were either year 2000 compliant or completed
the necessary actions required to assure no interruption to business systems,
product performance or supply to customers. Cost associated with the year 2000
issue at the Company's joint ventures was immaterial. In addition, all
critical customers, suppliers and other third party business partners are
believed to be year 2000 compliant.

Euro Conversion

Effective January 1, 1999, eleven of fifteen member countries of the European
Union established permanent rates of exchange between the members' national
currency and a new common currency, the "euro." In this first phase, the euro
is available for non-cash transactions in the monetary, capital, foreign
exchange and interbank markets. National currencies will continue to exist as
legal tender and may continue to be used in commercial transactions until the
euro currency is issued in January 2002 and the participating members'
national currency is withdrawn by July 2002. The Company's significant
European operations are all located in member countries participating in this
monetary union.

The Company created an internal, pan-European, cross-functional team, as well
as internal teams at each operation affected by the change, to address
operational implementation issues and investigate strategic opportunities due
to the introduction of the euro. The Company has established action plans that
are currently being implemented to address the euro's impact on information
systems, currency exchange risk, taxation, contracts, competition and pricing.
The Company anticipates benefiting from the introduction of the euro through a
reduction of foreign currency exposure and administration costs on
transactions within Europe and increased efficiency in centralized European
cash management. The Company has commenced conversion of its European
operations from national currency to the euro. The change in functional
currency is proceeding as planned and is expected to be completed in the
middle of calendar 2001.

The Company does not presently expect that the introduction and use of the
euro will materially affect the Company's foreign exchange hedging activities
or the Company's use of derivative instruments. Any costs associated with the
introduction of the euro will be expensed as incurred. The Company does not
believe that the introduction of the euro will have a material impact on its
results of operations or financial position.

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

The Company is exposed to changes in interest rates and foreign currency
exchange primarily in its cash, debt and foreign currency transactions. The
Company holds derivative instruments, including interest rate swaps and
forward foreign currency contracts. Derivative instruments used by the Company
in its hedging activities are viewed as risk management tools and are not used
for trading or speculative purposes. Analytical techniques are used to manage
and monitor foreign exchange and interest rate risk and include market
valuation. The Company believes it is, to a lesser degree, subject to
commodity risk for price changes that relate to certain manufacturing
operations that utilize raw commodities. The Company manages its exposure to
changes in those prices primarily through its procurement and sales practices.
This exposure is not considered material to the Company.

A discussion of the Company's accounting policies for derivative financial
instruments is included in Note 1-- Summary of Significant Accounting
Policies, in the Notes to the Combined Consolidated Financial Statements,
which is included in Item 8 of this Form 10-K report. Additional information
relating to financial instruments and debt is included in Note 8--Financial
Instruments and Note 6--Debt and Other Financing Arrangements, which are
included in Item 8 of this Form 10-K report. Quantitative disclosures relating
to financial instruments and debt are included in the tables below.

International operations are primarily based in Europe and, excluding U.S.
export sales which are principally denominated in U.S. dollars, constitute a
significant portion of the revenues and identifiable assets of the Company and
totaled $136 million and $143 million, respectively, as of and for the
transition period ended December 31, 1999, and $281 million and $139 million,
respectively, as of and for the year ended July 3, 1999. A predominant portion
of these international revenues and identifiable assets are based in German
marks. The

                                      32
<PAGE>

Company has significant loans to foreign affiliates, which are denominated in
foreign currencies. Foreign currency changes against the U.S. dollar affect
the foreign currency transaction adjustments on these long-term advances to
affiliates and the foreign currency translation adjustment of the Company's
net investment in these affiliates, which impact consolidated equity of the
Company. International operations result in a large volume of foreign currency
commitment and transaction exposures and significant foreign currency net
asset exposures. Since the Company manufactures its products in a number of
locations around the world, it has a cost base that is diversified over a
number of different currencies, as well as the U.S. dollar, which serves to
counterbalance partially its foreign currency transaction risk.

Selective foreign currency commitments and transaction exposures are partially
hedged. The Company does not hedge its exposure to translation gains and
losses relating to foreign currency net asset exposures; however, when
possible, it borrows in local currencies to reduce such exposure. The Company
is also exposed to fluctuations in other currencies including: British pounds,
French francs, Irish punts, Japanese yen, Mexican pesos, Spanish pesetas,
Malaysian ringit and Brazilian reals. The fair value of the foreign currency
contracts outstanding has been immaterial each of the last two years and the
transition period.

The Company's cash position includes amounts denominated in foreign
currencies. The Company manages its worldwide cash requirements considering
available funds among its subsidiaries and the cost effectiveness with which
these funds can be accessed. The repatriation of cash balances from certain of
the Company's affiliates could have adverse tax consequences.

However, those balances are generally available without legal restrictions to
fund ordinary business operations. The Company has and will continue to
transfer cash from those affiliates to the parent and to other international
affiliates when it is cost effective to do so.

The Company manages its interest rate risk in order to balance its exposure
between fixed and variable rates while attempting to minimize interest costs.
Nearly half of the Company's long-term debt is fixed and an additional $30
million is effectively fixed through interest rate swaps as outlined below.

As of 12/31/99:
Interest Rate Sensitivity:
Principal (Notional) Amount by Expected Maturity
<TABLE>
<CAPTION>
                                                                                      Fair value
Year ending  In thousands   2000    2001    2002    2003    2004   Thereafter  Total   12/31/99
------------------------------------------------------------------------------------------------
<S>                        <C>     <C>     <C>     <C>     <C>     <C>        <C>     <C>
Liabilities:

Long-term Debt
 Fixed Rate                $     0 $11,666 $10,708 $12,084 $ 6,709  $ 6,833   $48,000  $47,836
  Avg. Interest
  Rate 6.99%
 Variable Rate             $    94 $   714 $ 6,183 $23,141 $17,406  $11,939   $59,477  $59,477
  Avg. Interest
  Rate 4.72%

Interest Rate Derivative Financial Instruments Related to Debt:

Interest Rate
 Swaps
 Pay
  Variable/Receive
  Fixed                    $20,000 $     0 $ 5,000 $ 5,000 $     0  $     0   $30,000  $  (230)
  Avg. Pay Rate
  7.02%
  Avg. Receive
  Rate 6.48%

Exchange Rate Sensitivity:
Principal (Notional) Amount by Expected Maturity
<CAPTION>
                                                                                      Fair value
Year ending  In thousands   2000    2001    2002    2003    2004   Thereafter  Total   12/31/99
------------------------------------------------------------------------------------------------
<S>                        <C>     <C>     <C>     <C>     <C>     <C>        <C>     <C>
Liabilities:
Long-term Debt
 Fixed Rate--US
  Dollar                   $     0 $11,666 $10,708 $12,084 $ 6,709  $ 6,833   $48,000  $47,836
 Variable Rate--US
  Dollar                   $     0 $   209 $ 2,639 $ 9,477 $ 7,197  $ 9,733   $29,255  $29,255
 Variable Rate--
  Euro                     $    94 $   505 $ 3,543 $13,665 $10,209  $ 2,206   $30,222  $30,222
</TABLE>

                                      33
<PAGE>

As of 7/3/99:
Interest Rate Sensitivity:
Principal (Notional) Amount by Expected Maturity
<TABLE>
<CAPTION>
Year ending In                                                                        Fair value
thousands             1999*  2000   2001    2002    2003    2004   Thereafter  Total    7/3/99
----------------------------------------------------------------------------------------------------
<S>                   <C>   <C>    <C>     <C>     <C>     <C>     <C>        <C>     <C>        <C>
Liabilities:
Long-term Debt
 Fixed Rate            $ 0  $9,333 $12,106 $12,668 $ 8,728 $ 5,000  $ 3,665   $51,500  $52,329
  Avg. Interest Rate
  6.98%
 Variable Rate         $25  $3,064 $    40 $   553 $13,067 $13,669  $10,297   $40,715  $40,715
  Avg. Interest Rate
  3.58%
</TABLE>

Interest Rate Derivative Financial Instruments Related to Debt:
<TABLE>
<S>                           <C> <C> <C> <C>    <C>     <C> <C> <C>     <C>
Interest Rate Swaps
 Pay Variable/Receive
 Fixed                        $ 0 $ 0 $ 0 $5,000 $25,000 $ 0 $ 0 $30,000 $(739)
   Avg. Pay Rate 7.40%
   Avg. Receive Rate 5.85%
</TABLE>

*Refers to transition period ending December 31, 1999.

Exchange Rate Sensitivity:
Principal (Notional) Amount by Expected Maturity
<TABLE>
<CAPTION>
Year
ending In                                                                     Fair value
thousands     1999*  2000   2001    2002    2003    2004   Thereafter  Total    7/3/99
----------------------------------------------------------------------------------------
<S>           <C>   <C>    <C>     <C>     <C>     <C>     <C>        <C>     <C>
Liabilities:
Long-term
Debt
 Fixed
  Rate--US
  Dollar       $ 0  $9,333 $12,106 $12,668 $ 8,728 $ 5,000   $3,665   $51,500  $52,329
 Variable
  Rate--US
  Dollar       $ 0  $   93 $    40 $    49 $    65 $    60   $9,522   $ 9,829  $ 9,829
 Variable
  Rate--Euro   $25  $2,971 $     0 $   504 $13,002 $10,237   $4,147   $30,886  $30,886
</TABLE>

*Refers to transition period ending December 31, 1999.

As of 6/27/98:
Interest Rate Sensitivity:
Principal (Notional) Amount by Expected Maturity
<TABLE>
<CAPTION>
Year ending In                                                               Fair value
thousands            1999   2000   2001    2002    2003   Thereafter  Total   6/27/98
---------------------------------------------------------------------------------------
<S>                 <C>    <C>    <C>     <C>     <C>     <C>        <C>     <C>
Liabilities:
Long-term Debt
 Fixed Rate         $    0 $7,000 $11,667 $10,604 $11,517  $15,937   $56,725  $58,540
   Avg. Interest
   Rate 6.93%
 Variable Rate      $2,067 $1,894 $ 1,866 $   250 $18,372  $42,532   $66,981  $66,981
   Avg. Interest
   Rate 4.44%

Interest Rate Derivative Financial Instruments Related to Debt:
Interest Rate
 Swaps
 Pay
 Variable/Receive
 Fixed              $    0 $    0 $     0 $ 5,000 $25,000  $     0   $30,000  $(1,140)
  Avg. Pay Rate
  7.17%
  Avg. Receive
  Rate 6.14%
</TABLE>


                                       34
<PAGE>

Exchange Rate Sensitivity:
Principal (Notional) Amount by Expected Maturity

<TABLE>
<CAPTION>
Year
ending In                                                              Fair value
thousands      1999   2000   2001    2002    2003   Thereafter  Total   6/27/98
---------------------------------------------------------------------------------
<S>           <C>    <C>    <C>     <C>     <C>     <C>        <C>     <C>
Liabilities:
Long-term Debt
 Fixed
  Rate--US
  Dollar      $    0 $7,000 $11,667 $10,604 $11,517  $15,937   $56,725  $58,540

 Variable
  Rate--US
  Dollar      $  133 $  119 $   117 $    54 $ 3,869  $15,911   $20,203  $20,203
 Variable
  Rate--
  German
  mark        $1,934 $1,775 $ 1,749 $   196 $12,658  $23,547   $41,859  $41,859
 Variable
  Rate--
  Other       $    0 $    0 $     0 $     0 $ 1,845  $ 3,074   $ 4,919  $ 4,919
</TABLE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements and supplementary data for the Company are on the
following pages 36 through 65.

