10-K/A 1 donnelly10ka.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ________, to _____________ Commission File Number: 1-9716 DONNELLY CORPORATION (Exact name of registrant as specified in its charter) Michigan 38-0493110 (State of other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 49 West Third Street, Holland, Michigan 49423-2813 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (616) 786-7000 Securities registered pursuant to Section 12 (b) of the Act: Title of each class Name of each exchange on which registered Class A Common Stock New York Stock Exchange Securities registered pursuant to Section 12 (g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. _X_ The aggregate market value of voting stock held by non-affiliates of the registrant was $85,993,878 as of February 28, 2001. Number of shares outstanding of each of the registrant's classes of common stock, as of February 28, 2001. 6,263,145 shares of Class A Common Stock par value, $.10 per share 4,098,314 shares of Class B Common Stock par value, $.10 per share DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement for its annual meeting of shareholders, held May 11, 2001, are incorporated by reference into Part III of this report. Restatement On August 20, 2001, the Registrant announced that it would restate its financial statements for all periods beginning with fiscal 1998 to reflect a change in its accounting for its investments in Donnelly Electronics, Inc. and Donnelly Hohe GmbH & Co. K.G. See Note 1 and Note 18 to the accompanying Combined Consolidated Financial Statements. The results of prior periods as reflected in this Form 10-K/A differ adversely from previously filed financial information. 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 including forced price reductions, (iv) market development of specific products of the Company, including electrochromic mirrors, (v) whether the Company successfully restructures its European operations, (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, growth- oriented, global supplier to the automotive and information display industries 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 rear vision systems, modular window systems and handle products, which incorporate increasing electronic capabilities. The Company has experienced approximately a 14% compounded annual 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 one of the largest exterior rearview mirror manufacturers in the world and has the largest market share in the U.S. for interior rearview prismatic mirrors and modular window systems. During 2001, the Company will be transitioning to a global product based management structure split into two main operating groups: Electronic Systems and Exterior Systems. The Company believes that this organizational evolution will help position itself to achieve even stronger performance with its products in the global marketplace. The Company has been following 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. 1. Developing Core Automotive Products: The Company's core automotive product offerings have experienced approximately a 14% compounded annual growth rate in net sales since fiscal 1989. Adjusted for foreign currency exchange rates and the impact of the reduction in net sales associated with Lear Donnelly, the Company experienced a growth in sales of approximately 7% for the year ended 2000. The increase in 2 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 ("EC") mirrors, bonded hardware modular window systems and door handle products; and through acquisitions, primarily of Donnelly Hohe in Europe. The Company also benefits from content on strong selling vehicles such as the DaimlerChrysler minivan, the Ford Expedition, the Ford Taurus, and the General Motors' compact sport utility vehicles ("SUVs") in North America as well as 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. The Company received a major order for business integrating advanced electronic features into interior rearview mirrors (both base prismatic and EC mirrors) to support General Motors' OnStar(R) system. The first commercial versions of this telematics system were launched during the second half of 2000. Management believes that the Company is the only company to integrate electronics into both prismatic and EC 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 EC 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 SmartRelease(TM) system, which will debut on the 2002 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. The Company believes that the SmartRelease(TM) system will be added to other customers' vehicle lines during 2002 and 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. 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 operations 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 EC 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 Co. Ltd. ("Shanghai Donnelly Ganxiang") for exterior mirror products. In South America, the Company operates Donnelly do Brasil LTDA. ("Donnelly do Brasil") for the manufacture and sale of interior, exterior and EC mirror products into this market. These operations 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 the Company's joint ventures. As part of the Company's commitment to focus on its core businesses in recent years, the Company has executed actions to reposition its non-core businesses. Through these actions, the Company was able to generate positive cash flow and net gains to the Company, resulting in a strong return to shareholders for the investments made to develop these businesses. Refer to the section; Repositioning Non-Core Businesses, included in this report after Joint Ventures, for a more detailed discussion of these actions. The Company continually assesses its strengths and weaknesses in relation to the direction of the respective industries represented by the Company's various investments. 2. Improving Operating Performance of European Operations: During the past six 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 EC 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. Donnelly Hohe also offers interior mirrors and certain non-automotive products through three operating facilities in Germany and one in Spain. The Company also offers its mirror and electronic products through operating facilities in Ireland and its modular window systems through its facility in France. 3 On July 9, 2001, the Company announced a European restructuring initiative ("the 2001 plan") to further enhance the efficiency and profitability of its European operations through a combination of margin improvements and overhead reductions. Objectives of the 2001 plan will be achieved through outsourcing of "non-core" operations including work currently performed in the Company's Tool Shop and Zinc Diecasting operations. Personnel cutbacks will also be made in the Paint Shop and in Manufacturing Overhead. The total cost of the plan is estimated at $2.1 million pre-tax, or $1.4 million at net income, related to termination benefits for approximately 125 production, engineering and support personnel. Costs will be recognized as specific actions are defined and approved beginning in the third quarter of 2001. The plan is anticipated to be completed in 2002. While the Company believes that further restructuring actions may be appropriate in Europe and continues to evaluate these operations for improvements, the assessment of possible actions has not yet been completed. The Company has substantially completed two earlier restructuring plans to improve the operating efficiency and profitability of its European exterior mirror business. In February 1999, the Company announced a restructuring plan ("the 1999 plan") based on a strategy to consolidate and streamline manufacturing operations in Germany. An $8.8 million pre-tax restructuring charge, or $4.7 million at net income, was recorded for the 1999 plan, including $1.4 million for impairment of assets and $7.4 million for anticipated incremental cash expenditures related to the severance and voluntary retirement programs for approximately 200 production, sales, engineering and support personnel. In May 1997, the Company announced a plan ("the 1997 plan") for the elimination of redundant operations and outsourcing of inefficient operations throughout Europe, which resulted in a $10.0 million pre-tax restructuring charge, or $5.3 million at net income. A reduction of $1.1 million was recorded to the restructuring reserve in 1998 associated with changes to the 1997 plan. Remaining actions of the 1997 plan were included in the 1999 plan. As required by generally accepted accounting principles for restructuring charges, the Company reduced its total restructuring reserve by $3.8 million pre-tax, or $2.4 million at net income, in the fourth quarter of 2000. The reduction was attributable to (1) higher than anticipated voluntary employee attrition and (2) changing circumstances within the market and operations, which made the outcome of some aspects of the plans uncertain. 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, in 1996, the Company invested in a new venture, Donnelly Electronics, Inc. ("Donnelly Electronics"), located in Holly, Michigan, which specializes in the design and manufacture of circuit board assemblies for a variety of electronics products and sub-assemblies. In February 2001, the Company acquired all of the outstanding stock of Donnelly Electronics not currently owned by the Company. 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. See Item 1 (c) "Narrative Description of Business--Joint Ventures" for a more detailed discussion of this venture. The Company believes that electronics represent a significant growth area for the Company. 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, powerfold 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 vehicle manufacturers to offer different configurations of features through the same module. An example of these modules is an interior EC 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 began shipping product on this order in mid-2000 with the electronic content included in a mix of base prismatic and EC mirrors. Both kinds of mirrors also include additional electronic features such as compass and temperature displays and precision interior map lighting. 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 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 4 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. The Company has also begun displaying its VideoMirror(TM) line of electronic vision systems for vehicles that utilize advanced image processing and display technology to give drivers better views of their vehicles' interiors and exteriors. A recent product offering is the Company's SmartRelease(TM) trunk release system, which uses 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 2002 Chevrolet Impala and Monte Carlo. This technology marks an evolution in the auto industry's efforts to help 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 auto-makers. The electronic sensors require very little movement on the part of a person trapped in a trunk to activate. The Company believes that it will secure additional orders of other key customers during 2001 and 2002 to also utilize the SmartRelease(TM) trunk release system. 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 years 1998, 1999 and 2000. 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. In addition, the Company expects door handle product sales to increase due to the withdrawal of one of its major competitors from the market. Future booked sales for outside mirrors and inside mirror products with strong value-added content, handle products 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, such as Onstar(R), have begun to be launched during late calendar 2000 and many more will be launching over the next 18 months. 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 Company is committed to improving shareholder value with a strategic plan focused 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; 2) improving the overall operating performance of the Company's European Operations; and 3) extending the Company's capabilities in value-added electronics technologies. The Company believes that these strategic initiatives have established the foundation for the Company's ability to improve shareholder value. The Company believes the combination of the strong commercial developments for new orders booked (initially launching in late calendar 2000) and the continued introduction of advanced technologies should support the Company's ability to continue growing 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 has been managed primarily on a geographical basis. For 2000, the Company had two reportable segments: North American Operations ("NAO") and European Operations ("EO"). During 2001, the Company will be transitioning to a new corporate organization structure that will focus its worldwide business into two main operating groups: Electronic Systems and Exterior Systems. The Company believes that this organizational evolution will help position itself to achieve even stronger performance with its products in the global marketplace. See Note 4 to the combined Consolidated Financial Statements under Item 8 of this report for additional information regarding the Company's operating 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 years ended December 31, 2000, July 3, 1999, and June 27, 1998, each consisted of 52, 53 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 fiscal years and fiscal quarters, unless otherwise stated. During the transition period, the Company also 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 5 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 minivans and SUVs, as compared to automobiles. These factors cause results to fluctuate from period to period and year to year. Products, Services, Markets and Methods of Distribution Automotive Rear-Vision 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 one of 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 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. 