                                       35
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:

<TABLE>
<CAPTION>
                                                                         Page
                                                                         -----
<S>                                                                      <C>
Combined Consolidated Statements of Income for the six months ended
 December 31, 1999, and years ended July 3, 1999; June 27, 1998; and
 June 28, 1997..........................................................    37

Combined Consolidated Balance Sheets as of December 31, 1999; July 3,
 1999; and June 27, 1998................................................    38

Combined Consolidated Statements of Cash Flows for six months ended
 December 31, 1999; and years ended July 3, 1999; June 27, 1998; and
 June 28, 1997..........................................................    39

Combined Consolidated Statements of Shareholders' Equity for the six
 months ended December 31, 1999, and years ended July 3, 1999; June 27,
 1998; and June 28, 1997................................................ 40-41

Notes to Combined Consolidated Financial Statements.....................    42

Management's Responsibility for Financial Reporting.....................    64

Report of Independent Certified Public Accountants......................    65
</TABLE>

                                       36
<PAGE>

DONNELLY CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
COMBINED CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                        Six Months      Fiscal Years Ended
                                          Ended     ----------------------------
                                       December 31, July 3,   June 27,  June 28,
In thousands, except share data            1999       1999      1998      1997
---------------------------------------------------------------------------------
<S>                                    <C>          <C>       <C>       <C>
Net sales                                $421,641   $904,969  $763,311  $671,297
Cost of sales                             357,083    770,653   632,679   544,629
<CAPTION>
                                       -----------------------------------------
<S>                                    <C>          <C>       <C>       <C>
  Gross profit                             64,558    134,316   130,632   126,668
Operating expenses:
Selling, general and administrative        37,301     83,217    70,372    66,530
Research and development                   16,463     34,221    36,418    32,492
Restructuring and other charges                --      8,777     3,468     9,965
<CAPTION>
                                       -----------------------------------------
<S>                                    <C>          <C>       <C>       <C>
Total operating expenses                   53,764    126,215   110,258   108,987
<CAPTION>
                                       -----------------------------------------
<S>                                    <C>          <C>       <C>       <C>
  Operating income                         10,794      8,101    20,374    17,681
<CAPTION>
                                       -----------------------------------------
<S>                                    <C>          <C>       <C>       <C>
Non-operating (income) expenses:
Interest expense                            2,875      7,858     8,347     9,530
Interest income                              (731)      (547)     (560)     (648)
Royalty income                               (227)      (837)     (122)   (1,486)
Gain on sale of equity investments        (18,458)    (5,498)   (4,598)     (872)
Other (income) expenses, net                  198     (2,568)   (1,872)     (848)
<CAPTION>
                                       -----------------------------------------
<S>                                    <C>          <C>       <C>       <C>
Total non-operating (income) expenses     (16,343)    (1,592)    1,195     5,676
<CAPTION>
                                       -----------------------------------------
<S>                                    <C>          <C>       <C>       <C>
  Income before taxes on income            27,137      9,693    19,179    12,005
Taxes on income                             9,579      1,533     5,053     2,786
<CAPTION>
                                       -----------------------------------------
<S>                                    <C>          <C>       <C>       <C>
  Income before minority interest and
   equity earnings                         17,558      8,160    14,126     9,219
Minority interest in net losses of
 subsidiaries                                 893      3,214       381     1,141
Equity in (losses) earnings of
 affiliated companies                         590       (782)   (1,498)     (340)
<CAPTION>
                                       -----------------------------------------
<S>                                    <C>          <C>       <C>       <C>
Income before cumulative effect of
 change in accounting principle            19,041     10,592    13,009    10,020
Cumulative effect of change in
 accounting principle                      (1,010)        --        --        --
<CAPTION>
                                       -----------------------------------------
<S>                                    <C>          <C>       <C>       <C>
Net income                               $ 18,031   $ 10,592  $ 13,009  $ 10,020
<CAPTION>
                                       =========================================
<S>                                    <C>          <C>       <C>       <C>
Per share of common stock:
  Basic EPS
  Income before cumulative effect of
   change in accounting principle        $   1.88   $   1.05  $   1.30  $   1.01
  Cumulative effect of change in
   accounting principle                     (0.10)        --        --        --
<CAPTION>
                                       -----------------------------------------
<S>                                    <C>          <C>       <C>       <C>
  Net income                             $   1.78   $   1.05  $   1.30  $   1.01
<CAPTION>
                                       =========================================
<S>                                    <C>          <C>       <C>       <C>
  Diluted EPS
  Income before cumulative effect of
   change in accounting principle        $   1.87   $   1.04  $   1.29  $   1.00
  Cumulative effect of change in
   accounting principle                     (0.10)        --        --        --
<CAPTION>
                                       -----------------------------------------
<S>                                    <C>          <C>       <C>       <C>
  Net income                             $   1.77   $   1.04  $   1.29  $   1.00
<CAPTION>
                                       =========================================
</TABLE>

The accompanying notes are an integral part of these statements.

                                       37
<PAGE>

DONNELLY CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
COMBINED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                December 31, July 3,   June 27,
In thousands, except share data                     1999       1999      1998
--------------------------------------------------------------------------------
<S>                                             <C>          <C>       <C>
ASSETS
Current assets:
Cash and cash equivalents                         $  4,153   $  3,413  $  5,628
Accounts receivable, less allowance of $2,449,
 $1,665 and $1,095                                  80,605     73,925    92,972
Inventories                                         50,392     42,722    44,146
Recoverable customer tooling                        22,526     20,478    19,211
Prepaid expenses                                     3,664      4,137     3,460
Deferred income taxes                                2,594      1,240     1,360
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
  Total current assets                             163,934    145,915   166,777
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
Property, plant and equipment:
Land                                                 8,781      8,802     9,457
Buildings                                           78,656     76,506    79,721
Machinery, equipment and software                  202,368    187,936   184,473
Capital projects in progress                        33,405     47,749    21,468
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
                                                   323,210    320,993   295,119
Less accumulated depreciation                      124,824    132,138   126,214
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
  Net property, plant and equipment                198,386    188,855   168,905
Investments in and advances to affiliates           28,815     28,588    19,590
Other assets                                        37,728     31,743    22,613
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
  Total assets                                    $428,863   $395,101  $377,885
<CAPTION>
                                                ===============================
<S>                                             <C>          <C>       <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                                  $ 92,098   $ 97,372  $ 77,595
Current maturities of long-term debt                    94         49        55
Accruals:
Compensation                                        11,816     16,150    16,147
Taxes                                                9,168      8,288     7,278
Restructuring Reserve                                9,098      7,707       453
Other                                               16,401      9,020     6,900
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
  Total current liabilities                        138,675    138,586   108,428
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
Long-term debt, less current maturities            107,383     92,166   123,706
Postretirement plans                                32,032     29,473    23,011
Deferred income taxes and other                     26,027     25,184    18,704
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
  Total liabilities                                304,117    285,409   273,849
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
Minority interest                                      951      1,361       754
Shareholders' equity:
Series preferred stock: 1,000,000 shares
 authorized and unissued                                --         --        --
Preferred stock, 7 1/2% cumulative, $10 par;
   shares authorized 250,000,
   issued 53,112                                       531        531       531
Common stocks:
  Class A, $.10 par; shares authorized
   30,000,000, issued 5,994,910, 5,972,279 and
   5,715,388                                           599        597       572
  Class B, $.10 par; shares authorized
   15,000,000, issued 4,158,502, 4,162,502 and
   4,353,349                                           416        416       435
  Donnelly Export Corporation, $.01 par; shares
   authorized 600,000, issued 380,212, 380,579
   and 398,028                                           4          4         4
Additional paid-in capital                          32,706     31,869    31,268
Accumulated other comprehensive income (loss)      (11,191)   (10,157)   (8,083)
Retained earnings                                  100,730     85,071    78,555
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
  Total shareholders' equity                       123,795    108,331   103,282
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
  Total liabilities and shareholders' equity      $428,863   $395,101  $377,885
<CAPTION>
                                                ===============================
</TABLE>
Certain reclassifications have been made to prior year, previously released
data, to conform to the current presentation and had no effect on net income
reported for any period.

The accompanying notes are an integral part of these statements.

                                       38
<PAGE>

DONNELLY CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                      Six Months      Fiscal Years Ended
                                        Ended     ----------------------------
                                     December 31, July 3,   June 27,  June 28,
In thousands                             1999       1999      1998      1997
-------------------------------------------------------------------------------
<S>                                  <C>          <C>       <C>       <C>
OPERATING ACTIVITIES
Net income                             $ 18,031   $ 10,592  $ 13,009  $ 10,020
Adjustments to reconcile net income
 to net cash from (for) operating
 activities:
Depreciation and amortization            12,674     22,847    22,600    21,460
Gain on sale of equity investments      (18,458)    (5,498)   (4,598)     (872)
Deferred pension cost and
 postretirement benefits                  2,559      6,462     5,670     5,315
Deferred income taxes                      (533)     1,603     3,416    (4,723)
Minority interest loss                   (1,306)    (4,902)     (841)   (1,646)
Equity in (gain) losses of
 affiliated companies                      (590)       782     1,498       765
Restructuring and other charges              --      8,777     3,468     9,965
Cumulative effect of change in
 accounting principle                     1,010         --        --        --
Changes in operating assets and
 liabilities:
Sale (repayment) of accounts
 receivable                              (3,095)     2,402    (2,695)   44,604
Accounts receivable                     (10,356)    13,479   (24,643)  (17,661)
Inventories                              (7,208)       384    (4,366)   (2,101)
Prepaid expenses and other current
 assets                                   3,635     (2,968)    3,868    (2,074)
Accounts payable and other current
 liabilities                               (789)    24,564      (475)    9,416
Other                                    (3,769)     3,592      (966)   (4,754)
<CAPTION>
                                     -----------------------------------------
<S>                                  <C>          <C>       <C>       <C>
  Net cash from (for) operating
   activities                            (8,195)    82,116    14,945    67,714
<CAPTION>
                                     -----------------------------------------
<S>                                  <C>          <C>       <C>       <C>
INVESTING ACTIVITIES
Capital expenditures                    (21,670)   (57,807)  (46,164)  (35,151)
Investments in and advances to
 affiliates                              (9,657)    (6,957)   (1,045)   (4,537)
Proceeds from sale of property and
 equipment                                  297        723       677     3,078
Proceeds from sale of equity
 investments                             24,227      8,636    11,067       974
Proceeds from sale-lease back                --         --     7,521        --
Change in unexpended bond proceeds           --         --        --     1,344
Cash increase due to consolidation
 of subsidiary                              576         --        --     9,963
Other                                       506     (1,028)     (856)     (884)
<CAPTION>
                                     -----------------------------------------
<S>                                  <C>          <C>       <C>       <C>
  Net cash for investing activities      (5,721)   (56,433)  (28,800)  (25,213)
<CAPTION>
                                     -----------------------------------------
<S>                                  <C>          <C>       <C>       <C>
FINANCING ACTIVITIES
Proceeds from long-term debt             19,337         --    13,798     8,433
Repayments on long-term debt             (3,500)   (28,767)     (429)  (39,887)
Investment and advances from
 minority partner                            --      4,482        --        --
Common stock issuance                       837        533     2,128       925
Dividends paid                           (2,048)    (4,076)   (4,031)   (3,039)
Other financing                              --         --      (218)     (415)
<CAPTION>
                                     -----------------------------------------
<S>                                  <C>          <C>       <C>       <C>
  Net cash from (for) financing
   activities                            14,626    (27,828)   11,248   (33,983)
<CAPTION>
                                     -----------------------------------------
<S>                                  <C>          <C>       <C>       <C>
Effect of foreign exchange rate
 changes on cash                            (92)       (70)     (333)   (1,253)
Effect of December 1999 cash flow
 activity for certain subsidiaries
 (See Note 2)                               122         --        --        --
Increase (decrease) in cash and
 cash equivalents                           740     (2,215)   (2,940)    7,265
Cash and cash equivalents,
 beginning of year                        3,413      5,628     8,568     1,303
<CAPTION>
                                     -----------------------------------------
<S>                                  <C>          <C>       <C>       <C>
Cash and cash equivalents, end of
 year                                  $  4,153   $  3,413  $  5,628  $  8,568
<CAPTION>
                                     =========================================
</TABLE>

Certain reclassifications have been made to prior year, previously released
data, to conform to the current presentation and had no effect on net income
reported for any period.
The accompanying notes are an integral part of these statements.

                                       39
<PAGE>

DONNELLY CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                         Common Stock
                                    ------------------------                       Accumulated
                                                  Donnelly   Additional               other         Total
In thousands, except      Preferred Class Class    Export     paid-in   Retained  comprehensive shareholders'
share data                  stock     A     B    Corporation  capital   earnings     income        equity
-------------------------------------------------------------------------------------------------------------
<S>                       <C>       <C>   <C>    <C>         <C>        <C>       <C>           <C>
Balance, June 29, 1996      $531    $425  $358       $ 4      $25,158   $63,147      $  (771)     $ 88,852
Issuance of common stock
 in a five-for-four
 stock split                         108    88                   (204)                                  (8)
Common stock issued
 under employee benefit
 plans                                 8                          925                                  933
Change in investment in
 VISION Group plc                                               2,886                                2,886
Cash dividends declared:
Preferred stock--$.75
 per share                                                                  (40)                       (40)
Common stock:
 Class A--$.36 per share                                                 (1,941)                    (1,941)
 Class B--$.36 per share                                                 (1,608)                    (1,608)
Net income                                                               10,020
Other comprehensive
 income:
 Foreign currency
  translation adjustment                                                                 564
 Foreign currency
  transaction
  adjustments on long-
  term advances to
  affiliates                                                                          (5,831)
Total comprehensive
 income                                                                                              4,753
                          ------------------------------------------------------------------------------
Balance, June 28, 1997       531     541   446         4       28,765    69,578       (6,038)       93,827

Conversion of Class B to
 Class A Shares                       11   (11)
Common stock issued
 under employee benefit
 plans                                20                        2,107                                2,127
Change in investment in
 affiliate                                                         41                                   41
Income tax benefit
 arising from employee
 stock option plans                                               355                                  355
Cash dividends declared:
Preferred stock--$.75
 per share                                                                  (40)                       (40)
Common stock:
 Class A--$.40 per share                                                 (2,229)                    (2,229)
 Class B--$.40 per share                                                 (1,763)                    (1,763)
Net income                                                               13,009
Other comprehensive
 income:
 Foreign currency
  translation adjustment                                                                 261
 Foreign currency
  transaction
  adjustments on long-
  term advances to
  affiliates                                                                          (2,306)
Total comprehensive
 income                                                                                             10,964
                          ------------------------------------------------------------------------------
Balance, June 27, 1998      $531    $572  $435        $4      $31,268   $78,555      $(8,083)     $103,282
</TABLE>

Continued on page 41

                                       40
<PAGE>

DONNELLY CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                         Common Stock
                                    ------------------------                       Accumulated
                                                  Donnelly   Additional               other         Total
In thousands, except      Preferred Class Class    Export     paid-in   Retained  comprehensive shareholders'
share data                  stock     A     B    Corporation  capital   earnings     income        equity
-------------------------------------------------------------------------------------------------------------
<S>                       <C>       <C>   <C>    <C>         <C>        <C>       <C>           <C>
Balance, June 27, 1998      $531    $572  $435        $4      $31,268   $ 78,555    $ (8,083)     $103,282
Conversion of Class B to
 Class A Shares                       19   (19)
Common stock issued
 under employee benefit
 plans                                 6                          527                                  533
Income tax benefit
 arising from employee
 stock option plans                                                74                                   74
Cash dividends declared:
Preferred stock--$.75
 per share                                                                   (40)                      (40)
Common stock:
 Class A--$.40 per share                                                  (2,344)                   (2,344)
 Class B--$.40 per share                                                  (1,692)                   (1,692)
Net income                                                                10,592
Other comprehensive
 income:
 Foreign currency
  translation adjustment                                                                 943
 Foreign currency
  transaction
  adjustments on long-
  term advances to
  affiliates                                                                          (3,017)
Total comprehensive
 income                                                                                              8,518
<CAPTION>
                          -----------------------------------------------------------------------------------
<S>                       <C>       <C>   <C>    <C>         <C>        <C>       <C>           <C>
Balance, July 3, 1999        531     597   416         4       31,869     85,071     (10,157)      108,331

Subsidiary common stock
 issued                                                           368                                  368
Common stock issued
 under employee benefit
 plans                                 2                          464                                  466
Income tax benefit
 arising from employee
 stock option plans                                                 5                                    5
Cash dividends declared:
Preferred stock--$.75
 per share                                                                   (20)                      (20)
Common stock:
 Class A--$.20 per share                                                  (1,196)                   (1,196)
 Class B--$.20 per share                                                    (832)                     (832)
Subsidiaries year end
 change (See note 2)                                                        (324)                     (324)
Net income                                                                18,031
Other comprehensive
 income:
 Foreign currency
  translation adjustment                                                                 448
 Foreign currency
  transaction
  adjustments on long-
  term advances to
  affiliates                                                                          (1,482)
Total comprehensive
 income                                                                                             16,997
<CAPTION>
                          -----------------------------------------------------------------------------------
<S>                       <C>       <C>   <C>    <C>         <C>        <C>       <C>           <C>
Balance, December 31,
 1999                       $531    $599  $416       $ 4      $32,706   $100,730    $(11,191)     $123,795
<CAPTION>
                          ===================================================================================
</TABLE>

The accompanying notes are an integral part of these statements.

                                       41
<PAGE>

NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The combined consolidated financial statements include the accounts of
Donnelly Corporation, Donnelly Export Corporation, and all majority owned or
controlled subsidiaries (collectively "the Company"), after all significant
intercompany balances, transactions and shareholdings have been eliminated and
adjustments for minority interests have been made. All other investments in
20% to 50% owned, non-controlled 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 amortized on a straight-line basis over no
more than a 15-year period.

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 combined in the financial statements as if they were a single
entity.

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.
Although management's estimates currently are not expected to change
materially in the foreseeable future, the results the Company will ultimately
experience could differ from the amounts that are assumed based on the
assumptions made.

FOREIGN CURRENCY TRANSLATION

The Company's primary foreign investments are in Germany, Ireland, Spain,
France, Mexico, China, Brazil and Malaysia. 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 and
are included in accumulated other comprehensive income. For the 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. Revenue is recognized when products are shipped.

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 method for international inventories.

                                      42
<PAGE>

ACCOUNTING FOR PRE-PRODUCTION COSTS

Recoverable Customer Tooling--Recoverable customer tooling represents costs
recoverable from customers at the time of tool completion and approval or
which are recovered in the program's piece price over a period of three years
or over the program's useful life. Balances recoverable over a period greater
than one year are classified as long-term assets.

Design and Development Costs--The Company follows the provisions of Emerging
Issues Task Force ("EITF") 99-5, "Accounting for Pre-Production Costs Related
to Long-Term Supply Arrangements." The Company expenses as incurred design and
development costs for products to be sold under long-term supply agreements
unless a contractual guarantee exists, at which time these costs are
recognized as an asset. These costs are recoverable at the time of design or
program approval or recovered in the program's piece price over a period of
three years or over the program's useful life. The balance of these costs
capitalized as of December 31, 1999, is immaterial.

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:

<TABLE>
<CAPTION>
                                          Years
                                         --------
      <S>                                <C>
      Buildings                          10 to 50
      Machinery, equipment and software   3 to 15
</TABLE>

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

Certain costs associated with software developed for internal use are
capitalized in capital projects in progress and once placed in service, are
transferred to machinery, equipment and software and amortized over the
expected useful lives of the software.

LONG-LIVED ASSETS

The Company reviews long-lived assets, including goodwill and other intangible
assets, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. If it is
determined that an impairment loss has occurred based on expected future cash
flows, a current charge to income is recognized.

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 foreign
subsidiaries and affiliates because they are intended to be permanently
reinvested.

EARNINGS PER SHARE OF COMMON STOCK

Basic earnings 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, retroactively adjusted for
stock dividends and stock splits. Diluted earnings per share is computed
including the effect of dilutive stock options.

STOCK INCENTIVE PLANS

The Company follows the provisions of Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," for its stock
incentive plans for certain key employees and directors. Under

                                      43
<PAGE>

APB 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. The Company's policy is to grant options at the prevailing market
price, accordingly, no compensation expense has been recognized in the
accompanying financial statements. The pro forma effects had the Company
followed the provisions of Statement of Financial Accounting Standards
("SFAS") No. 123 are included in Note 13.

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-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.

COMPREHENSIVE INCOME

Comprehensive income reflects the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-
owner sources. For the Company, comprehensive income represents net income
adjusted for foreign currency translation adjustments and is reported in the
accompanying combined consolidated statements of shareholders' equity.

CHANGE IN ACCOUNTING PRINCIPLE

Effective July 4, 1999, the Company adopted Statement of Position ("SOP") 98-
5, "Reporting on the Costs of Start-up Activities," which requires companies
to expense the costs of start-up activities and organization costs as
incurred. A one-time charge of $1.0 million, net of tax, was taken against net
income as the cumulative effect of a change in accounting principle for the
write-off of previously capitalized start-up and organization costs.

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.

2. FISCAL YEAR END CHANGE

Effective July 4, 1999, the Company changed the date of its fiscal year end
from the Saturday nearest June 30 to December 31. The years ended July 3,
1999; June 27, 1998; and June 28, 1997; each consisted of 53, 52 and 52 weeks,
respectively. The six-month periods ended December 31, 1999, and January 2,
1999, consisted of 26 and 27 weeks, respectively. The six-month period ended
December 31, 1999, is referred to as the transition period. All year and
quarter references relate to the Company's prior fiscal years and fiscal
quarters, unless otherwise stated.

Also in 1999, the Company changed the fiscal year ends of its German and
Spanish subsidiaries from May 31 to December 31. Prior to this change, these
subsidiaries reported their results of operations on a one-month lag. The
Company's results of operations for the transition period ended December 31,
1999, include the results of these subsidiaries for the six months ended
November 30, 1999. The results of operations for the period of December 1 to
December 31, 1999 for these subsidiaries were charged to retained earnings in
order to report only six months of operating results. Cash flow activity for
this same period is reflected as a single line item in the Combined
Consolidated Statement of Cash Flows.

Unaudited financial information for the comparable six-month period ended
January 2, 1999, is presented in the table below and includes any adjustments
(consisting of normal, recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation.

                                      44
<PAGE>

COMBINED CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                             Six Months Ended
                                   ----------------------------------------
                                                            (Unaudited)
                                   December 31,    %     January 2,    %
In thousands, except share data        1999      Sales      1999     Sales
---------------------------------------------------------------------------------
<S>                                <C>           <C>     <C>         <C>      <C>
Net sales                          $   421,641   100.00% $  428,696  100.00%
Cost of sales                          357,083    84.69     366,846   85.57
<CAPTION>
                                   ----------------------------------------
<S>                                <C>           <C>     <C>         <C>      <C>
  Gross profit                          64,558    15.31      61,850   14.43
Operating expenses:
<CAPTION>
<S>                                <C>           <C>     <C>         <C>      <C>
Selling, general and
 administrative                         37,301     8.85      40,585    9.47
Research and development                16,463     3.90      19,067    4.45
<CAPTION>
                                   ----------------------------------------
<S>                                <C>           <C>     <C>         <C>      <C>
Total operating expenses                53,764    12.75      59,652   13.92
<CAPTION>
                                   ----------------------------------------
<S>                                <C>           <C>     <C>         <C>      <C>
  Operating income                      10,794     2.56       2,198    0.51
<CAPTION>
                                   ----------------------------------------
<S>                                <C>           <C>     <C>         <C>      <C>
Non-operating (income) expenses:
<CAPTION>
<S>                                <C>           <C>     <C>         <C>      <C>
Interest expense                         2,875     0.68       4,182    0.98
Interest income                           (731)   (0.17)       (352)  (0.08)
Gain on sale of equity investment      (18,458)   (4.38)       (368)  (0.09)
Royalty income                            (227)   (0.05)       (266)  (0.06)
Other (income) expense, net                198     0.05        (273)  (0.06)
<CAPTION>
                                   ----------------------------------------
<S>                                <C>           <C>     <C>         <C>      <C>
Total non-operating (income)
 expenses                             (16,343)    (3.87)      2,923    0.68
<CAPTION>
                                   ----------------------------------------
<S>                                <C>           <C>     <C>         <C>      <C>
  Income (loss) before taxes on
   income                               27,137     6.43        (725)  (0.17)
Taxes on income (credit)                 9,579     2.27        (654)  (0.15)
<CAPTION>
                                   ----------------------------------------
<S>                                <C>           <C>     <C>         <C>      <C>
  Income (loss) before minority
   interest and equity earnings         17,558     4.16         (71)  (0.02)
Minority interest in net loss of
 subsidiaries                              893     0.15         (42)  (0.01)
Equity in income (loss) of
 affiliated companies                      590     0.21        (426)  (0.10)
<CAPTION>
                                   ----------------------------------------
<S>                                <C>           <C>     <C>         <C>      <C>
Income (loss) before cumulative
 effect of change in accounting
 principle                              19,041     4.52        (539)  (0.13)
Cumulative effect of change in
 accounting principle                   (1,010)   (0.24)         --      --
<CAPTION>
                                   ----------------------------------------
<S>                                <C>           <C>     <C>         <C>      <C>
Net income (loss)                  $    18,031     4.28% $     (539)  (0.13)%
<CAPTION>
                                   ========================================
<S>                                <C>           <C>     <C>         <C>      <C>
Per share of common stock:
  Basic EPS
  Income (loss) before cumulative
   effect of change in accounting
   principle                       $      1.88           $    (0.06)
  Cumulative effect of change in
   accounting principle                  (0.10)                  --
                                   -----------           ----------
  Net income (loss)                $      1.78           $    (0.06)
                                   ===========           ==========
  Average common shares
   outstanding                      10,139,473           10,082,230
</TABLE>

3. INVESTMENTS IN AND ADVANCES TO AFFILIATES

On September 14, 1999, the Company sold its 50% interest in Lear Donnelly
Overhead Systems, LLC ("Lear Donnelly") to Lear Corporation ("Lear"), its
partner in the joint venture, resulting in a pretax gain of $14.1 million, or
$0.82 per share, after tax. At the closing, in consideration for its interest
in Lear Donnelly, the Company received a Lear Donnelly product line and other
net proceeds of $28.4 million, which consisted of $24.2 million in cash as
well as certain assets, net of liabilities assumed. The Company's equity in
the financial results of Lear Donnelly is no longer included in the Company's
financial statements after September 1999.