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 EC mirrors that industry sources expect to grow to $1 billion or greater. The Company believes it is the only exterior mirror manufacturer that is vertically integrated with full exterior EC cell manufacturing capability. With strong technologies to offer and having favorably settled the patent issues that had hampered its ability to compete prior to 1996, the Company has set, and is achieving ambitious goals for increasing its EC mirror market share in the years ahead. During the last twelve months the Company has significantly increased its production of EC mirrors, and is on track to approximately double EC volumes within the next twenty-four months. In late 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 began appearing on production vehicles in North America and Europe in 2000. 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"), one of the world's leading producers of specialty glass products. The joint venture is seeking to develop EC 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 2000 sold approximately 27 million complete units and prism mirror elements 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 display technologies. 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 began shipping product on this order in mid-2000 with the electronic content included in a mix of base prismatic and EC mirrors. Both kinds of mirrors may also include additional electronic features such as compass and temperature displays and precision interior map lighting. Management believes that the Company is the only company with the manufacturing orders to incorporate all the electronics required into both prismatic and EC mirrors. 6 The Company manufactures and markets automotive interior rearview mirrors using EC technology that automatically dims the mirror when headlights approach from the rear. EC 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 EC rearview mirrors represented approximately 24% and 11% of all interior rearview mirrors sold by all suppliers to original equipment manufacturers in the North American and European markets, respectively, for the 2000 model year. The market for EC mirrors continues to grow and in 2000, EC mirrors were offered on approximately 61 car models in North America, compared to only approximately 19 models in 1991. The Company believes that EC 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. Exterior Rearview Mirrors. The Company believes it is one of the largest exterior rearview mirror manufacturers 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 joint ventures). 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 2000, the Company launched 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. Additionally, in 2000, the Company was awarded the contract for exterior rearview mirrors for a North American light truck program, which will be introduced in 2004. 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, General Motors and Mazda in the United States and to major European auto-makers including BMW, Volkswagen, Renault, Audi and Ford in Europe. The Company also supplies exterior rearview mirror systems to automakers throughout China through its Chinese joint ventures, which are the two largest producers of exterior rearview mirrors in China, and in South America through its subsidiary 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 EC exterior rearview mirrors. The Company believes that EC rearview mirrors currently represent only 5% of all exterior rearview mirrors in the North American market for the 2000 model year. The Company believes that EC 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 EC mirror market presents a significant growth opportunity for the Company. Camera Vision. 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 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 technology 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. The Company has also begun displaying its VideoMirror(TM) line of electronic vision systems for vehicles that utilize advanced image processing and display technology to give drivers better views of their vehicles' interiors and exteriors. The two principal products being marketed within the VideoMirror(TM) line are BabyVue(TM) and ReversAid(TM). BabyVue(TM) is an in-cabin camera vision system, which allows the driver a view of reverse-facing infants. ReversAid(TM) is an exterior camera vision system, which uses a discreet camera mounted on the rear of the vehicle to provide an enhanced view of what is behind the vehicle when it is in reverse. The ReversAid(TM) system can also be modified to become TowChek(TM) to assist drivers backing up to hitch without the assistance of a second person. The VideoMirror(TM) system was selected as one of the thirty "Best of CES," which recognizes the best new products on display at the Consumer Electronics Show held in January 2001 in Las Vegas. Both of the systems have begun to be marketed online at www.donnelly.com. This technology is part of the Company's strategy to be a technology leader in the market for automotive rear-vision systems. 7 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, sunroofs 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, the Ford Taurus/Sable, and the new generation of compact SUVs just launched by General Motors. 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 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 both process and its expertise in PVC molding are significant competitive advantages. The Company believes that the increasing use of modular windows reflects trends in the automotive industry towards increased levels of outsourcing, demand for integrated modules and systems and reliance on suppliers for design and manufacturing, particularly in the North American market for light trucks and SUVs. Handle Products The Company produces a wide variety of interior and exterior door and liftgate handle products for Ford, Honda, Mazda, Nissan and Porsche. This product line was established based on the Company's capabilities in color-matched painting and plastic injection molding. The Company supplies various types of handle products including plastic, diecast and chrome-plated door handles as well as products with value-added electronic features. The Company expects to benefit from the recent withdrawal of a major competitor from the North American marketplace. Concurrently, acknowledgement by our customers as a leading designer and manufacturer of body colored hardware has lead to new business with General Motors, Honda and Mazda. 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. The Company also began to supply a "passive entry" door handle for a future luxury vehicle, which involves a sophisticated system to detect and identify the owner of a vehicle as he/she approaches and automatically opens the door. These products, when combined with the SmartRelease(TM) trunk release product, indicate a growing sophistication in the door closure market and represents increased growth opportunities. The Company believes that the market for all types of electronic door closure mechanisms will increase over the next decade. Interior Lighting and Trim In September 1997, the Company entered into an agreement with Lear Corporation ("Lear") to form Lear Donnelly Overhead Systems, LLC ("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 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 a European customer, the Company has exited this product area. Sales relating to this order are classified with the Company's mirror systems and components related sales. 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 8 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 5% of the Company's total net sales for each of the last three years. Joint Ventures Donnelly Electronics. Donnelly Electronics was formed in the first quarter of 1997, with a partner offering expertise in automotive electronics technology. In February 2001, the Company acquired all of the outstanding equity of Donnelly Electronics, not then owned by the Company for $4.5 million, paid equally in cash and through the issuance of the Company's Class A Common Stock. Due to the acquisition of the remaining interest, the Company began consolidating Donnelly Electronics' financial statements beginning in March 2001. As of December 31, 2000, the Company owned 18.2% of the common stock of Donnelly Electronics (See Note 1 to the Combined Consolidated Financial Statements). Donnelly Electronics, based in Holly, Michigan, designs and manufactures circuit board assemblies for a variety of electronic products and sub-assemblies. It produces many of the electronic components that the Company uses for products such as EC 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 non-automotive customers. In addition, Donnelly Electronics will operate assets purchased by the Company in the first quarter of 2000, for the manufacture of electronic components in Europe. Donnelly/Arteb LTDA ("Donnelly/Arteb"). In fiscal 1998, the Company formed Donnelly/Arteb, which is located near Sao Paulo, Brazil, a 50-50 joint venture with Industrias Arteb S.A., to produce interior and exterior mirrors for the South American automotive industry. Donnelly/Arteb began producing replacement parts for distribution within the South American market in 1999. In October 2000, the Company acquired its partner's 50% interest in Donnelly/Arteb for $1.6 million, subsequently changing its name to Donnelly do Brasil LTDA and began consolidating the financial statements of this now wholly-owned subsidiary. Donnelly do Brasil is in the process of launching new programs for the Brazilian market. Equity in the results of the Company's Brazilian joint venture are no longer included in equity in earnings (losses) of affiliated companies after October 2000 due to the Company's acquisition of the remaining interest in this venture and subsequent consolidation of the financial statements of this subsidiary. Shunde Donnelly Zhen Hua. In the first quarter of 1997, the Company formed, Shunde Donnelly Zhen Hua, a joint venture with Shunde Zhen Hua Automotive Parts Co. Ltd. ("Shunde Zhen Hua"), to manufacture interior and exterior mirror systems for automakers in China. In 1999, Shunde Zhen Hua agreed to sell its portion of the joint venture to Ganxiang Automobile Mirror Company ("Ganxiang"), the largest automotive mirror supplier in China. The Company formed an additional joint venture with Ganxiang; Shanghai Donnelly Ganxiang, see below. Shanghai Donnelly Ganxiang. In the fourth quarter of calendar 1999, the Company formed Shanghai Donnelly Ganxiang for the manufacture, sale and distribution of outside mirrors primarily for the Chinese automotive market. The Company's investment in Shanghai Donnelly Ganxiang consisted of technology and a transfer to Ganxiang of a 5% interest of its Shunde Donnelly Zhen Hua joint venture. This transaction was finalized and approved by the Chinese authorities in 2000. As a result of this transaction, the Company now holds a 25% interest in both Shunde Donnelly Zhen Hua and Shanghai Donnelly Ganxiang. Schott-Donnelly LLC Smart Glass Solutions ("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 seeking to develop EC glass for automotive and architectural window 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 pre-tax gain. In accordance with the LLC operating agreement, Schott will provide contributions for operations and be allocated 100% of the net operating losses up to $9.5 million. Applied Image Group, Inc. ("AIG"). In December 1998, the Company merged its wholly owned subsidiary, Donnelly Optics Corporation ("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; therefore, the financial results of Optics are no longer included in the Company's financial statements after December 1, 1998. 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 EC 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 9 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. Donnex. The Company's agreement with Essex Specialty Products, Inc., the world's leading producer of automotive adhesives and sealants, to form a new company, Donnex, has expired. Donnex was intended 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 the Company will continue to market this innovative technology independent from Essex. 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 automotive window systems for the Chinese and Australian markets. Shanghai Fu Hua was originally, itself, a joint venture between Ford Motor Company and Shanghai Yao Hua Glass Works. In August of 2000, Ford sold its interest in Shanghai Fu Hua to Pilkington Glass Company, changing the name to Shanghai Yao Hua Pilkington Autoglass Co. Ltd. The Company's position in Shanghai Donnelly Fu Hua as a result of the sale, however, has remained unchanged. 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. Repositioning Non-Core Businesses As part of the Company's commitment to focus on its core businesses, the Company has executed the following actions, associated with its non-core businesses: In October 2000, the Company divested its interest in KAM. The Company had owned 17.1% of KAM, which supplies mirrors for large trucks. The shares sold resulted in a pre-tax gain of approximately $0.4 million, or $0.02 per share, after-tax. In September 1999, the Company sold its 50% interest in Lear Donnelly Overhead Systems, LLC ("Lear Donnelly") to Lear Corporation, its partner in the joint venture, resulting in a pre-tax gain of $14.1 million, or $0.82 per share, after-tax, which was recognized in the third quarter of calendar 1999. In December 1999, the Company completed the final negotiation of certain issues related to the sale, resulting in an additional pre-tax gain to the Company of $4.4 million, or $0.29 per share, after-tax, which was recognized in the fourth quarter of calendar 1999. The Company's equity in the financial results of Lear Donnelly has not been included in the Company's financial statements after September 1999. For a more detailed discussion regarding the Company's sale of its investment in Lear Donnelly, see Note 3 to the Combined Consolidated Financial Statements under Item 8 of this Form 10-K report. In April 1999, the Company formed Schott Donnelly, a 50-50 joint venture with 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. See Item 1 (c) "Narrative Description of Business--Joint Ventures" for a more complete discussion regarding Schott Donnelly. 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 pre-tax gain of approximately $5.5 million, or $0.35 per share, after-tax. The Company's equity in the financial results of VISION Group has not been included in the Company's financial statements after November 1, 1998. In December 1998, the Company merged its wholly owned subsidiary, Donnelly Optics, into a wholly owned subsidiary of Applied Image Group, Inc. ("AIG"), a New York Corporation. See Item 1 (c) "Narrative Description of Business--Joint Ventures" for a more complete discussion regarding AIG. The Company accounts for its investment in AIG on the cost method; therefore, the financial results of Optics have not been included in the Company's financial statements after December 1, 1998. In the second quarter of fiscal 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. 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, Lear Donnelly and AFC are no longer included in the Company's combined consolidated financial statements. The Company 10 continually assesses its strengths and weaknesses in relation to the direction of the respective industries represented by the Company's various investments. 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 automotive 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 380 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 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 minivans and SUVs, as compared to automobiles. These factors cause results to fluctuate from period to period and year to year. Investments in new product lines, acquisitions, and the formation and disposition of subsidiaries, joint ventures and alliances also affect the comparability of results on a period-to-period basis. WORKING CAPITAL The Company's current ratio was 1.3 on December 31, 2000, compared to 1.2 at December 31, 1999. Working capital was $43.3 million at December 31, 2000, compared to $25.0 million at December 31, 1999. The increase in working capital is due to increased accounts receivable and inventories from new product launches, and reductions in payables and restructuring accruals. At December 31, 2000, and December 31, 1999, $38.5 million and $38.9 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 2001; however, it is renewable for one-year periods at the option of the Company and with the consent of bank participants. 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 $77.1 million and $42.5 million as of December 31, 2000, and December 31, 1999, respectively. Total long-term borrowing increased by $25.2 million at December 31, 2000, compared to December 31, 1999, primarily to support higher working capital and capital expenditure requirements. 11 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 In 2000, approximately 74% of the Company's net sales were to the following major automobile manufacturers: Ford ........................................................... 27% DaimlerChrysler................................................. 19 General Motors.................................................. 7 Honda........................................................... 7 BMW............................................................. 7 Volkswagen...................................................... 7 -- Total........................................................... 74% ==

The mix of the Company's product content varies by customer within each segment. The loss of any one of these customers would have a material adverse effect on the Company. Backlog of Orders As of December 31, 2000, and December 31, 1999, the Company's backlog of orders was approximately $204 and $193 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 re-negotiation 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, technology, design, quality, cost, delivery and customer relationship. 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 auto-makers. The level and nature of competition involving the Company's automotive products are varied. 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 EC 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, although the number of these has begun to decrease in recent years due to consolidation. Through the Company's operations in North American and Europe, the Company is one of the leading producers of automotive exterior rearview mirrors. Modular Windows. The Company has many competitors in the worldwide modular window market. Certain competitors are major automotive glass manufacturers or are closely associated with automobile or glass 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, although recently there has been some consolidation with one competitor leaving the 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 12 mirrors through the sale of coordinated "door sets" of exterior mirrors and handle products. Additionally, the Company will use its electronics design, development and manufacturing capability to create competitive advantage, wherever possible, in the growing electronic door closure mechanisms market, an area in which few competitors have yet emerged. 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 2000, 1999 and 1998, research and development expenditures were $35.2, $34.2 million and $36.4 million, respectively, or 4.1%, 3.8% 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. The increase in these expenses in 2000 is primarily due to increased electrochromic and electronic applications, as well as launch related engineering support. The decrease from 1998 to 1999 was primarily due to the Lear Donnelly joint venture, the formation of the Schott Donnelly joint venture, the Optics merger and Donnelly Electronics. This was due to the Company's contribution of certain technologies and related operating expenses to these ventures, which are accounted for under the equity or cost method of accounting. The Company anticipates that it's acquisition of Donnelly Electronics will result in higher research and development expenses in the future both in absolute terms and as a percent of sales, however, the acquisition is expected to result in higher gross profit margins. 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 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 6,400 employees worldwide, of whom approximately 3,600 work in the Company's North American operations in the U.S. and Mexico. During 2000, the Company had an average of 13 approximately 6,200 employees worldwide. The Company's non-North American employees are primarily located in Germany, Ireland, France, Spain, Brazil 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" for more information about the European restructuring. ITEM 1 (d) INFORMATION ABOUT FOREIGN OPERATIONS During 2000, approximately 31% of combined consolidated net sales were derived from the Company's foreign operations. Approximately 15% 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 to. 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, Brazil 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 Donnelly Electronics 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.; one in Brazil, Donnelly do Brasil; and one in Malaysia, Varitronix EC. The Company has established the Asian and the South American markets as the top two emerging market priorities. To support this, the Company also has various non-controlled joint ventures in Asia. 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. A summary of the Company's operations by geographic area is included in Note 4 to the Combined Consolidated Financial Statements under Item 8 of this Form 10-K/A report. 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 28, 2001, were as follows: Combined Location of Facility Square Footage Use -------------------- -------------- --- North American Operations: Holland, Michigan (11)* 988,000 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* 4,200 Sales and Marketing Office Mt. Sterling, Kentucky 45,000 Manufacturing, Warehouse and Office Monterrey, Mexico 132,000 Manufacturing, Warehouse and Office 14 Tucson, Arizona (2)** 11,000 Manufacturing, Warehouse and Office Tokyo, Japan * 200 Sales and Marketing Office European 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* 357,000 Manufacturing, Warehouse and Office Schleiz, Germany (2)* 95,000 Manufacturing, Warehouse and Office Barcelona, Spain 66,000 Manufacturing, Warehouse and Office Palmela, Portugal 62,000 Warehouse and Office Goteborg, Sweden * 3,100 Sales, Marketing and Design Office Other Segments: Holly, Michigan ** 35,000 Manufacturing, Warehouse and Office Shunde, China ** 82,000 Manufacturing, Warehouse and Office Shanghai, China ** 120,000 Manufacturing, Warehouse and Office Yantai, China** 143,000 Manufacturing, Warehouse and Office Penang, Malaysia ** 23,300 Manufacturing and Office Sao Bernardo do Compo, Brazil 14,000 Manufacturing and Office

* Leased facilities. Four of the ten Holland, Michigan, facilities are leased. One of the two Collenberg, Germany, as well as, one of the two Schleiz, Germany, facilities are leased. ** Owned or leased by a joint venture or non-controlled affiliate. 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, 2000, the Company had capital expenditure purchase commitments outstanding of approximately $11.2 million. The Company provides a guarantee for $7.1 million in municipal funding for one of the Company's manufacturing facilities in Michigan. ITEM 3. LEGAL PROCEEDINGS The previously disclosed litigation concerning Arteb S.A. and the complaint filed by Sekurit Saint-Gobain U.S.A., Inc. against the Company in the U.S. District Court for the Eastern District of Michigan, have each been settled without material effect on the Company's financial position, results of operations and liquidity, individually and in the aggregate. On October 5, 2000, the Company filed a complaint against Reitter & Schefenacker USA Limited Partnership and Reitter & Schefenacker GmbH Co., KG in the U.S. District Court for the Western District of Michigan. The complaint alleges that the defendants have infringed three of the Company's patents relating to interior rearview mirror assemblies incorporating lighting features. The complaint seeks unspecified damages and an injunction against further infringement. Defendant Reitter & Schefenacker USA Limited Partnership has filed an answer denying infringement and alleging that the patents at issue are invalid and/or unenforceable. Defendant Reitter & Schefenacker GmbH & Co., KG has not yet filed an answer but has stated that it intends to assert that it is not subject to the jurisdiction of the court. 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. 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2000. ADDITIONAL ITEM - EXECUTIVE OFFICERS OF THE REGISTRANT Senior Corporate and Executive Officers of Registrant. The Senior Corporate and Executive Officers of the Company as of December 31, 2000 are as follows: Year First Elected Executive Name Age Positions and Offices Held Officer ------------------------------------------------------------------------------------------------------------------------------ J. Dwane Baumgardner, Ph.D. 60 Director, Chairman, CEO, President 1978 John F. Donnelly Jr. 48 COO of Europe 1986 Maryam Komejan 50 Senior Vice President, Administration and Corporate Secretary 1993 Niall R. Lynam, Ph.D. 47 Senior Vice President, CTO 1992 Scott E. Reed 43 Group President-Electronic Systems, CFO and Chief Accounting Officer 1998 Russell B. Scaffede 51 Group President-Exterior Systems 1995 Donn J. Viola 55 Corporate COO 1996

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. Maryam Komejan has been Senior Vice President since 1995, Vice President since 1993, Corporate Secretary since 1989 and resigned effective January 2, 2001. 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 1998 and in December 2000 he was elected Group President- Electronic systems, Chief Financial Officer and Chief Accounting Officer. Prior to joining the Company, he served as Director of International Finance for Chrysler Corporation from 1995 to 1998. Russ Scaffede was elected Group President- Exterior Systems in December 2000. Prior to that time he was Senior Vice President since April 1998 and Vice President since October 1995. Donn Viola joined the Company as Chief Operating Officer of the Company's North America operations in August 1996 and was elected Corporate Chief Operating Officer in December 2000. 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. 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: Year ended December 31, 2000 ------------------------------------------------------------- Fiscal Dividends Quarter High Low Declared ------------------------------------------------------------- First $14.19 $11.75 $.10 Second 15.00 11.75 .10 Third 15.90 12.25 .10 Fourth 15.25 11.55 .10 ------------------------------------------------------------- 16 Six months ended December 31, 1999 Fiscal Dividends Quarter High Low Declared ------------------------------------------------------------- First $17.25 $14.00 $.10 Second 15.13 13.00 .10 ------------------------------------------------------------- Fiscal year ended July 3, 1999 ------------------------------------------------------------- Fiscal Dividends Quarter High Low Declared ------------------------------------------------------------- First $18.88 $14.13 $.10 Second 16.00 12.50 .10 Third 15.25 12.13 .10 Fourth 17.50 12.88 .10 -------------------------------------------------------------

As of February 28, 2001, the Company had approximately 764 holders of record of shares of Class A Common Stock. ITEM 6. SELECTED FINANCIAL DATA (as restated) Fiscal Years -------------------------------------------------- In thousands, except per share data 2000 1999* 1999 1998 1997 1996 ------------------------------------------- ------------ ----------- ------------ ------------ ----------- ------------ Net Sales $ 857,479 $ 421,641 $ 904,969 $ 763,311 $ 671,297 $ 439,571 Income before taxes on income 21,581 26,486 8,990 18,615 11,553 11,966 Net Income 11,123 15,296 4,989 11,577 7,429 8,295 Net income per common share - Basic 1.09 1.51 0.49 1.16 0.75 0.85 Net income per common share - Diluted 1.09 1.50 0.49 1.15 0.75 0.85 Dividends declared per common share 0.40 0.20 0.40 0.40 0.36 0.32 Total assets 423,996 401,822 373,414 365,915 350,231 269,204 Debt including current maturities 132,698 107,477 92,215 123,761 122,901 101,916 Preferred stock 531 531 531 531 531 531 Shareholders' equity (total) 114,625 110,972 98,586 99,140 91,117 88,733 Restructuring and other charges (gain) (3,796) -- 8,777 3,468 9,965 2,399 * For the transition period from July 4, 1999, to December 31, 1999. Net income includes ($1,010,000) for the cumulative effect of a change in accounting principle ($.10 at earnings per share).