                                      45
<PAGE>

At the time of the sale, the value of the product line transferred to the
Company and other related issues remained in negotiation or arbitration for
determination of final valuation. Management recorded an estimate at the time
of the sale for the expected outcome of these negotiations based on the best
information available. In December 1999, the Company completed the final
negotiation of these issues, which included the purchase of another product
line for cash of $2.4 million. The final negotiated settlement resulted in an
additional pretax gain to the Company of $4.4 million, or $0.29 per share,
after tax which was recognized in the second quarter of the transition period.

Lear Donnelly operated by selling its products to Lear and the Company, which
in turn sold them to their final customers. Due to the transfer to Lear of the
Company's interior lighting and trim sales contracts manufactured by Lear
Donnelly, future annual net sales are expected to be reduced by approximately
$60 million to $65 million. Since the joint venture operated at approximately
break-even since its formation, the sale is not expected to have a material
impact on the Company's future results of operations. However, gross profit
and operating margins as a percent of sales for future periods should be
favorably impacted.

In April 1999, the Company formed Schott-Donnelly LLC Smart Glass Solutions
("Schott Donnelly"), a 50-50 joint venture with Schott North America
Manufacturing, Inc. ("Schott"), a wholly owned subsidiary of Schott Glas,
which is based in Germany and is one of the world's leading producers of
specialty glass products. The joint venture is developing electrochromic glass
for automotive and architectural applications. The Company contributed certain
assets and liabilities upon the formation of the joint venture and received $2
million in cash, which was recorded as a pretax gain. In accordance with the
LLC operating agreement, losses generated by the joint venture will be
allocated to Schott until Schott has contributed $9.5 million.

In fiscal 1999, the Company began consolidating the financial statements of
Varitronix EC (Malaysia) Sdn. Bhd. ("Varitronix EC"). Varitronix EC is based
in Malaysia and is the Company's 50-50, controlled joint venture with the
Malaysian subsidiary of Varitronix International Ltd. ("Varitronix").
Varitronix, based in Hong Kong, is a global leader in the market for liquid
crystal displays and electronic systems. Varitronix EC provides support for
the Company's worldwide electrochromic mirror production.

In the second and third quarters of 1999, the Company sold its remaining
interest in VISION Group plc ("VISION Group"). The Company received $8.6
million in proceeds and recognized a combined pretax gain of approximately
$5.5 million, or $0.35 per share, after tax. In the second quarter of 1997,
the Company sold a portion of its investment in VISION Group in conjunction
with a public offering of VISION Group shares, resulting in a $0.9 million
pretax gain. The Company's equity in the financial results of VISION Group is
no longer included in the Company's financial statements after November 1,
1998.

In December 1998, the Company merged its wholly owned subsidiary, Donnelly
Optics Corporation ("Optics") into a wholly owned subsidiary of Applied Image
Group, Inc. ("AIG"), a New York Corporation. In the merger, the Company
received a 13% interest in AIG and a $5 million convertible note. AIG develops
and manufactures opto-imaging products for the lighting, automotive, optical
and photonics industries. The Company accounts for its investment in AIG on
the cost method; therefore, the financial results of Optics are no longer
included in the Company's financial statements after December 1, 1998.

In the second quarter of 1998, the Company sold its 50% interest in Applied
Films Corporation ("AFC") during an initial public offering. The Company
received $7.9 million in net proceeds, after taxes and related out of pocket
fees, and recognized a pretax gain of approximately $4.6 million, or $0.22 per
share, after tax. The Company's equity in the financial results of AFC is no
longer included in the Company's financial statements.

In fiscal 1998, the Company formed Donnelly/Arteb, LTDA ("Donnelly/Arteb"), a
50-50 joint venture located in Brazil with Industrias Arteb S.A., to produce
interior and exterior mirrors for the South American automotive industry. In
1999, Donnelly/Arteb began producing replacement parts for distribution within
the South American market and is in the process of launching new programs for
the Brazilian production of several General Motors' vehicles.

                                      46
<PAGE>

Due to the acquisition of a controlling interest in the general partner of its
German subsidiary, Donnelly Hohe GmbH & Co. KG ("Donnelly Hohe"), the Company
began consolidating Donnelly Hohe's financial statements beginning with the
second quarter of 1997. 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. The unaudited
pro forma combined consolidated net sales for 1997 were approximately $719.5
million, which are calculated as if the acquisition of a controlling interest
in Donnelly Hohe had occurred at the beginning of 1997.

The Company has advanced 80 million German marks to Donnelly Hohe, valued at
$41.3 million at December 31, 1999, under subordinated loan agreements.
Amounts advanced to Donnelly Hohe under the subordinated loan agreements
provide for 5% to 10% interest per annum with no principal payments due until
maturity. Outstanding loan maturities range from October 1, 2000, to October
1, 2002. These advances are eliminated as intercompany transactions with the
consolidation of Donnelly Hohe with the Company's financial statements. The
terms of the acquisition transaction allow the Company to purchase the
remaining ownership interest in Donnelly Hohe through various options. The
minority partners also have an option to require the Company to buy their
interests at any time based upon a predetermined formula, which is currently
valued at less than $2 million.

In the first quarter of 1997, the Company invested in a venture, Donnelly
Electronics, Inc. ("Donnelly Electronics"), with an individual with expertise
in automotive electronics technology. The Company owns 18.2% of Donnelly
Electronics with the option to acquire up to 100% over time. The joint
venture, based in Holly, Michigan, specializes in the design and manufacture
of electronic components and sub-assemblies and produces the electronic
components that the Company uses for products such as electrochromic rearview
mirrors and electronic compass systems. Donnelly Electronics pursues business
with other automotive suppliers that are not competitors of the Company as
well as other nonautomotive customers. At December 31, 1999, Donnelly
Electronics had borrowings from the Company of $14.4 million under a
promissory note that bears interest at 7%. The note is payable in quarterly
installments of interest only until the entire principle is due at maturity on
June 30, 2001.

Summarized 1999 and 1998 balance sheet and income statement information for
the Company's non-consolidated affiliates accounted for using the equity
method is shown below and includes the following: Lear Donnelly (formed
November 3, 1997); Donnelly/Arteb (included for 1999 only); Shunde Donnelly
Zhen Hua Automotive Systems Co. Ltd. ("Shunde Donnelly Zhen Hua"), a 30% owned
joint venture that manufactures exterior mirrors for car makers in southern
China; Shanghai Donnelly Fu Hua Window Systems Company Ltd., a 50% owned joint
venture that manufactures encapsulated and framed glass products for the Asian
automotive industry; and VISION Group (included through November 1998 only).
Due to the sale of the Company's interest in Lear Donnelly in September 1999,
unconsolidated subsidiaries are no longer material to the combined
consolidated financial statements and therefore, this information has not been
presented for the transition period.

<TABLE>
<CAPTION>
In thousands                                                  1999      1998
-------------------------------------------------------------------------------
<S>                                                         <C>       <C>
Summarized Balance Sheet Information
  Current assets........................................... $ 47,938  $ 63,526
  Non-current assets.......................................   40,379    49,895
  Current liabilities......................................   34,757    30,822
  Non-current liabilities..................................   28,779    30,379
                                                            --------  --------
  Net equity............................................... $ 24,781  $ 52,220
                                                            ========  ========

Summarized Income Statement Information
  Net sales................................................ $217,858  $ 96,752
  Costs and expenses.......................................  221,237   103,818
                                                            --------  --------
  Net loss................................................. $ (3,379) $ (7,066)
                                                            ========  ========
</TABLE>

                                      47
<PAGE>

4. NATURE OF OPERATIONS

The Company is a technology driven, customer focused, international supplier
of automotive parts and component systems through manufacturing operations and
various joint ventures in North and South America, Europe and Asia. The
Company primarily supplies automotive customers around the world with rearview
mirror systems, modular window systems and handle products. The Company's non-
automotive products represent less than 4% of total net sales for each of the
last three years and the transition period.

At July 3, 1999, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of a Business Enterprise and Related Information,"
which establishes standards for the way that public enterprises report
information about operating segments. Information reported prior to the year
ended July 3, 1999, has been restated to conform to SFAS No. 131 and in some
instances has been estimated to conform to the required presentation.

The Company is primarily managed based on geographic segments and the product
markets they serve. The Company has two reportable segments: North American
Automotive Operations ("NAAO") and European Automotive Operations ("EAO"). The
operating segments are managed separately as they each represent a strategic
operational component that offers the Company's product lines to customers in
different geographical markets. Where each segment offers all of the Company's
automotive product lines, the majority of the Company's net sales from modular
windows and handle products originate from NAAO. Operating financial
information is available that is evaluated regularly by the Company's
corporate management team, in deciding how to allocate resources and in
assessing the segment's performance. The corporate management team, which
establishes the overall strategy and policy standards for the Company,
includes the Company's chief executive officer, chief operating officers and
senior executives in administration, finance, operations and technology. The
chief operating officer of each segment, each of whom is a member of the
corporate management team, is responsible for the management of profitability
and cash flow for each respective segment's operations.

The accounting polices of the reportable operating segments are the same as
those described in the summary of significant accounting policies in Note 1.
Revenues are attributed to segments based on the location of where the sales
originate. The Company evaluates performance based on segment profit, which is
defined as earnings before interest, taxes, depreciation and amortization,
excluding significant special gains, losses and restructuring charges. Due to
the Company's corporate headquarters being located in the United States,
certain estimates are made for allocations to NAAO of centralized corporate
costs incurred in support of NAAO. Centralized European overhead costs are
included in EAO. The Company accounts for intersegment sales and transfers at
current market prices and intersegment services at cost.

                                      48
<PAGE>

A summary of the Company's operations by its business segments follows:

<TABLE>
<CAPTION>
                                                 Other   Intersegment  Total
In thousands                   NAAO     EAO    Segments* Eliminations Segments
------------------------------------------------------------------------------
<S>                          <C>      <C>      <C>       <C>          <C>
Six months ended December
 31, 1999:
Revenues.................... $250,671 $135,633 $ 38,777    $(3,440)   $421,641
Segment profit..............   24,768    7,117    2,650         --      34,535
Depreciation and
 amortization...............    6,701    5,211      379         --      12,291
Identifiable assets.........  225,586  142,947   50,514    (13,118)    405,929
Investment in equity
 affiliates.................       --       --    2,903         --       2,903
Capital expenditures........   14,619    5,184    1,721         --      21,524

Six months ended January 2,
 1999 (unaudited):
Revenues.................... $243,465 $139,978 $ 46,916    $(1,663)   $428,696
Segment profit..............   22,389    5,128      133         --      27,650

Fiscal year ended July 3,
 1999:
Revenues.................... $523,830 $280,714 $104,778    $(4,353)   $904,969
Segment profit..............   53,443    7,394    2,026         --      62,863
Depreciation and
 amortization...............   11,598    9,796      814         --      22,208
Identifiable assets.........  201,680  139,324   42,863     (9,612)    374,255
Investment in equity
 affiliates.................       --       --   11,291         --      11,291
Capital expenditures........   34,711   13,598    7,228         --      55,537

Fiscal year ended June 27,
 1998:
Revenues.................... $453,779 $261,635 $ 51,367    $(3,470)   $763,311
Segment profit..............   51,062   12,058    2,074         --      65,194
Depreciation and
 amortization...............   11,066   10,321      641         --      22,028
Identifiable assets.........  184,985  146,342   37,703     (5,050)    363,980
Investment in equity
 affiliates.................       --       --   16,730         --      16,730
Capital expenditures........   22,954   14,257    7,129         --      44,340

Fiscal year ended June 28,
 1997:
Revenues.................... $432,973 $222,089 $ 17,389    $(1,154)   $671,297
Segment profit..............   52,200   11,220    3,957         --      67,377
Depreciation and
 amortization...............   11,086    8,960      892         --      20,938
Identifiable assets.........  172,546  153,086   27,050     (6,067)    346,615
Investment in equity
 affiliates.................       --       --   13,277         --      13,277
Capital expenditures........   16,353   10,727    3,798         --      30,878
</TABLE>

*Other Segments category includes the Company's automotive joint ventures and
North American non-automotive businesses.

                                      49
<PAGE>

<TABLE>
<CAPTION>
                             Six Months Ended         Fiscal Years Ended
                         ------------------------ ----------------------------
                                      (unaudited)
                         December 31, January 2,  July 3,   June 27,  June 28,
In thousands                 1999        1999       1999      1998      1997
-------------------------------------------------------------------------------
<S>                      <C>          <C>         <C>       <C>       <C>
Segment profit from
 reportable segments....   $31,885     $ 27,517   $ 60,837  $ 63,120  $ 63,420
Segment profit from
 other segments.........     2,650          133      2,026     2,074     3,957
Interest, net...........    (2,144)      (3,829)    (7,311)   (7,787)   (8,882)
Depreciation and
 amortization...........   (12,674)     (13,125)   (22,847)  (22,600)  (21,460)
Restructuring and other
 charges................        --           --     (8,777)   (3,468)   (9,965)
Gain on sale of equity
 investments............    18,458           --      5,498     4,598       872
Gain on formation of
 joint venture..........        --           --      2,000        --        --
Corporate and other
 expenses*..............   (11,038)     (11,421)   (21,733)  (16,758)  (15,937)
                         -----------------------------------------------------
Income before taxes on
 income.................   $27,137     $   (725)  $  9,693  $ 19,179  $ 12,005
                         =====================================================
</TABLE>

* Corporate and other expenses category includes centralized corporate
functions including those for advanced research, corporate administration
including information technology, human resources and finance and other costs
associated with corporate development and financing initiatives.