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/A. 17 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 including forced price reduction, (iv) market development of specific products of the Company, including electrochromic mirrors, (v) whether the Company restructures its European operations, (vi) fluctuations in foreign currencies and (vii) other risks and uncertainties. The Company does not intend to update these forward-looking statements. In this Item 7, references to the results of operations for all periods presented and to balances as of the dates presented relate to restated amounts for certain investments in and advances to affiliates. See Notes 1 and 18 of the Notes to the accompanying Combined Consolidated Financial Statements. OVERVIEW The Company is a technology-driven, customer-focused, growth-oriented, global supplier to the automotive and information display industries. The Company has been managed primarily on a geographic basis. For 2000, the Company had two reportable segments: North American Operations ("NAO") and European Operations ("EO"). These were managed separately as they each represented regional operational components, which offered the Company's product lines in different geographical markets. During 2001, the Company will be transitioning to a global, product-based management structure. Split into two main operating groups: Electronic Systems and Exterior Systems. The Company believes that this organizational evolution will help position itself to achieve even stronger performance with its products in the global marketplace. 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 December 31, 2000, July 3, 1999, and June 27, 1998, consisted of 52, 53 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 fiscal years and fiscal quarters, unless otherwise stated. During the transition period, the Company also 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 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 in the transition period. 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 twelve-month and six-month periods ended December 31, 1999, and January 2, 1999, respectively, is presented in Note 2 to the Combined Consolidated Financial Statements and includes any 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 minivans and sport utility vehicles, as compared to automobiles. These factors cause results to fluctuate from period to period and year to year. Investments in new product lines, acquisitions, and the formation and disposition of subsidiaries, joint ventures and alliances also affect the comparability of results on a period-to-period basis. Mergers, Joint Ventures and Sale of Investments In February 2001, the Company acquired all of the outstanding equity of Donnelly Electronics, Inc. ("Donnelly Electronics"), not then owned by the Company for $4.5 million, paid equally in cash and through the issuance of the Company's Class A Common Stock. As of December 31, 2000, the Company owned 18.2% of the common stock of Donnelly Electronics, held $9 18 million of 7% non-voting preferred stock in Donnelly Electronics, and had a 7% promissory note of $15.2 million. Due to the complete funding of Donnelly Electronics by Donnelly Corporation, 100% of the operating losses incurred by Donnelly Electronics have been recognized under the equity method of accounting prior to consolidation. The entity, formed in the first quarter of 1997, designs and manufactures circuit board assemblies for a variety of electronic products and sub-assemblies. It produces many of the electronic components that the Company uses for products such as electrochromic rearview mirrors and electronic compass systems, and also pursues business with other automotive suppliers as well as other non-automotive customers. In October, 2000, the Company divested its interest in KAM Truck Components, Inc. ("KAM"). The shares sold resulted in a pre-tax gain of approximately $0.4 million, or $0.02 per share, after-tax. In October 2000, the Company acquired its partner's 50% interest in its Brazilian joint venture for $1.6 million and began consolidating the financial statements of its now wholly-owned subsidiary, Donnelly do Brazil, LTDA ("Donnelly do Brazil"). The 50-50 joint venture was formed in 1998 to produce interior and exterior mirrors for the South American automotive industry and began producing replacement parts for distribution within the South American market in 1999. Donnelly do Brazil is in the process of launching new programs for the Brazilian market. Equity in the results of the Company's Brazilian joint venture are no longer included in equity in earnings (losses) of affiliated companies after October 2000 due to the Company's acquisition of the remaining interest in this venture and subsequent consolidation of the financial statements of this subsidiary. In 2000, the Company purchased the remaining minority interest in Donnelly Hohe Espana, S.A., for approximately $1.9 million. In 1999, the Company's partner in its Shunde Donnelly Zhen Hua Automotive Systems Co. Ltd. ("Shunde Donnelly Zhen Hua") joint venture, agreed to sell its portion of the joint venture to Ganxiang Automobile Mirror Company ("Ganxiang"), the largest automotive mirror supplier in China. Shunde Donnelly Zhen Hua manufactures interior and exterior mirror systems for automakers in China. Subsequently, in the fourth quarter of calendar 1999, the Company formed an additional joint venture with Ganxiang; Shanghai Donnelly Ganxiang Automotive Systems Co. Ltd. ("Shanghai Donnelly Ganxiang") for the manufacture, sale and distribution of outside mirrors primarily for the Chinese automotive market. The Company's investment in Shanghai Donnelly Ganxiang consisted of technology and a transfer to Ganxiang of a 5% interest of its Shunde Donnelly Zhen Hua joint venture. As a result of these transactions, the Company holds a 25% interest in both of these joint ventures. In September 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 pre-tax gain of $14.1 million, or $0.82 per share, after-tax, which was recognized in the third quarter of calendar 1999. In December 1999, the Company completed the final negotiation of certain issues related to the sale, resulting in an additional pre-tax gain to the Company of $4.4 million, or $0.29 per share, after-tax, which was recognized in the fourth quarter of calendar 1999. The Company's equity in the financial results of Lear Donnelly have not been included in the Company's financial statements after September 1999. For a more detailed discussion regarding the Company's sale of its investment in Lear Donnelly, (see Note 3). Lear Donnelly operated by selling its products to Lear and to the Company, which in turn sold them to their final customers. The Company reported sales of $67.5 million for calendar 1999 and $11.5 million for 2000 attributable to interior lighting and trim products manufactured for Lear Donnelly or Lear, respectively. Because the joint venture operated at approximately break-even since its formation, the sale has not had and is not expected to have a material impact on the Company's results of operations. Because reported net sales were reduced in 2000, gross profit and operating margins as a percent of sales were favorably impacted as compared to calendar 1999. As reported net sales will only be slightly reduced in 2001 and beyond, gross profit and operating margins as a percent of sales are not expected to be materially impacted in future periods. 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 seeking to develop 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 pre-tax gain. In accordance with the LLC operating agreement, Schott will provide contributions for operations and be allocated 100% of the net operating losses up to $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 19 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 pre-tax 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 pre-tax gain. The Company's equity in the financial results of VISION Group have not been 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 have not been included in the Company's financial statements after December 1, 1998. In 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 pre-tax gain of approximately $4.6 million, or $0.22 per share, after-tax. The Company's equity in the financial results of AFC have not been included in the Company's financial statements after November 1997. Restructuring On July 9, 2001, the Company announced a European restructuring initiative ("the 2001 plan") to further enhance the efficiency and profitability of its European operations through a combination of margin improvements and overhead reductions. Objectives of the 2001 plan will be achieved through outsourcing of "non-core" operations including work currently performed in the Company's Tool Shop and Zinc Diecasting operations. Personnel cutbacks will also be made in the Paint Shop and in Manufacturing Overhead. The total cost of the plan is estimated at $2.1 million pre-tax, or $1.4 million at net income, related to termination benefits for approximately 125 production, engineering and support personnel. Costs will be recognized as specific actions are defined and approved beginning in the third quarter of 2001. The plan is anticipated to be completed in 2002. While the Company believes that further restructuring actions may be appropriate in Europe and continues to evaluate these operations for improvements, the assessment of possible actions has not yet been completed. The Company has substantially completed two earlier restructuring plans to improve the operating efficiency and profitability of its European exterior mirror business. In February 1999, the Company announced a restructuring plan ("the 1999 plan") based on a strategy to consolidate and streamline manufacturing operations in Germany. An $8.8 million pre-tax restructuring charge, or $4.7 million at net income, was recorded for the 1999 plan, including $1.4 million for impairment of assets and $7.4 million for anticipated incremental cash expenditures related to the severance and voluntary retirement programs for approximately 200 production, sales, engineering and support personnel. In May 1997, the Company announced a plan ("the 1997 plan") for the elimination of redundant operations and outsourcing of inefficient operations throughout Europe, which resulted in a $10.0 million pre-tax restructuring charge, or $5.3 million at net income. A reduction of $1.1 million was recorded to the restructuring reserve in 1998 associated with changes to the 1997 plan. Remaining actions of the 1997 plan were included in the 1999 plan. As required by generally accepted accounting principles for restructuring charges, the Company reduced its total restructuring reserve by $3.8 million pre-tax, or $2.4 million at net income, in the fourth quarter of 2000. The reduction was attributable to (1) higher than anticipated voluntary employee attrition and (2) changing circumstances within the market and operations, which made the outcome of some aspects of the plans uncertain. RESULTS OF OPERATIONS Comparison of 2000 to calendar 1999 North American Operations NAO net sales increased approximately 4.2% for the year and decreased 2.4% for the fourth quarter of 2000, compared to the same periods of calendar 1999, respectively. The increase for the year was primarily due to programs launched in 1999, running at full production volumes in 2000, and stronger North American car and light truck build. The