<TABLE>
<CAPTION>
                                                December 31, July 3,   June 27,
In thousands                                        1999       1999      1998
--------------------------------------------------------------------------------
<S>                                             <C>          <C>       <C>
Identifiable Assets:
Total assets of reportable segments............   $368,533   $341,004  $331,327
Total assets of other segments.................     50,514     42,863    37,703
Elimination of intersegment receivables........    (13,118)    (9,612)   (5,050)
Corporate and other assets*....................     22,934)    20,846    13,905
                                                -------------------------------
Total Consolidated Assets......................   $428,863   $395,101  $377,885
                                                ===============================
</TABLE>

* Corporate and other assets category includes tax-related assets, fixed
assets related to centralized corporate and advanced research functions,
consisting primarily of buildings and equipment, capitalized costs and
financial assets.

The following summarizes the Company's sales by product line:

<TABLE>
<CAPTION>
                                         Six Months      Fiscal Years Ended
                                           Ended     --------------------------
                                        December 31, July 3,  June 27, June 28,
In thousands                                1999       1999     1998     1997
-------------------------------------------------------------------------------
<S>                                     <C>          <C>      <C>      <C>
Mirror systems and components..........   $203,534   $414,981 $355,823 $313,860
Modular window systems.................    161,594    335,345  286,470  264,359
Interior lighting and trim.............     21,806     73,626   42,175   26,680
Handle products........................     19,273     57,318   51,251   44,578
Non-automotive products................     15,434     23,699   27,592   21,820
                                        ---------------------------------------
                                          $421,641   $904,969 $763,311 $671,297
                                        =======================================
</TABLE>

                                      50
<PAGE>

Sales to major automobile manufacturers as a percentage of the Company's net
sales follows:

<TABLE>
<CAPTION>
                                           Six Months     Fiscal Years Ended
                                             Ended     -------------------------
                                          December 31, July 3, June 27, June 28,
                                              1999      1999     1998     1997
                                                --------------------------------
<S>                                       <C>          <C>     <C>      <C>
Ford.....................................      28%        24%     27%      25%
DaimlerChrysler..........................      21         21      20       20
General Motors...........................       8          6       5        5
Honda....................................       7          7       8       11
BMW......................................       6          6       7        7
Volkswagen...............................       6          6       6        6
                                          ---------------------------------
                                               76%        70%     73%      74%
                                          =================================
</TABLE>

Additional information regarding geographic areas follows:

<TABLE>
<CAPTION>
                                          Six Months      Fiscal Years Ended
                                            Ended     --------------------------
                                         December 31, July 3,  June 27, June 28,
In thousands                                 1999       1999     1998     1997
--------------------------------------------------------------------------------
<S>                                      <C>          <C>      <C>      <C>
Revenues:
North American:
  United States.........................   $223,791   $482,062 $420,544 $390,852
  Export:
    Americas............................     53,754    122,513   76,433   54,302
    Asia................................      4,853      6,847    3,313    2,825
    Europe..............................        488      1,355    2,002    1,829
    Other...............................        140        386      350       76
                                         ---------------------------------------
                                           $283,026   $613,163 $502,642 $449,884
Germany.................................     79,329    177,196  173,857  138,215
Ireland.................................     30,431     61,682   43,245   43,076
Other Foreign...........................     28,855     52,928   43,567   40,122
                                         ---------------------------------------
                                           $421,641   $904,969 $763,311 $671,297
                                         =======================================
<CAPTION>
                                         December 31, July 3,  June 27,
In thousands                                 1999       1999     1998
--------------------------------------------------------------------------------
<S>                                      <C>          <C>      <C>      <C>
Long-Lived Assets:
United States...........................   $125,750   $116,409 $ 99,518
Germany.................................     44,437     46,944   47,923
Ireland.................................      9,563      8,203    8,522
Other Foreign...........................     19,381     18,076   13,962
                                         ------------------------------
                                           $199,131   $189,632 $169,925
                                         ==============================
</TABLE>

5. RESTRUCTURING AND OTHER CHARGES

In February 1999, the Company announced a European turnaround plan. The
turnaround plan was based on a strategy to improve the overall operating
efficiency and customer service of the European organization by 1) re-
organizing certain manufacturing and customer service functions into a
customer focused structure,

                                      51
<PAGE>

2) consolidating two of the German manufacturing facilities, 3) implementing
throughout Europe the Donnelly Production System, the Company's approach to
lean manufacturing processes, and 4) by re-aligning sales and engineering
functions throughout Europe. The Company has combined the remaining actions of
the 1997 restructuring, which primarily consisted of the elimination and
outsourcing of redundant operations in Germany, with the new European
turnaround initiative. In the fourth quarter of 1997, the Company recorded a
$10.0 million pretax restructuring charge, or $4.0 million at net income, for
this plan. A reduction of $1.1 million was recorded to the restructuring
reserve in 1998 associated with changes to the restructuring plan.

In the third quarter of fiscal 1999, an $8.8 million pretax restructuring
charge, or $3.5 million at net income, was recorded for the European
turnaround plan. The restructuring charge included $1.4 million for the
impairment of assets and a reserve of $7.4 million for anticipated incremental
cash expenditures for the severance and voluntary incentive programs for
approximately 200 production, production support, sales and engineering
employees. The Company is also funding approximately $4.3 million for the
construction of shipping and warehousing facilities, relocation of employees
and new material handling and storage equipment associated with the turnaround
plan. These costs do not qualify as restructuring under EITF 94-3 and
therefore are included in the Company's capital expenditures and operating
expenses. As of December 31, 1999, $1.4 million was expended for the
completion of these facilities with the remaining expenditures expected to be
made by the end of May, 2000, the majority of which will be capitalized. It is
expected that all actions associated with the plan will be substantially
completed by the end of calendar year 2000.

<TABLE>
<CAPTION>
                                                                     Accrued
                                                                  Restructuring
                                             Fiscal                 Costs at
                                    Original  1999     Amounts    December 31,
In thousands                        Accrual  Accrual Utilized (1)     1999
-------------------------------------------------------------------------------
<S>                                 <C>      <C>     <C>          <C>
Employee severance and termination
 benefits..........................  $9,965  $7,426     $8,856       $8,535
Write down of long-lived assets....      --   1,351        788          563
                                    ------------------------------------
  Restructuring Total..............  $9,965  $8,777     $9,644       $9,098
                                    ====================================
</TABLE>

(1) The Company has terminated 146 employees under the plan. In addition, the
    Company has experienced a net reduction of approximately 15 employees in
    Germany through natural attrition. Amounts utilized include an adjustment
    of $1.1 million to the restructuring reserve in 1998 associated with
    changes to the restructuring plan and the impact of foreign currency
    changes.

Other

In the fourth quarter of 1998, the Company recognized a $3.5 million pretax
charge against operating income, or $2.3 million, after tax, due to the
cancellation of a customer order at Optics, relating to market dynamics in the
digital imaging sector of the computer industry. The charge primarily
consisted of a write-off of tooling and other current assets and severance of
approximately 25 manufacturing and administrative personnel. The severance
cash payments were completed in the second quarter of 1999. This business was
merged into a new company in the second quarter of 1999 (see Note 3).

6. INVENTORIES

Inventories consist of:

<TABLE>
<CAPTION>
                                                   December 31, July 3, June 27,
In thousands                                           1999      1999     1998
--------------------------------------------------------------------------------
<S>                                                <C>          <C>     <C>
Finished products and work in process.............   $14,882    $18,871 $16,987
Raw materials.....................................    35,510     23,851  27,159
                                                   ----------------------------
                                                     $50,392    $42,722 $44,146
                                                   ============================
</TABLE>

                                      52
<PAGE>

7. DEBT AND OTHER FINANCING ARRANGEMENTS

Debt consists of:

<TABLE>
<CAPTION>
                                                 December 31,  July 3, June 27,
In thousands                                         1999       1999     1998
-------------------------------------------------------------------------------
<S>                                              <C>           <C>     <C>
Borrowings under revolving credit agreements at
 4.72%, 3.56% and 4.61%.........................   $ 42,468    $24,728 $ 48,882
Senior Notes:
  $15,000 at 6.67%, due 2003, principal payable
   in semi-annual installments of $1,750........      9,750     11,500   15,000
  $15,000 at 7.22%, due 2004, principal payable
   in semi-annual installments of $1,750........     13,250     15,000   15,000
  $20,000 at 6.70%, due 2005, principal payable
   in semi-annual installments of $2,333
   beginning in 2000............................     20,000     20,000   20,000
Industrial revenue bonds:
  $9,500 at adjustable rates (4.73% at December
   31, 1999; 3.62% at July 3, 1999; and 3.78% at
   June 27, 1998), due in 2008-2010.............      9,500      9,500    9,500
  $5,000 at a fixed rate of 8.13%, due in 2012..      5,000      5,000    5,000
Capitalized lease obligations...................        452      1,389    3,072
Other...........................................      7,057      5,098    7,307
<CAPTION>
                                                 ------------------------------
<S>                                              <C>           <C>     <C>
Total...........................................    107,477     92,215  123,761
Less current maturities.........................         94         49       55
<CAPTION>
                                                 ------------------------------
<S>                                              <C>           <C>     <C>
                                                   $107,383    $92,166 $123,706
<CAPTION>
                                                 ==============================
</TABLE>

The Company has an unsecured $160 million multi-currency global revolving
credit agreement which bears interest, at the election of the Company, at a
floating rate under one of three alternative elections. A variable facility
fee, currently at .125%, is paid on the credit line. This revolving credit
agreement terminates in September 2002, at which time the Company may extend
for one-year periods with the consent of all the participating banks.

The $9.5 million industrial revenue bonds are secured by letters of credit
which expire in 2002. 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 December 31, 1999, the Company was
in compliance with all related covenants. Retained earnings available for
dividends at December 31, 1999, are $21.7 million.

Certain maturities are generally classified as long term due to the intent to
refinance these under the revolving credit agreement. Annual principal
maturities consist of:

<TABLE>
<CAPTION>
      Year ending      In thousands                                     Amount
     --------------------------------------------------------------------------
      <S>                                                              <C>
      2000............................................................ $     94
      2001............................................................   12,380
      2002............................................................   16,891
      2003............................................................   35,225
      2004............................................................   24,115
      2005 and thereafter.............................................   18,772
                                                                       --------
                                                                       $107,477
                                                                       ========
</TABLE>


                                      53
<PAGE>

Interest payments of $4.1 million, $7.8 million, $8.6 million and $10.4
million were made in the six-month period ended December 31, 1999, and fiscal
years 1999, 1998 and 1997, respectively.

8. ACCOUNTS RECEIVABLE SECURITIZATION

The Company has an agreement to sell, on a revolving basis, an interest in a
defined pool of trade accounts receivable of up to $50 million. The agreement
expires in December 2000, however it is renewable for one-year periods at the
option of the Company. The Company expects to extend the current agreement or
replace it on comparable terms. At December 31, 1999; July 3, 1999; and June
27, 1998; a $38.9 million, $40.4 million and $40.3 million interest,
respectively, 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. Discount fees of $0.9 million in
the six-month period ended December 31, 1999, $2.1 million in fiscal 1999,
$2.1 million in fiscal 1998 and $1.1 million in fiscal 1997, are included in
selling, general and administrative expense. The Company, as agent for the
purchaser, retains collection and administrative responsibilities for the
participating interests of the defined pool.