fourth quarter of 2000 20 was unfavorably impacted by volume reductions at key customers. North American car and light truck build increased approximately 1.2% in 2000 compared to calendar 1999 and decreased 4.8% for the comparable fourth quarter period. NAO gross profit margins were down slightly for the year and fourth quarter of 2000, compared to the same periods in the previous calendar year. The slight decrease in gross profit margin is due primarily to higher launch costs associated with new electrochromic and electronic mirror products and the impact of customer scheduling, including plant shutdowns and reduced production levels in the fourth quarter of 2000. The ability of the Company to maintain gross profit margins is dependent upon the successful launch of new booked business and the results of 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. NAO operating margins were below previous year levels for both the twelve-month period and fourth quarter of 2000. Higher sales were partially offset by higher operating expenses during the period, including increased research and development expenses for the support of new programs launching during the second half of 2000. Fourth quarter performance was adversely affected by launch costs and lower sales volumes due to reduced customer demand to adjust vehicle inventories. Higher selling, general and administrative expenses were caused by the previously reported increased investments in information technology and depreciation for recently implemented manufacturing, distribution and administration software. The Company anticipates that its acquisition of Donnelly Electronics will result in higher research and development expense both in absolute terms and as a percent of sales. However, the Company anticipates a favorable impact to both its operating and gross profit margins from this acquisition. European Operations EO net sales decreased approximately 3.2% for the year and 8.9% for the fourth quarter of 2000, compared to the same periods in calendar 1999, respectively. The strengthening of the dollar compared to the euro significantly reduced the reported sales level for Europe. Stated in local currencies, EO net sales increased approximately 11.6% and 5.9% for the year and fourth quarter of 2000, compared to the same periods in calendar 1999, respectively. The increase in net sales is primarily due to products launched in calendar 1999 running at full production volumes in 2000. For the fourth quarter of 2000, the sales increase is partially offset by the elimination of the one-month lag in consolidating the Company's subsidiaries in Germany and Spain. Due to the elimination of the one-month lag, the results of these subsidiaries are included for the three months ended December 31, 2000, as compared to the three months ended November 30, 1999, for the fourth quarters of 2000 and calendar 1999, respectively. The month of December is generally lower in sales due to holiday shutdowns in Europe. EO gross profit margins decreased during both the year and fourth quarter of 2000, compared to the same periods of calendar 1999, primarily due to above plan product launch costs and warranty expense. This decrease was largely offset by reductions in general and administrative expense associated with both the previously mentioned restructuring actions and ongoing operational improvements. Additionally, there was a reduction in the Company's overall pension expense due to a benefit associated with an overfunded pension plan in Europe. As discussed above, in the fourth quarter of 2000, a $3.8 million pre-tax adjustment was made to the restructuring reserve, resulting in a $2.4 million increase in net income (see Note 5). In the first quarter of calendar 1999, an $8.8 million pre-tax restructuring charge, or $4.7 million reduction to net income, was recorded for the 1999 plan. EO operating income, as adjusted for the restructuring charge and adjustment, was improved for the year compared to calendar 1999. Stronger sales and lower selling, general, and administrative expenses contributed to the improved operating margins in 2000. Company Net sales were $857.5 million in 2000 compared to $897.9 million in calendar 1999, a decrease of approximately 4.5%. Net sales for the fourth quarter of 2000 and calendar 1999 were $199.9 million and $212.7 million, respectively, a decrease of approximately 6%. Changes in foreign currency exchange rates significantly contributed to the decrease in net sales for the year and fourth quarter. Adjusted for foreign exchange rate fluctuations and the impact of the reduction in net sales associated with Lear Donnelly, the Company's net sales increased approximately 7% and 2% for the year and quarter ended December 31, 2000, as compared to the prior year. Suppliers in the automotive industry continue to experience significant price pressure from their customers. While this pressure continues to squeeze the Company's gross profit and operating margins, it did not have a material impact on net sales for the year and fourth quarter. The impact of price pressures on gross profit margins is dependent upon the ability of the Company to offset these decreases by improvements in purchased material prices, product design changes and overall operations productivity. 21 Gross profit margin for 2000 was 16.0% compared to 15.3% in calendar 1999 and 15.8% in the fourth quarter of 2000 compared to 16.5% in the same period of calendar 1999. The improved year-to-date gross profit margin is primarily due to the sale of Lear Donnelly. The decline in the fourth quarter percentage, however, is attributable to the negative impact of customer scheduling and increased costs associated with new product launches and product mix. Selling, general and administrative expenses were $80.3 million and $19.5 million, or 9.3% and 9.7% of net sales, for the year and fourth quarter of 2000, compared to $80.4 million and $18.6 million, or 9.0% and 8.7% of net sales, for the comparable periods in calendar 1999, respectively. These expenses remained relatively flat with previous year levels due to management's focus on cost management in both North America and Europe, despite the continued investment in information technology. Lower exchange rates also contributed to the decrease in the expense for the year. The increase in expense for the fourth quarter is attributable to the previously announced increased investments in information technology and depreciation for recently introduced software for manufacturing, distribution and administration, as well as marketing expenses associated with new product initiatives related to electronics. Research and development expenses were $35.2 million, or 4.1% of net sales in 2000, compared to $31.6 million, or 3.5% of net sales, in the same period last year. The increase in current year expenses is primarily due to increased expenditures for value-added technologies including electrochromic and electronic applications, as well as launch related engineering support. For the fourth quarter, research and development expenses were $8.3 million and $8.6 million for 2000 and calendar 1999, respectively. The decrease in the fourth quarter is attributable to continuing cost containment partially offset by launch engineering support. Operating income was $25.3 million in 2000 compared to $16.2 million in calendar 1999, or 3.0% and 1.8% of net sales, respectively. Adjusted for the impact of the restructuring charges, operating income deteriorated by $3.4 million, or from 2.8% of net sales for calendar 1999 to 2.5% of net sales for 2000 due to increased costs associated with new product launches and unfavorable foreign exchange rate fluctuations. This was partially offset by a positive contribution to operating income by the Company's Information Products subsidiary. For the fourth quarter of 2000, the Company reported operating income of $7.6 million or 3.8% of net sales ($3.8 million reflects the impact of the restructuring adjustment or 2.0% of net sales) as compared to $7.8 million or 3.7% of net sales for the comparable quarter of calendar 1999. The decline in operating income is primarily the result of unfavorable customer scheduling and increased product launch costs. Interest expense was $7.7 million and $6.6 million in 2000 and calendar 1999, respectively, and $1.7 million and $1.4 million for the fourth quarter of 2000 and calendar 1999, respectively. Interest expense increased primarily due to higher levels of capitalized interest in the prior year, increased debt levels and higher interest rates during 2000. In September 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 pre-tax gain of $14.1 million, or $0.82 per share, after-tax, which was recognized in the third quarter of calendar 1999. In December 1999, the Company completed the final negotiation of certain issues related to the sale, resulting in an additional pre-tax gain of $4.4 million, or $0.29 per share, after-tax, which was recognized in the fourth quarter of calendar 1999, (see Note 3). Interest income remained consistent at $0.4 million in 2000 and calendar 1999. Royalty income was $2.5 million and $0.8 million for the year and fourth quarter of 2000, compared to $0.8 million and $0.1 million for the comparable periods of the prior year. Royalty income was higher in 2000 due to new licensing agreements on programs that began during 2000. Other (income) expense, net, was ($0.6) million and ($0.4) million for the year and fourth quarter of 2000, compared to ($2.0) million and $0.2 million, respectively, for the comparable periods of the prior year. The decrease for the year is primarily due to the inclusion of a $2 million pre-tax gain in calendar 1999, which was recorded on the formation of the Schott Donnelly joint venture (see Note 3). The Company's effective tax rate was approximately 33.1% in 2000 compared to 31.7% in calendar 1999. The effective tax rate in 2000 would have been substantially lower due to income tax benefits from North American export sales; however, as indicated below, significant German deferred tax assets were written down to reflect tax rate decreases enacted in the fourth quarter of 2000. The Company's effective tax rate also varies based on the level and mix in pre-tax earnings (losses) in countries with varying effective tax rates, availability of tax benefits and unusual pre-tax gains or losses. 22 The Company has recorded $17.2 million and $18.9 million of deferred tax assets primarily related to foreign non-expiring net operating loss carry-forwards at December 31, 2000, and December 31, 1999, respectively, and are substantially offset by related deferred tax liabilities. 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, and continuous improvement in overall operational earnings from the implementation of the Company's production system throughout Europe. Due to a reduction in the German tax rate during the fourth quarter of 2000, the related deferred tax assets and net income were reduced by $3.4 million. Minority interest in net (income) loss of subsidiaries was ($0.1) million in 2000, compared to $1.4 million in calendar 1999. The previous year was impacted by the restructuring charge taken at the Company's German subsidiary in the first quarter of calendar 1999 and the consolidation of the financial statements of Varitronix EC starting in the second quarter of calendar 1999. Equity in losses of affiliated companies totaled $3.2 million in 2000 compared to $2.9 million for the comparable period of the prior year. This increase is due primarily to losses incurred at Donnelly Electronics, which is offset by the Company's Brazilian joint venture which, while still operating at a loss, improved compared to the same period of the prior year as well as continued positive results from the Company's joint ventures in China. Equity in losses of the Company's Lear Donnelly joint venture, which impacted the first nine months of calendar 1999, are no longer included in the Company's financial statements after September 1999 due to the sale of the Company's interest in this joint venture. Equity in the results of the Company's Brazilian joint venture are no longer included in equity in earnings (losses) of affiliated companies after October 2000 due to the Company's acquisition of the remaining interest in this venture and subsequent consolidation of the financial statements of this subsidiary. 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 focused 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; 2) improving the overall operating performance of the Company's European Operations; and 3) extending the Company's capabilities in value-added electronics technologies. 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 net income from operations for the twelve-month period ending December 31, 2000, was $11.9 million. Comparison of the six-month periods ended December 31, 1999, and January 2, 1999 North American Operations NAO net sales increased approximately 3% for the six-month period ended December 31, 1999, compared to the same period of the prior year. North American car and light truck build increased approximately 6% for the six-month period. The increase in NAO net sales was primarily due to higher industry production partially offset by lower sales of modular window and door handle products and a 26 week period for the transition period as compared to 27 weeks in the comparable 1998 period. NAO gross profit margins were up slightly for the six-month period ending December 31, 1999, compared to the same period of the prior year. Margins improved primarily due to a more favorable product mix. Gross profit margins were also positively influenced by after-market sales for complete outside mirrors. The Company's North American operating margins were slightly improved in the transition period compared to the same period of the prior year. Improved gross profit margins and lower selling, general and administrative expenses primarily accounted for the improvement. During 1999, NAO implemented a cost reduction program to focus administrative functional groups on best-in-class performance, which resulted in reduced spending levels at NAO for these expenses. European Operations EO net sales decreased approximately 3% for the six-month period ended December 31, 1999, compared to the same period of the prior year. The decrease in net sales is primarily due to a stronger dollar relative to European currencies, lower complete outside mirror product sales in Germany, and lower prism component sales in Ireland during the period. If exchange rates in the six-month period had been consistent with the same period in the prior year, EO net sales would have been slightly higher 23 for the six-month period ended December 31, 1999, compared to the same period in the prior year. 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. EO gross profit margins were slightly improved for the six-month period ended December 31, 1999, compared to the same period of the prior year. EO 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 purchased material costs, impact of restructuring initiatives and general operational productivity improvements. EO operating income was improved for the six-month period ending December 31, 1999, compared to the same period 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 the six-month period. Company Net sales were $421.6 million for the six-month period ended December 31, 1999, compared to $428.7 million for the same period in the prior year, a decrease of approximately 1.7%. 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 and markets and a 26 week period versus a 27 week comparable period. Also, suppliers in the automotive industry continue to experience significant price demands from their customers. Gross profit margin for the six months ended December 31, 1999, was 15.3% compared to 14.4% 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 $37.6 million, or 8.9% of net sales, for the six-month period ended December 31, 1999, compared to $40.8 million, or 9.5% of net sales, in the same period of the prior year. The 7.8% decrease 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 of the prior year. These expenses were lower due to the formation of Schott Donnelly and the Optics merger. Operating income was $10.5 million for the six-month period ended December 31, 1999, compared to $2.0 million for the same period of the prior year. Operating income for the respective quarters was $7.8 million, or 3.7% of net sales, compared to $3.2 million, or 1.3% of net sales. Operating income as a percent of net sales was stronger due to stronger gross profit margins, lower selling, general and administrative and research and development 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 of the prior year. Interest expense was lower primarily due to lower average debt and capitalization of certain interest costs during the periods presented. In September 1999, the Company sold its 50% interest in Lear Donnelly to Lear, its partner in the joint venture, resulting in a pre-tax gain of $14.1 million, or $0.82 per share, after-tax which was recognized in the third quarter of calendar 1999. In December 1999, the Company completed the final negotiation of certain issues related to the sale, which resulted in an additional pre-tax gain to the Company of $4.4 million, or $0.29 per share, after-tax, which was recognized in the fourth quarter of calendar 1999, (see Note 3). Income tax expense for the six-month period ended December 31, 1999, was $9.4 million, on a pre-tax income of $26.5 million, for an effective tax rate of 35.7%. The Company's effective tax rate will vary based on the level and mix in pre-tax earnings in countries with varying effective tax rates, availability of tax benefits and unusual pre-tax gains or losses. The Company has recorded $17.2 million and $18.9 million of deferred tax assets primarily related to foreign non-expiring net operating loss carry-forward at December 31, 2000, and December 31, 1999, respectively, and are substantially offset by related deferred tax liabilities. A significant portion of the loss carry-forwards resulted from the European restructuring charges. Minority interest in net (income) loss of subsidiaries was $0.4 million for the six-month period ended December 31, 1999, compared to ($0.2) million for the same period of the prior year. The change is primarily due to operating losses at Varitronix EC. 24 Equity in losses of affiliated companies improved to $1.1 million for the six-month period ended December 31, 1999, from $1.7 million in the same period in the prior year. This is primarily related to increased losses at Donnelly Electronics, partially offset by 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 and Lear Donnelly. 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. Comparison of 1999 to 1998 North American Operations NAO net sales increased approximately 14.7% 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. NAO 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. NAO 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 Operations EO 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. EO gross profit margin increased slightly in 1999 compared to 1998. Gross profit performance at the operations in Spain and France continued to remain strong. EO gross profit margins improved despite inventory write-offs and other expenses associated with the 1999 European restructuring 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. In the third quarter of 1999, an $8.8 million pre-tax restructuring charge, or $4.7 million at net income, was recorded for the 1999 European restructuring 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. EO operating income was lower in 1999 compared to 1998 primarily due to the 1999 restructuring charge. EO 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. 25 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 NAO, significant global pricing pressures and inventory write-offs and other expenses associated with the 1999 European restructuring 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 and the Optics merger. In the fourth quarter of 1998, the Company recognized a $3.5 million pre-tax 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 $7.6 million in 1999 compared to $19.8 million in 1998, or 0.8% and 2.6% of net sales, respectively. Operating margins were lower in 1999 primarily due to the restructuring charge, costs associated with the 1999 European restructuring plan and higher growth in sales at NAO 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 was $7.9 million and $8.3 million in 1999 and 1998, respectively. Interest expenses 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 was $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 pre-tax gain. In the second and third quarters of 1999, the Company sold its remaining interest in VISION Group. The Company received $8.6 million in proceeds and recognized a combined pre-tax 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. 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 pre-tax 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 16.2% in 1999, compared to 27.1% 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 pre-tax 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 (income) loss of subsidiaries increased to $0.9 million in 1999, compared to ($0.2) million in 1998, primarily due to operating losses at Varitronix EC. Equity in losses of affiliated companies increased to $3.4 million in 1999 compared to $1.8 million in 1998, primarily related to the operating losses incurred by Donnelly Electronics. Net income was $5.0 million in 1999 compared to $11.6 million in 1998. 26 LIQUIDITY AND CAPITAL RESOURCES The Company's current ratio was 1.3 on December 31, 2000, compared to 1.2 at December 31, 1999. Working capital was $43.3 million at December 31, 2000, compared to $25.0 million at December 31, 1999. The increase in working capital is due to increased accounts receivable and inventories from new product launches, and reductions in payables and restructuring accruals. At December 31, 2000, and December 31, 1999, $38.5 million and $38.9 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 2001, however, it is renewable for one-year periods at the option of the Company and with the consent of bank participants. The Company expects to extend the current agreement or replace it on comparable terms. Capital expenditures were $43.3 million, $57.8 million and $46.2 million, in 2000, 1999 and 1998, respectively. Capital expenditures for the six months ended December 31, 1999, were $21.7 million. Capital spending primarily supported new business orders; the implementation of new manufacturing, distribution and administrative information systems; and to support continuous improvement activities of the Company. The reduction in capital expenditures from 1999 levels is attributable to tighter management control. Capital spending next year is expected to remain near current spending levels. The Company's $160 million multi-currency global revolving credit agreement had borrowings against it of $77.1 million and $42.5 million as of December 31, 2000, and December 31, 1999, respectively. Total long-term borrowing increased by $25.2 million at December 31, 2000, compared to December 31, 1999, primarily to support higher working capital and capital expenditure requirements. The Company's primary foreign investments are in Germany, Ireland, Spain, France, Mexico, China, Brazil and Malaysia. The Company is exposed to fluctuations in many currencies. 