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 and accordingly accounts for them on a hedging rather than trading
basis. The risk of loss to the Company in the event of nonperformance by any
party under these agreements is not material. At December 31, 1999; July 3,
1999; and June 27, 1998; the Company had interest rate swaps with an aggregate
notional amount of $30 million, $30 million and $40 million--$10 million of
which were offsetting at June 27, 1998. These effectively converted $30
million of the Company's variable interest rate debt to fixed rates at
December 31, 1999; July 3, 1999; and June 27, 1998. 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 entered into foreign exchange contracts to hedge against changes
in foreign currency exchange rates for the benefit of its Irish subsidiaries.
Foreign exchange contracts outstanding were $2.0 million, $1.4 million and
$1.1 million at December 31, 1999; July 3, 1999; and June 27, 1998;
respectively. The foreign exchange contracts require the Company to exchange
foreign currencies for Irish punts and generally mature within twelve months.
Deferred gains and losses are included on a net basis in the Company's
combined consolidated financial statements 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 all financial instruments in
which the fair value differs from carrying value at December 31, 1999; July 3,
1999; and June 27, 1998; are as follows:

<TABLE>
<CAPTION>
                            December 31,
                                1999          July 3, 1999     June 27, 1998
                          ----------------  ----------------  ----------------
                          Carrying  Fair    Carrying  Fair    Carrying  Fair
In thousands               Value    Value    Value    Value    Value    Value
-------------------------------------------------------------------------------
<S>                       <C>      <C>      <C>      <C>      <C>      <C>
Liabilities:
Long-term, fixed-rate
 debt.................... $48,000  $47,836  $51,500  $52,329  $56,725  $58,540
Derivatives:
Interest rate swaps......      --     (230)      --     (739)      --   (1,140)
Foreign exchange
 contracts...............      --     (134)      --       (2)      --      100
</TABLE>


                                      54
<PAGE>

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
amends SFAS Nos. 52 and 107 and supersedes SFAS Nos. 80, 105 and 119. SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. It requires that an entity recognize all
derivatives in the balance sheet at fair value. It also requires that
unrealized gains and losses resulting from changes in fair value be included
in income or comprehensive income, depending on whether the instrument
qualifies as a hedge. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company does not expect the
implementation of this new standard to have a material impact on results of
operations or financial position of the Company.

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 Limited
facility in Ireland. Pension costs for the plans are funded in amounts that
equal or exceed regulatory requirements. Plan assets are primarily corporate
equity and debt securities.

Assumptions and net periodic pension cost are as follows:

<TABLE>
<CAPTION>
                                        Six Months     Fiscal Years Ended
                                          Ended     ---------------------------
                                       December 31, July 3,  June 27,  June 28,
                                           1999      1999      1998      1997
-------------------------------------------------------------------------------
<S>                                    <C>          <C>      <C>       <C>
Discount rate.........................      7.50%      7.00%    7.75%     8.00%
Compensation increase.................      5.00%      5.00%    5.00%     5.00%
Expected return on plan assets........      9.50%      9.50%    9.50%     9.50%
<CAPTION>
In thousands:
-------------
<S>                                    <C>          <C>      <C>       <C>
Service cost..........................   $ 2,371    $ 5,085  $ 4,284   $ 3,545
Interest cost.........................     3,343      6,459    5,881     5,497
Expected return on plan assets........    (3,727)    (7,087)  (6,023)   (6,931)
Net amortization and deferral.........      (147)      (175)      84     2,270
<CAPTION>
                                       ----------------------------------------
<S>                                    <C>          <C>      <C>       <C>
Net periodic benefit cost.............   $ 1,840    $ 4,282  $ 4,226   $ 4,381
<CAPTION>
                                       ========================================
</TABLE>


                                      55
<PAGE>

The following tables provide a reconciliation of the changes in the plans'
benefit obligations, fair value of assets and funded status and reflects
changes made to the plan in fiscal 1999 to increase the normal retirement age
by three years to match that used for social security:

<TABLE>
<CAPTION>
                                               December 31, July 3,   June 27,
In thousands             Period ended              1999       1999      1998
-------------------------------------------------------------------------------
<S>                                            <C>          <C>       <C>
Change in benefit obligation
Benefit obligation at beginning of period.....   $ 91,314   $ 88,373  $ 74,414
Service cost..................................      2,371      5,085     4,230
Interest cost.................................      3,343      6,459     5,881
Plan participants' contributions..............         81        161       161
Amendments....................................         --       (344)   (5,073)
Actuarial losses (gains)......................     (9,850)    (6,087)   11,053
Foreign exchange rate changes.................       (121)      (876)     (841)
Benefits paid.................................       (860)    (1,457)   (1,452)
<CAPTION>
                                               -------------------------------
<S>                                            <C>          <C>       <C>
Benefit obligation at end of period...........   $ 86,278   $ 91,314  $ 88,373
<CAPTION>
                                               ===============================
<S>                                            <C>          <C>       <C>
Change in plan assets
Fair value of plan assets at beginning of
 period.......................................   $ 82,811   $ 77,775  $ 66,671
Actual return on plan assets..................      4,533      7,359    13,391
Foreign exchange rate changes.................       (270)    (1,070)   (1,233)
Employer contribution.........................         --         --       237
Plan participants' contributions..............         81        161       161
Benefits paid.................................       (829)    (1,414)   (1,452)
<CAPTION>
                                               -------------------------------
<S>                                            <C>          <C>       <C>
Fair value of plan assets at end of period....   $ 86,326   $ 82,811  $ 77,775
<CAPTION>
                                               ===============================
<S>                                            <C>          <C>       <C>
Funded status.................................   $     48   $ (8,503) $(10,598)
Unrecognized net actuarial (gain).............    (19,066)    (8,614)   (1,990)
Unrecognized transition obligation............        123        166       349
Unrecognized prior service cost...............     (4,115)    (4,246)   (4,709)
<CAPTION>
                                               -------------------------------
<S>                                            <C>          <C>       <C>
Prepaid (accrued) benefit cost................   $(23,010)  $(21,197) $(16,948)
<CAPTION>
                                               ===============================
</TABLE>

B. Postretirement Health Care Benefits


The Company provides certain health care and life insurance benefits for
eligible active and retired domestic employees hired before July 1, 1998. 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. Funding
policy for these benefits is to pay covered expenses as incurred.

Assumptions and net periodic postretirement benefit cost are as follows:

<TABLE>
<CAPTION>
                                                         Fiscal Years Ended
                                          Six Months  -------------------------
                                            Ended      July
                                         December 31,   3,    June 27, June 28,
                                             1999      1999     1998     1997
-------------------------------------------------------------------------------
<S>                                      <C>          <C>     <C>      <C>
Discount rate...........................      7.50%     7.00%    7.75%    8.00%
Health care cost trend (a)..............      7.00%     8.00%    9.00%   10.00%
<CAPTION>
In thousands:
-------------
<S>                                      <C>          <C>     <C>      <C>
  Service cost..........................    $  318    $  650   $  504   $  445
  Interest cost.........................       497       938      977      911
  Amortization of transition obligation
   Over 22 periods......................       180        60      360      360
  Net other amortization................        15        30        9        4
  Net periodic benefit cost.............    $1,010    $1,978   $1,850   $1,720
</TABLE>

(a) Gradually declining to 6% in 2000 and remaining level thereafter.

                                      56
<PAGE>

The following tables provide a reconciliation of the changes in the plans'
benefit obligations, fair value of assets and funded status:

<TABLE>
<CAPTION>
                                               December 31, July 3,   June 27,
In thousands             Period ended              1999       1999      1998
-------------------------------------------------------------------------------
<S>                                            <C>          <C>       <C>
Change in benefit obligation
Benefit obligation at beginning of period.....   $ 13,276   $ 14,559  $ 12,174
Service cost..................................        318        650       504
Interest cost.................................        497        938       977
Amendments....................................         --        588        --
Actuarial (gains) losses......................       (812)    (3,178)    1,104
Benefits paid.................................        (94)      (281)     (200)
<CAPTION>
                                               -------------------------------
<S>                                            <C>          <C>       <C>
Benefit obligation at end of period...........   $ 13,185   $ 13,276  $ 14,559
<CAPTION>
                                               ===============================
<S>                                            <C>          <C>       <C>
Funded status.................................   $(13,185)  $(13,276) $(14,559)
Unrecognized net actuarial (gain) loss and
 prior service cost...........................     (1,152)      (326)    2,294)
Unrecognized transition obligation............      5,581      5,761     6,121
<CAPTION>
                                               -------------------------------
<S>                                            <C>          <C>       <C>
Prepaid (accrued) benefit cost................   $ (8,756)  $ (7,841) $ (6,144)
<CAPTION>
                                               ===============================
</TABLE>

The assumed health care cost trend rates have a significant effect on the
amounts reported. A 1% change in assumed health care cost trend rates would
have the following effects:

<TABLE>
<CAPTION>
In thousands                                             1% Increase 1% Decrease
--------------------------------------------------------------------------------
<S>                                                      <C>         <C>
Effect on service and interest cost components..........    $ 54        $ (64)
Effect on postretirement benefit obligation.............    $772        $(865)
</TABLE>

11. TAXES ON INCOME

<TABLE>
<CAPTION>
                                     Six Months      Fiscal Years Ended
                                       Ended     ----------------------------
                                    December 31, July 3,   June 27,  June 28,
In thousands                            1999       1999      1998      1997
------------------------------------------------------------------------------
<S>                                 <C>          <C>       <C>       <C>
Income before taxes on income
 consists of:
Domestic...........................   $29,026    $ 27,877  $21,967   $ 23,833
Foreign............................    (1,889)    (18,184)  (2,788)   (11,828)
<CAPTION>
                                    -----------------------------------------
<S>                                 <C>          <C>       <C>       <C>
                                      $27,137    $  9,693  $19,179   $ 12,005
<CAPTION>
                                    =========================================
<S>                                 <C>          <C>       <C>       <C>
Tax expense (benefit) consists of:
Current:
Domestic...........................   $ 9,919    $  1,243  $   828   $  6,256
Foreign............................       289       1,840       79        950
<CAPTION>
                                    -----------------------------------------
<S>                                 <C>          <C>       <C>       <C>
                                      $10,208    $  3,083  $   907   $  7,206
<CAPTION>
                                    -----------------------------------------
<S>                                 <C>          <C>       <C>       <C>
Deferred:
Domestic...........................   $ 1,156    $  5,484  $ 5,025   $    (23)
Foreign............................    (1,785)     (7,034)    (879)    (4,397)
<CAPTION>
                                    -----------------------------------------
<S>                                 <C>          <C>       <C>       <C>
                                         (629)     (1,550)   4,146     (4,420)
<CAPTION>
                                    -----------------------------------------
<S>                                 <C>          <C>       <C>       <C>
                                      $ 9,579    $  1,533  $ 5,053   $  2,786
<CAPTION>
                                    =========================================
</TABLE>


                                      57
<PAGE>

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>
<CAPTION>
                                                          Fiscal Years Ended
                                           Six Months  -------------------------
                                             Ended      July
                                          December 31,   3,    June 27, June 28,
                                              1999      1999     1998     1997
--------------------------------------------------------------------------------
<S>                                       <C>          <C>     <C>      <C>
Income taxes at federal statutory rate...        35%       34%      35%      35%
Impact of:
  Available tax credits..................        --        (9)      (6)      (5)
  Foreign subsidiary earnings............         1         5       (2)       4
  Export sale tax benefits...............        (2)      (14)      (4)      (5)
  Other..................................         1        --        3       (6)
<CAPTION>
                                          --------------------------------------
<S>                                       <C>          <C>     <C>      <C>
Effective tax rate.......................        35%       16%      26%      23%
<CAPTION>
                                          --------------------------------------
<S>                                       <C>          <C>     <C>      <C>
Income taxes paid (in thousands).........   $10,584    $1,506   $2,164   $9,193
<CAPTION>
                                          ======================================
</TABLE>

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 non-
current deferred tax assets with other assets and the net non-current 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>
<CAPTION>
                                                December 31, July 3,   June 27,
In thousands                                        1999       1999      1998
-------------------------------------------------------------------------------
<S>                                             <C>          <C>       <C>
Fixed assets...................................   $(11,600)  $(11,034) $(9,750)
Retirement plans...............................      8,146      7,472    5,904
Postretirement benefits........................      3,065      2,843    2,149
Loss carryforwards.............................     14,641     12,425    7,137
Accrued expenses and other.....................    (11,660)   (10,589)  (7,009)
Valuation allowance............................       (850)      (946)    (457)
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
Net deferred tax asset (liability).............   $  1,742   $    171  $(2,026)
<CAPTION>
                                                ===============================
</TABLE>

Deferred taxes are classified in the accompanying balance sheets as follows:

<TABLE>
<CAPTION>
                                                December 31, July 3,   June 27,
In thousands                                        1999       1999      1998
-------------------------------------------------------------------------------
<S>                                             <C>          <C>       <C>
Current income tax asset.......................   $  2,594   $  1,240  $ 1,360
Non-current income tax asset...................     13,366     10,873    5,706
Non-current income tax liability...............    (14,218)   (11,942)  (9,092)
<CAPTION>
                                                -------------------------------
<S>                                             <C>          <C>       <C>
Net deferred tax asset (liability).............   $  1,742   $    171  $(2,026)
<CAPTION>
                                                ===============================
</TABLE>

At December 31, 1999, the Company has $49.2 million of consolidated net
operating loss carryforwards, which do not expire.

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 December 31, 1999. 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 December 31, 1999; July 3, 1999; and June 27, 1998; no series
preferred stock was outstanding.

                                      58
<PAGE>

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.