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 and the effect of these transactions on the results of operations are not material. For a more detailed discussion of the Company's foreign currency transactions and exposures and interest rate risk, see ITEM 7 (a) - "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK," filed with this Form 10-K report. 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, divestitures and acquisitions, the implementation of which could impact the liquidity and capital resource requirements of the Company. 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 transaction, and if so, the type of hedge transaction. The Company has examined and updated its current derivative use policy and identified hedge arrangements, along with their anticipated treatment on an ongoing basis under the provisions of SFAS No. 133. The implementation of this new standard as of January 1, 2001 did not to have a material impact on the Company's results of operations or financial position. In June 2001, the Financial Accounting Standards Board issued Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria, and that upon adoption of SFAS 142, the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purpose of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested 27 for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test within six months of the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company's previous business combinations were accounted for using the purchase method. As of December 31, 2000, the net carrying amount of goodwill and other intangible assets is $7.5 million. Amortization expense during the year ended December 31, 2000 was $0.7 million. Currently, the Company is assessing but has not yet determined how adoption of SFAS 141 and SFAS 142 will impact its financial position and results of operations. 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. The participating members' national currency is to be 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 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 have been immaterial and are 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 rates 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 to the Combined Consolidated Financial Statements, under Item 8 of this Form 10-K report. Additional information relating to financial instruments and debt is included in Note 9, and Note 7 to the Combined Consolidated financial Statements, under 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. For 2000, the Company had international revenues of $267 million. As of December 31, 2000, the Company had identifiable foreign assets of $150 million. A predominant portion of these international revenues and identifiable assets are based in German marks. The 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 28 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 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 ringgit, 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. Thirty percent of the Company's long-term debt is fixed and an additional $15 million is effectively fixed through interest rate swaps as outlined below. 29 As of 12/31/00: Interest Rate Sensitivity: Principal (Notional) Amount by Expected Maturity Fair Value Year Ending In thousands 2001 2002 2003 2004 2005 Thereafter Total 12/31/00 -------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------- ---------- ------------- Liabilities: Long-term Debt Fixed Rate $ -- $11,000 $13,250 $ 7,584 $1,833 $ 5,000 $38,667 $39,394 Avg. Interest Rate 7.01% Variable Rate $ 90 $11,545 $40,369 $30,308 $ 233 $ 11,486 $94,031 $94,031 Avg. Interest Rate 7.28% Interest Rate Derivative Financial Instruments Related to Debt: ---------------------------------------------------------------------------------------------------------------------------------- Interest Rate Swaps Pay Variable/Receive Fixed $ -- $10,000 $ 5,000 $ -- $ -- $ -- $15,000 $ (401) Avg. Pay Rate 7.49% Avg. Receive Rate 6.93% Exchange Rate Sensitivity: Principal (Notional) Amount by Expected Maturity Fair Value Year Ending In thousands 2001 2002 2003 2004 2005 Thereafter Total 12/31/00 -------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------- ---------- ------------- Liabilities: Long-term Debt Fixed Rate--US Dollar $ -- $ 11,000 $13,250 $ 7,584 $ 1,833 $ 5,000 $38,667 $39,394 Variable Rate--US Dollar $ -- $ 5,601 $22,268 $16,712 $ 22 $ 9,500 $54,103 $54,103 Variable Rate--German Mark $ -- $ 4,309 $16,852 $12,602 $ -- $ 1,986 $35,749 $35,749 Variable Rate--Other $ 90 $ 1,635 $ 1,249 $ 994 $ 211 $ -- $ 4,179 $ 4,179 As of 12/31/99: Interest Rate Sensitivity: Principal (Notional) Amount by Expected Maturity Fair Value Year Ending In thousands 2000 2001 2002 2003 2004 Thereafter Total 12/31/99 -------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------- ---------- ------------- Liabilities: Long-term Debt Fixed Rate $ -- $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 $ -- $ 5,000 $ 5,000 $ -- $ -- $30,000 $ (230) Avg. Pay Rate 7.02% Avg. Receive Rate 6.48% Exchange Rate Sensitivity: Principal (Notional) Amount by Expected Maturity Fair Value Year Ending In thousands 2000 2001 2002 2003 2004 Thereafter Total 12/31/99 -------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------- ---------- ------------- Liabilities: Long-term Debt Fixed Rate--US Dollar $ -- $11,666 $10,708 $12,084 $ 6,709 $ 6,833 $48,000 $47,836 Variable Rate--US Dollar $ -- $ 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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data for the Company are on the following pages 31 through 55. 30 INDEX TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS: ------------------------------------------------------- Page ---- Combined Consolidated Statements of Income for the year ended December 31, 2000; six months ended December 31, 1999, and years ended July 3, 1999; and June 27, 1998 (as restated)............. 32 Combined Consolidated Balance Sheets as of December 31, 2000; and December 31, 1999 (as restated)................................... 33 Combined Consolidated Statements of Cash Flows for the year ended December 31, 2000; six months ended December 31, 1999; and years ended July 3, 1999; and June 27, 1998 (as restated)............. 34 Combined Consolidated Statements of Shareholders' Equity for the year ended December 31, 2000; six months ended December 31, 1999, and years ended July 3, 1999; and June 27, 1998 (as restated).............. 35-36 Notes to the Combined Consolidated Financial Statements (as restated).... 37 Management's Responsibility for Financial Reporting ..................... 59 Report of Independent Certified Public Accountants ...................... 60 31 DONNELLY CORPORATION AND SUBSIDIARIES COMBINED CONSOLIDATED STATEMENTS OF INCOME (as restated) Six Months Year Ended Ended Fiscal Years Ended -------------------------------- December 31, December 31, July 3, June 27, In thousands, except share data 2000 1999 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ Net sales $ 857,479 $ 421,641 $ 904,969 $ 763,311 Cost of sales 720,503 357,083 770,653 632,679 -------------------------------------------------------------------------- Gross profit 136,976 64,558 134,316 130,632 Operating expenses: Selling, general and administrative 80,266 37,563 83,698 70,906 Research and development 35,179 16,463 34,221 36,418 Restructuring and other charges (credits) (3,796) -- 8,777 3,468 -------------------------------------------------------------------------- Total operating expenses 111,649 54,026 126,696 110,792 -------------------------------------------------------------------------- Operating income 25,327 10,532 7,620 19,840 -------------------------------------------------------------------------- Non-operating (income) expenses: Interest expense 7,660 2,875 7,858 8,347 Interest income (435) (342) (325) (530) Royalty income (2,504) (227) (837) (122) Gain on sale of equity investments (352) (18,458) (5,498) (4,598) Other (income) expenses, net (623) 198 (2,568) (1,872) -------------------------------------------------------------------------- Total non-operating (income) expenses 3,746 (15,954) (1,370) 1,225 -------------------------------------------------------------------------- Income before taxes on income 21,581 26,486 8,990 18,615 Taxes on income 7,137 9,447 1,458 5,043 -------------------------------------------------------------------------- Income before minority interest and equity earnings 14,444 17,039 7,532 13,572 Minority interest in net (income) losses of subsidiaries (129) 389 893 (163) Equity in losses of affiliated companies (3,192) (1,122) (3,436) (1,832) -------------------------------------------------------------------------- Income before cumulative effect of change in accounting principle 11,123 16,306 4,989 11,577 Cumulative effect of change in accounting principle -- (1,010) -- -- -------------------------------------------------------------------------- Net income $ 11,123 $ 15,296 $ 4,989 $ 11,577 ========================================================================== Per share of common stock: Basic EPS Income before cumulative effect of change in accounting principle $ 1.09 $ 1.61 $ 0.49 $ 1.16 Cumulative effect of change in accounting principle -- (0.10) -- -- -------------------------------------------------------------------------- Net income $ 1.09 $ 1.51 $ 0.49 $ 1.16 ========================================================================== Diluted EPS Income before cumulative effect of change in accounting principle $ 1.09 $ 1.60 $ 0.49 $ 1.15 Cumulative effect of change in accounting principle -- (0.10) -- -- -------------------------------------------------------------------------- Net income $ 1.09 $ 1.50 $ 0.49 $ 1.15 ==========================================================================