The following table sets forth the computation of basic and diluted earnings
per share for each period reported:

<TABLE>
<CAPTION>
                                        Six Months     Fiscal Years Ended
                                          Ended     ---------------------------
                                       December 31, July 3,  June 27,  June 28,
In thousands, except per share data        1999      1999      1998      1997
-------------------------------------------------------------------------------
<S>                                    <C>          <C>      <C>       <C>
Net income............................   $18,031    $10,592  $13,009   $10,020
Less: Preferred stock dividends.......       (20)       (40)     (40)      (40)
<CAPTION>
                                       ----------------------------------------
<S>                                    <C>          <C>      <C>       <C>
Income available to common
 stockholders.........................   $18,011    $10,552  $12,969   $ 9,980
<CAPTION>
                                       ========================================
<S>                                    <C>          <C>      <C>       <C>
Weighted-average shares...............    10,139     10,091    9,961     9,836
Plus: Effect of dilutive stock
 options..............................        31         29      111       143
<CAPTION>
                                       ----------------------------------------
<S>                                    <C>          <C>      <C>       <C>
Adjusted weighted-average shares......    10,170     10,120   10,072     9,979
<CAPTION>
                                       ========================================
<S>                                    <C>          <C>      <C>       <C>
Basic earnings per share..............   $  1.78    $  1.05  $  1.30   $  1.01
<CAPTION>
                                       ========================================
<S>                                    <C>          <C>      <C>       <C>
Diluted earnings per share............   $  1.77    $  1.04  $  1.29   $  1.00
<CAPTION>
                                       ========================================
</TABLE>

13. STOCK PURCHASE AND OPTION PLANS

The Company's 1998 Employees' Stock Purchase Plan permits the purchase in an
aggregate amount of up to 300,000 shares of Class A Common Stock. Eligible
employees may purchase stock at market value, or 85% of market value up to a
maximum of $25,000 per employee in any calendar year. The Company issued
16,287 shares in the six-month period ended December 31, 1999, and 14,182
shares in fiscal 1999, under this plan. The Company also issued 16,831 shares
in fiscal 1999; 18,963 shares in fiscal 1998; and 11,540 shares in fiscal 1997
under the previous plan.

The Company's Stock Option Plans permit the granting of either non-qualified
or incentive stock options to certain key employees and directors to purchase
an aggregate amount of up to 1,150,593 shares of the Company's Class A Common
Stock. The options granted under the 1987 and 1997 Employee Option Plans and
Non-employee Director Stock Option Plan become exercisable twelve months after
date of grant and expire ten years after the date of grant. The options
granted under the 1998 Employee Stock Option Plans become exercisable in three
equal annual installments, beginning twelve months after the date of grant and
expire ten years after the date of grant. Although the plan administrator may
establish the non-qualified option price at below market value at the date of
grant, incentive stock options may be granted only at prices not less than the
market value. At December 31, 1999, 785,525 options were available for grant.

                                      59
<PAGE>

A summary of the Company's stock option activity and related information
follows:

<TABLE>
<CAPTION>
                                                                   Weighted-
                                                                    Average
                                                    Shares Under Exercise Price
In thousands, except per share data                    Option      Per Share
-------------------------------------------------------------------------------
<S>                                                 <C>          <C>
Outstanding at June 29, 1996                             511         $11.80
-------------------------------------------------------------------------------
Exercisable at June 29, 1996                             421          11.64
-------------------------------------------------------------------------------
Granted in fiscal 1997                                    97          14.20
Exercised                                                (79)         10.21
Canceled                                                  (6)         14.53
-------------------------------------------------------------------------------
Outstanding at June 28, 1997                             523          12.45
-------------------------------------------------------------------------------
Exercisable at June 28, 1997                             426          12.05
-------------------------------------------------------------------------------
Granted in fiscal 1998                                   164          21.94
Exercised                                               (171)         10.64
Canceled                                                 (18)         20.42
-------------------------------------------------------------------------------
Outstanding at June 27, 1998                             498          15.92
-------------------------------------------------------------------------------
Exercisable at June 27, 1998                             350          13.34
-------------------------------------------------------------------------------
Granted in fiscal 1999                                   123          16.98
Exercised                                                (35)          9.75
Canceled                                                 (23)         19.81
-------------------------------------------------------------------------------
Outstanding at July 3, 1999                              563          16.38
-------------------------------------------------------------------------------
Exercisable at July 3, 1999                              441          16.21
-------------------------------------------------------------------------------
Granted in the six-month period ended December 31,
 1999                                                    161          15.44
Exercised                                                 (2)          8.48
Canceled                                                  (5)         16.97
-------------------------------------------------------------------------------
Outstanding at December 31, 1999                         717          16.19
-------------------------------------------------------------------------------
Exercisable at December 31, 1999                         559          16.40
-------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                   Weighted-Average
                                       ----------------------------------------
                  Number of Options         Option Price
  Exercise     ----------------------- -----------------------    Remaining
 Price Range   Outstanding Exercisable Outstanding Exercisable Contractual Life
-------------  ----------- ----------- ----------- ----------- ----------------
<S>            <C>         <C>         <C>         <C>         <C>
$ 8.48-$15.44      428         269       $14.11      $13.33        6.61 yrs
$15.88-$22.69      289         289       $19.26      $19.26        7.21 yrs
</TABLE>

Pro forma information regarding net income and net income per share has been
determined as if the Company had accounted for its stock awards 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-Scholes option pricing model with the following weighted-
average assumptions in the six-month period ending December 31, 1999, and
fiscal years 1999, 1998 and 1997, respectively: risk-free interest rates of
6.52%, 6.07%, 5.45% and 6.23%; dividend yield of 2.6%, 2.5%, 2.06% and 2.2%;
expected market price volatility factor of 0.313, 0.316, 0.311 and 0.303; and
an expected option life of seven years.

The weighted-average, grant-date fair value was $5.28, $5.76, $7.53 and $4.93
for stock options granted in the six-month period ending December 31, 1999,
and the fiscal years ending July 3, 1999; June 27; 1998; and June 28, 1997;
respectively.


                                      60
<PAGE>

Pro forma information under SFAS No. 123 is as follows:

<TABLE>
<CAPTION>
                                         Six Months     Fiscal Years Ended
                                           Ended     -------------------------
                                        December 31,   July  June 27, June 28,
In thousands, except per share data         1999     3, 1999   1998     1997
------------------------------------------------------------------------------
<S>                                     <C>          <C>     <C>      <C>
Net income:
  As reported..........................   $18,031    $10,592 $13,009  $10,020
  Pro forma............................    17,659      9,748  11,976    9,544
Basic net income per share of common
 stock:
  As reported..........................   $  1.78    $  1.05 $  1.30  $  1.01
  Pro forma............................      1.74        .96    1.20      .97
Diluted net income per share of common
 stock:
  As reported..........................   $  1.77    $  1.04 $  1.29  $  1.00
  Pro forma............................      1.73        .96    1.19      .95
</TABLE>

14. COMMITMENTS AND CONTINGENCIES

A. Litigation

On May 12, 1998, Metagal Industria E Cornercio Ltda ("Metagal") filed a
complaint against the Company in the U.S. District Court for the Eastern
District of Michigan. The complaint requests a declaratory judgment of non-
infringement and invalidity of certain Company patents related to lights
integrated into automotive mirrors. The Company believes that the litigation
will not have a material adverse effect on the Company's financial condition,
results of operation or liquidity.

On October 6, 1998, the Company filed a complaint against Metagal in the U.S.
District Court for the Western District of Michigan. The lawsuit alleges that
the production and sale by Metagal of certain automotive rearview mirrors
incorporating lights infringes one of the Company's patents. The Company seeks
an injunction against Metagal, as well as unspecified damages. Metagal has
denied infringement and asserts that the Company's patent is invalid. This
lawsuit has recently been transferred to the Eastern District of Michigan,
where Metagal's declaratory judgment action described above is pending. The
Company believes that this litigation will not have a material adverse effect
on the Company's financial condition and liquidity.

On January 5, 2000, Sekurit Saint-Gobain U.S.A., Inc. ("Sekurit") filed a
complaint against the Company in the U.S. District Court for the Eastern
District of Michigan. The complaint alleges that the Company has induced
infringement and contributorily infringed a patent relating to window
assemblies for use in vehicles. The Company has not yet responded to this
complaint. The Company believes that this litigation will not have a material
adverse effect on the Company's financial condition or liquidity.

The Company and its subsidiaries are involved in certain other legal actions
and claims incidental to its business, including those arising out of alleged
defects, breach of contracts, product warranties, employment-related matters
and environmental matters. An estimated loss from a legal action or claim is
accrued when events exist that make the loss probable and the loss can be
reasonably estimated. Although the Company maintains accruals for such claims
when warranted, there can be no assurance that such accruals will continue to
be adequate. The Company believes that accruals related to such litigation and
claims are sufficient and that these items 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 December 31, 1999, the Company had capital expenditure purchase
commitments outstanding of approximately $12.3 million.

The Company provides a guarantee for $7.2 million in municipal funding for the
construction of a manufacturing facility.

                                      61
<PAGE>

15. LEASES

Future minimum lease payments, excluding renewal options, consist of:

<TABLE>
<CAPTION>
                                                               Capital Operating
Year ending           In thousands                             Leases   Leases
--------------------------------------------------------------------------------
<S>                                                            <C>     <C>
2000..........................................................   271      3,708
2001..........................................................   161      2,466
2002..........................................................    28      2,155
2003..........................................................     2      1,936
2004..........................................................    --      1,639
2005 and thereafter...........................................    --      2,645
                                                               ---------------
Total minimum lease payments..................................   462    $14,549
                                                                        =======
Less amount representing interest and other...................    10
                                                                ----
Present value of net minimum lease payments...................  $452
                                                                ====
</TABLE>

Donnelly Hohe and Donnelly Mirrors Limited have 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>
<CAPTION>
                                                                    December 31,
In thousands                                                            1999
--------------------------------------------------------------------------------
<S>                                                                 <C>
Land...............................................................   $    --
Buildings..........................................................     3,864
Machinery and equipment............................................     1,002
                                                                      -------
Gross property, plant and equipment under capital leases...........     4,866
Less accumulated depreciation......................................    (4,360)
                                                                      -------
Net property, plant and equipment under capital leases.............   $   506
                                                                      =======
</TABLE>

The Company has operating leases for office, warehouse and manufacturing
facilities and manufacturing equipment. Rental expense charged to operations
amounted to approximately $2.4 million for the six months ended December 31,
1999, $5.2 million, $4.3 million and $3.8 million for fiscals 1999, 1998 and
1997, respectively. In 1998, the Company entered into an agreement for the
sale and leaseback of newly installed injection molding equipment. The
equipment was sold at cost and no gain or loss was recognized on the
transaction. The lease has an effective 6.4% 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." Market quotations regarding the range of high and low sales
prices of the Company's common stock were as follows:

<TABLE>
<CAPTION>
                                       December 31,     July 3,      June 27,
                                           1999          1999          1998
--------------------------------------------------------------------------------
Quarter                                 High   Low    High   Low    High   Low
--------------------------------------------------------------------------------
<S>                                    <C>    <C>    <C>    <C>    <C>    <C>
First................................. $17.25 $14.00 $18.88 $14.13 $23.75 $16.75
Second................................  15.13  13.00  16.00  12.50  22.44  17.50
Third.................................     --     --  15.25  12.13  19.31  16.25
Fourth................................     --     --  17.50  12.88  22.38  18.00
--------------------------------------------------------------------------------
</TABLE>


                                      62
<PAGE>

17. QUARTERLY FINANCIAL DATA--UNAUDITED

<TABLE>
<CAPTION>
In thousands, except per share     First     Second   Third     Fourth   Total
data                              Quarter   Quarter  Quarter   Quarter    Year
--------------------------------------------------------------------------------
<S>                               <C>       <C>      <C>       <C>      <C>
Six months ended December 31,
 1999:
Net sales.......................  $208,917  $212,724      --        --  $421,641
Gross profit....................    29,472    35,086      --        --    64,558
Operating income................     2,824     7,970      --        --    10,794
Net income......................     9,923     8,108      --        --    18,031
  Basic net income per share....       .98      0.80      --        --      1.78
  Diluted net income per share..       .97      0.80      --        --      1.77
Dividends declared per share of
 common stock...................       .10       .10      --        --      0.20

Fiscal year ended July 3, 1999:
Net sales.......................  $189,603  $239,093 $233,154  $243,119 $904,969
Gross profit....................    26,761    35,089   37,963    34,503  134,316
Operating income................    (1,112)    3,310     (944)    6,847    8,101
Net income......................    (1,990)    1,451    3,820     7,311   10,592
  Basic net income per share....      (.20)      .14      .38       .72     1.05
  Diluted net income per share..      (.20)      .14      .38       .72     1.04
Dividends declared per share of
 common stock...................       .10       .10      .10       .10      .40

Fiscal year ended June 27, 1998:
Net sales.......................  $165,176  $194,800 $193,658  $209,677 $763,311
Gross profit....................    27,973    33,580   32,649    36,430  130,632
Operating income................     3,090     6,378    6,674     4,232   20,374
Net income......................       986     5,169    3,373     3,481   13,009
  Basic net income per share....       .10       .52      .34       .35     1.30
  Diluted net income per share..       .10       .51      .33       .34     1.29
Dividends declared per share of
 common stock...................       .10       .10      .10       .10      .40
</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 and 5 for a discussion of the impact of certain transactions on the
quarterly results of operations.

                                      63
<PAGE>

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The management of Donnelly Corporation is responsible for the preparation and
integrity of the combined consolidated financial statements and all other
information contained in this Annual Report. The financial statements were
prepared in accordance with generally accepted accounting principles and
include amounts that are based on management's informed estimates and
judgments.

In fulfilling its responsibility for the integrity of financial information,
management has established a system of internal accounting control that
provides reasonable assurance that assets are properly safeguarded and
accounted for and that transactions are executed in accordance with
management's authorization and recorded and reported properly.

The financial statements have been audited by our independent public
accountants, BDO Seidman, LLP, whose unqualified report is presented on the
next page. The independent accountants provide an objective assessment of the
degree to which management meets its responsibility for fairness of financial
reporting. They regularly evaluate the internal control structure and perform
such tests and other procedures as they deem necessary to reach and express an
opinion on the fairness of the financial statements.

The Audit Committee of the Board of Directors, consisting solely of outside
Directors, meets with the independent public accountants and management to
review and discuss the major audit findings, the adequacy of the internal
control structure and quality of financial reporting. The independent
accountants also have free access to the Audit Committee to discuss auditing
and financial reporting matters with or without management present.

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

/s/ Scott E. Reed
_____________________________________
Scott E. Reed
Senior Vice President
and Chief Financial Officer

                                      64
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

DONNELLY CORPORATION
HOLLAND, MICHIGAN

We have audited the combined consolidated balance sheets of Donnelly
Corporation and subsidiaries as of December 31, 1999; July 3, 1999; and June
27, 1998; and the related combined consolidated statements of income,
shareholders' equity and cash flows for the six-month period ended December
31, 1999, and each of the three years in the period ended July 3, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the combined consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Donnelly Corporation and subsidiaries as of December 31, 1999; July 3, 1999;
and June 27, 1998; and the results of their operations and their cash flows
for the six-month period ended December 31, 1999, and each of the three years
in the period ended July 3, 1999, in conformity with generally accepted
accounting principles.

As discussed in Note 1 to the combined consolidated financial statements, the
Company changed its method of accounting for start-up and organization costs
effective July 4, 1999.

/s/ BDO Seidman
_____________________________________
BDO Seidman, LLP
Grand Rapids, Michigan
February 11, 2000

                                      65
<PAGE>

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

                                   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 May 16, 2000, and
to be filed pursuant to Regulation 14A, is incorporated by reference.

Executive Officers of the Registrant. Information relating to the executive
officers of the Registrant 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 May 16, 2000, 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" and "Securities Ownership of Management"
in the definitive Proxy Statement for the Company's Annual Meeting of
Shareholders to be held May 16, 2000, and the information within those
sections is 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 May 16, 2000, 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 Statement Schedules. The following are included in Part IV of
   this report for the six-month period ended December 31, 1999, and for each
   of the years July 3, 1999; June 27, 1998; and June 28, 1997; as applicable:

<TABLE>
<CAPTION>
                                                                    Page
                                                                    ----
   <S>                                                              <C>
   Report of Independent Certified Public Accountants on Financial
    Statement Schedule                                               69
   Schedule II, Valuation and Qualifying Accounts                    70
</TABLE>

  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.

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


                                      66
<PAGE>

(b) REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the six-month period ended December
31, 1999.

(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.

                                       67
<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
                                          By___________________________________
                                                 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 Scott E. Reed, 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 this report on Form 10-K.

    /s/ J. Dwane Baumgardner                      /s/ Scott E. Reed
_____________________________________     _____________________________________
 Chairman, Director, Chief Executive          Senior Vice President, Chief
        Officer and President                      Financial Officer


       /s/ John A. Borden                     /s/ Ronald L. Winowiecki
_____________________________________     _____________________________________
             Director                      Chief Accounting Officer, Corporate
                                                       Controller


   /s/ B. Patrick Donnelly III
_____________________________________         /s/ Arnold F. Brookstone
              Director                    _____________________________________
                                                        Director


      /s/ R. Eugene Goodson
_____________________________________           /s/ Joan E. Donnelly
              Director                    _____________________________________
                                                        Director


    /s/ Gerald T. McNeive Jr.
_____________________________________           /s/ Thomas E. Leonard
              Director                    _____________________________________
                                                        Director


      /s/ Donald R. Uhlmann
_____________________________________           /s/ Rudolph B. Pruden
              Director                    _____________________________________

DATE: March 24, 2000                                    Director
Donnelly Corporation
Annual Report--Form 10-K

                                      68
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT
SCHEDULE

DONNELLY CORPORATION
HOLLAND, MICHIGAN

The audits referred to in our report dated February 11, 2000, relating to the
combined consolidated financial statements of Donnelly Corporation and
subsidiaries, which is included in Item 8 of this Form 10-K for the transition
period from July 4, 1999, to December 31, 1999, 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
February 11, 2000

                                      69
<PAGE>

                              DONNELLY CORPORATION
                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
        COLUMN A            COLUMN B  COLUMN C  COLUMN D   COLUMN E   COLUMN F
-------------------------  ---------- --------- --------- ---------- ----------
                           BALANCE AT                                BALANCE AT
                           BEGINNING                                    END
       DESCRIPTION         OF PERIOD  ADDITIONS ADDITIONS DEDUCTIONS   PERIOD
-------------------------  ---------- --------- --------- ---------- ----------
<S>                        <C>        <C>       <C>       <C>        <C>
RESERVE FOR UNCOLLECTIBLE
 ACCOUNTS AND SALES
 RETURNS AND ALLOWANCES:

  YEAR ENDED JUNE 27,
   1998                      $1,064      -- (1)              -- (1)    $1,095

  YEAR ENDED JULY 3, 1999    $1,095      662(4)              100(3)    $1,665

  SIX MONTHS ENDED
   DECEMBER 31, 1999         $1,665      685(4)     90(2)    -- (1)    $2,449
</TABLE>

(1) INFORMATION IN THIS COLUMN IS NOT SIGNIFICANT
(2) INCREASE DUE TO CONSOLIDATION OF SUBSIDIARY
(3) DECREASE DUE TO MERGER OF SUBSIDIARY INTO NON-CONSOLIDATED JOINT VENTURE
(4) INCREASE DUE TO POTENTIALLY UNCOLLECTIBLE RECEIVABLES

                                       70
<PAGE>

                           ANNUAL REPORT -- FORM 10-K

                                 Exhibit Index

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 <C>   <S>
  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 was filed as
       part of Form 10-K for the fiscal year ended June 28, 1997, as Exhibit 4
       and is hereby incorporated herein by reference.

 10.1  Multi Currency Revolving Credit Loan Agreement was filed as part of Form
       10-QA for the quarter ended September 16, 1997, as Exhibit 10.1 and is
       hereby incorporated herein by reference. Amendment dated September 1999,
       to the Multi Currency Revolving Credit Loan Agreement dated as of
       September 16, 1997, as amended, by and among Donnelly Corporation,
       Donnelly Hohe GmbH & Co. KG, the borrowing subsidiaries party thereto,
       the banks named herein, and Bank One, Michigan, as agent for the banks
       was filed as part of Form 10-Q for the quarter ended October 2, 1999, as
       Exhibit 10.2 and is hereby incorporated herein 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,
       Donnelly Hohe GmbH & Co. KG ("Hohe") and other related parties, dated
       May 25, 1995, was filed as Exhibit 2 to a Form 8-K dated June 9, 1995,
       and is hereby incorporated herein by reference. An English language
       translation of an Amendment to the Acquisition Agreement was filed as
       Exhibit 10.1 to Form 10-Q for the quarter ended March 28, 1998, and 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  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.

 10.7  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.

 10.8  The Donnelly Corporation 1987 Employees' Stock Purchase Plan, including
       amendments was originally filed as part of a Registration Statement on
       Form S-8 (Registration No. 33-34746) as Exhibit 28.1, and has been
       subsequently amended and filed as part of Form 10-Q for the quarter
       ended September 27, 1997, as Exhibit 10.2 and both such exhibits are
       hereby incorporated herein by reference.

 10.9  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 has been subsequently amended and filed as
       part of a Registration Statement on Amendment No. 1 to Form S-8 on March
       2, 1999, as Exhibit 4 and the same is hereby incorporated herein by
       reference.

 10.10 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.
</TABLE>
<PAGE>


<TABLE>
 <C>   <S>
 10.11 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.

 10.12 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.

 10.13 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.

 10.14 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.

 10.15 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.

 10.16 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.

 10.17 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.

 10.18 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.

 10.19 Lear Donnelly Overhead Systems, LLC Operating Agreement dated November
       1, 1997, was filed as part of the Form 10-QA for the quarter ended
       December 27, 1997, as Exhibit 10.1 and is hereby incorporated by
       reference.

 10.20 The Donnelly Corporation 1997 Employee Stock Option Plan was filed as
       part of a Registration Statement on Form S-8 on November 25, 1997,
       (Registration No. 333-40987) as Exhibit 4, and the same is hereby
       incorporated by reference.

 10.21 Amended and Restated Operating Agreement for Donnelly Electronics,
       L.L.C., dated January 1, 1998, was filed as part of Form 10-K for the
       fiscal year ended June 27, 1998, as Exhibit 10.21 and is hereby
       incorporated by reference.

 10.22 Agreement by and between Donnelly Electronics, L.L.C. and Donnelly
       Corporation, dated January 1, 1998, was filed as part of Form 10-K for
       the fiscal year ended June 27, 1998, as Exhibit 10.22 and is hereby
       incorporated by reference.

 10.23 Letter from Donnelly Corporation to Mr. Scott Reed dated August 17,
       1998, was filed as part of Form 10-K for the fiscal year ended June 27,
       1998, as Exhibit 10.21 and is hereby incorporated by reference.

 10.24 The Donnelly Corporation 401(k) Retirement Savings Plan (January 1,
       1999, Restatement) was filed as part of Form 10-Q for the quarter ended
       April 3, 1999, as Exhibit 10.2 and is hereby incorporated by reference.

 10.25 Agreement and Plan of Merger among Applied Image Group, Inc., Optics
       Acquisition, Inc., Donnelly Optics Corporation and Bruno Glavich was
       filed as an Exhibit to Form 8-K/A dated January 4, 1999, and is
       incorporated herein by reference.

 10.26 The Donnelly Corporation 1998 Employee Stock Option Plan was filed as
       Exhibit A to the Proxy Statement for the October 16, 1998, Annual
       Meeting of Shareholders and is hereby incorporated by reference.
</TABLE>
<PAGE>


<TABLE>
 <C>   <S>
 10.27 The Donnelly Corporation 1998 Employees' Stock Purchase Plan was filed
       as Exhibit B to the Proxy Statement for the October 16, 1998, Annual
       Meeting of Shareholders and is hereby incorporated by reference.

 10.28 Joint Venture Agreement by and among Schott Corporation, Schott North
       America Manufacturing, Inc., Schott Glass and Donnelly Corporation dated
       as of April 5, 1999, and exhibits thereto, including the Limited
       Liability Company Agreement of Schott-Donnelly LLC Smart Glass Solutions
       dated as of April 5, 1999, the Schott Technology License Agreement dated
       as of April 5, 1999, and the Donnelly Technology License Agreement dated
       as of April 5, 1999.

 10.29 Redemption and Purchase Agreement dated September 1999, by and between
       Lear Corporation, Marlette JV Acquisition Corporation, Donnelly
       Corporation and Lear Donnelly Overhead Systems, LLC was filed as part of
       Form 10-Q for the quarter ended October 2, 1999, as Exhibit 10.1 and is
       hereby incorporated herein by reference.

 10.30 Agreement dated December 16, 1999, between Lear Corporation and Donnelly
       Corporation regarding the purchase by Donnelly Corporation of the
       outstanding capital stock of Eurotrim.

 10.31 Amendment dated January 15, 2000, to the Multi Currency Revolving Credit
       Loan Agreement dated as of September 16, 1997, as amended, by and among
       Donnelly Corporation, Donnelly Hohe GmbH & Co. KG, the borrowing
       subsidiaries party thereto, the banks named therein, and Bank One,
       Michigan, as agent for the banks.

 21    Schedule of Affiliates.

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

 27    Financial Data Schedule.
</TABLE>