The accompanying notes are an integral part of these statements. 32 DONNELLY CORPORATION AND SUBSIDIARIES COMBINED CONSOLIDATED BALANCE SHEETS (as restated) December 31, December 31, In thousands, except share data 2000 1999 ---------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 4,599 $ 4,153 Accounts receivable, less allowance of $1,837 and $2,449 82,802 80,378 Inventories 55,933 50,392 Recoverable customer tooling 11,969 22,526 Prepaid expenses 12,522 3,664 Deferred income taxes 4,499 2,594 ------------------------------------------ Total current assets 172,324 163,707 ------------------------------------------ Property, plant and equipment: Land 8,626 8,781 Buildings 76,134 78,656 Machinery, equipment and software 221,881 202,368 Capital projects in progress 39,059 33,405 ------------------------------------------ 345,700 323,210 Less accumulated depreciation 133,566 124,824 ------------------------------------------ Net property, plant and equipment 212,134 198,386 Investments in and advances to affiliates 24,483 21,192 Other assets 15,055 18,537 ------------------------------------------ Total assets $ 423,996 $ 401,822 ========================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 89,163 $ 92,098 Current maturities of long-term debt 90 94 Accruals: Compensation 12,810 11,816 Taxes 7,379 9,168 Restructuring reserve 3,231 9,098 Other 16,307 16,401 ------------------------------------------ Total current liabilities 128,980 138,675 ------------------------------------------ Long-term debt, less current maturities 132,608 107,383 Postretirement plans 37,440 32,032 Other non-current liabilities 8,990 11,809 ------------------------------------------ Total liabilities 308,018 289,899 ------------------------------------------ Minority interest 1,353 951 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 Common stocks: Class A, $.10 par; shares authorized 30,000,000, issued 6,095,199 and 5,994,910 610 599 Class B, $.10 par; shares authorized 15,000,000, issued 4,098,314 and 4,158,502 410 416 Donnelly Export Corporation, $.01 par; shares authorized 600,000, issued 374,705 and 380,212 4 4 Additional paid-in capital 33,336 32,706 Accumulated other comprehensive loss (14,683) (11,191) Retained earnings 94,417 87,907 ------------------------------------------ Total shareholders' equity 114,625 110,972 ------------------------------------------ Total liabilities and shareholders' equity $ 423,996 $ 401,822 ==========================================

The accompanying notes are an integral part of these statements. 33 DONNELLY CORPORATION AND SUBSIDIARIES COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (as restated) Six Months Year Ended Ended Fiscal Years Ended ----------------------------- December 31, December 31, July 3, June 27, In thousands 2000 1999 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net income $ 11,123 $ 15,296 $ 4,989 $ 11,577 Adjustments to reconcile net income to net cash from (for) operating activities: Depreciation and amortization 27,042 12,936 23,328 23,134 Gain on sale of equity investments (352) (18,458) (5,498) (4,598) Deferred pension cost and postretirement benefits 5,408 2,559 6,462 5,670 Change in deferred income taxes 5,014 (1,079) (160) 2,946 Minority interest in income (losses) of subsidiaries 129 (389) (893) 163 Equity in losses of affiliated companies 3,192 1,122 3,436 1,832 Restructuring charges (credits) (3,796) -- 8,777 3,468 Cumulative effect of change in accounting principle -- 1,010 -- -- Changes in operating assets and liabilities: Sale (repayment) of accounts receivable (369) (3,095) 2,402 (2,695) Accounts receivable (6,099) (9,967) 13,701 (24,613) Inventories (6,622) (7,208) 384 (4,366) Prepaid expenses and other current assets 2,517 3,635 (2,968) 3,868 Accounts payable and other current liabilities (2,221) (789) 24,564 (475) Other (3,081) (3,769) 3,592 (966) ------------------------------------------------------------- Net cash from (for) operating activities 31,885 (8,195) 82,116 14,945 ------------------------------------------------------------- INVESTING ACTIVITIES Capital expenditures (43,318) (21,670) (57,807) (46,164) Investments in and advances to affiliates (13,162) (9,657) (6,957) (1,045) Proceeds from sale of property and equipment 829 297 723 677 Proceeds from sale of equity investments 759 24,227 8,636 11,067 Proceeds from affiliate stock redemption 324 -- -- -- Proceeds from sale-lease back -- -- -- 7,521 Cash increase due to consolidation of subsidiary 25 576 -- -- Other (1,136) 506 (1,028) (856) ------------------------------------------------------------- Net cash for investing activities (55,679) (5,721) (56,433) (28,800) ------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from long-term debt 34,261 19,342 -- 13,798 Repayments on long-term debt (7,236) (3,500) (28,767) (429) Investments and advances from minority partner 1,500 -- 4,482 -- Redemption of minority interest in subsidiary (946) -- -- -- Common stock issance 1,003 832 533 2,128 Dividends paid (4,108) (2,048) (4,076) (4,031) Other -- -- -- (218) ------------------------------------------------------------- Net cash from (for) financing activities 24,474 14,626 (27,828) 11,248 ------------------------------------------------------------- Effect of foreign exchange rate changes on cash (234) (92) (70) (333) Effect of December 1999 cash flow activity for certain subsidiaries (See Note 2) -- 122 -- -- Increase (decrease) in cash and cash equivalents 446 740 (2,215) (2,940) Cash and cash equivalents, beginning of year 4,153 3,413 5,628 8,568 ------------------------------------------------------------- Cash and cash equivalents, end of year $ 4,599 $ 4,153 $ 3,413 $ 5,628 =============================================================

The accompanying notes are an integral part of these statements 34 DONNELLY CORPORATION AND SUBSIDIARIES COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (as restated) Common Stock ---------------------------- Accumulated Total Donnelly Additional other share- Preferred Class Class Export paid-in Retained comprehensive holders' In thousands, except share data stock A B Corporation capital earnings income equity ------------------------------------------------------------------------------------------------------------------------------------ Balance, June 28, 1997 (as previously reported) $ 531 $ 541 $ 446 $ 4 $ 28,765 $ 69,578 $ (6,038) $ 93,827 Prior period adjustment (see Note 1 and Note 18) (2,710) (2,710) Balance, June 28, 1997 (as restated) 531 541 446 4 28,765 66,868 (6,038) 91,117 Conversion of Class B to Class A 11 (11) Shares 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 incoeme 11,577 Other comprehensive income: Foreign currency translation adjustment 261 Foreign currency transaction adjustments on long-term advances to affiliates (2,306) Total comprehensive income 9,532 ------------------------------------------------------------------------------- Balance, June 27, 1998 531 572 435 4 31,268 74,413 (8,083) 99,140 Conversion of Class B to Class A 19 (19) Shares 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 4,989 Othr comprehensive income: Foreign currency translation adjustment 943 Foreign currency transaction adjustments on long-term advances to affiliates (3,017) Total comprehensive income 2,915 ------------------------------------------------------------------------------- Balance, July 3, 1999 $ 531 $ 597 $ 416 $ 4 $ 31,869 $ 75,326 $ (10,157) $ 98,586

Continued on page 36 35 DONNELLY CORPORATION AND SUBSIDIARIES COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (as restated) Common Stock ---------------------------- Accumulated Total Donnelly Additional other share- Preferred Class Class Export paid-in Retained comprehensive holders' In thousands, except share data stock A B Corporation capital earnings income equity ------------------------------------------------------------------------------------------------------------------------------------ Balance, July 3, 1999 $ 531 $ 597 $ 416 $ 4 $ 31,869 $ 75,326 $ (10,157) $ 98,586 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) (667) (667) Net income 15,296 Other comprehensive income: Foreign currency translation adjustment 448 Foreign currency transaction adjustments on long-term advances to affiliates (1,482) Total comprehensive income 14,262 ------------------------------------------------------------------------------- Balance, December 31, 1999 531 599 416 4 32,706 87,907 (11,191) 110,972 Conversion of Class B to Class A Shares 6 (6) Subsidiary common stock issued 654 654 Common stock issued under employee benefit plans 5 344 349 Redemption of minority shares (368) (505) (873) Cash dividends declared: Preferred stock - $.75 per share (40) (40) Common stock: Class A - $.40 per share (2,423) (2,423) Class B - $.40 per share (1,645) (1,645) Net income 11,123 Other comprehensive income: Foreign currency translation adjustment 67 Foreign currency transaction adjustments on long-term advances to affiliates (3,559) Total comprehensive income 7,631 -------------------------------------------------------------------------------- Balance, December 31, 2000 $ 531 $ 610 $ 410 $ 4 $ 33,336 $ 94,417 $(14,683) $114,625 ================================================================================

The accompanying notes are an integral part of these statements. 36 NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS (as restated) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND RESTATEMENT 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 inter-company balances, transactions and shareholdings have been eliminated and adjustments for minority interests have been made. All other investments in non-controlled companies are accounted for using the cost method of the equity method of accounting as deemed appropriate. Cost in excess of net assets of acquired companies is amortized on a straight-line basis over a period of 20 years. On August 20, 2001, the Company announced that it would restate its historical financial statements to revise the accounting treatment of certain investments in and advances to affiliates. During a detailed review of the accounting treatment of its less than wholly owned affiliates, the Company determined that certain revisions to the accounting treatment of its investments in Donnelly Electronics, Inc. ("Donnelly Electronics") and Donnelly Hohe Gmbh & Co. KG ("Hohe") were necessary. The investment in Donnelly Electronics had been accounted for under the cost method since initial investment in the first quarter of fiscal 1997, and was subsequently consolidated upon the Company's acquisition of the remaining outstanding common stock on February 28, 2001. Prior to consolidation, Donnelly Electronics incurred operating losses, which were not reflected in the operating results of the Company under the cost method of accounting. Upon further review, it was determined that this investment should have been accounted for in accordance with the equity method prior to February 28, 2001. Under the equity method, substantially all of the operating losses incurred by Donnelly Electronics prior to consolidation have been included in the Company's restated net income, due to depletion of the Donnelly Electronics' equity and substantial funding provided by the Company. The investment in Hohe had initially been accounted for under the equity method since its acquisition in April 1995 and was subsequently consolidated beginning in October 1996. Hohe incurred operating losses through fiscal 2000, of which the Company absorbed 66 2/3% based upon its ownership percentage. Upon further review of the accounting treatment of this investment, it was determined that the Company should have included 100% of the losses in its net income during this period as the minority partner's equity basis had been exhausted at the initial investment date, and subsequent funding has been provided by the Company. The accompanying financial statements and notes reflect the restated amounts. Also refer to Note 18. 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 inter-company 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. 37 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. PRE-PRODUCTION COSTS 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 for products to be sold under long-term supply agreements are expensed as incurred unless a contractual guarantee exists. If a guarantee exists, these costs are recognized as an asset and 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, 2000, and 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: Years ----------------- Buildings 10 to 50 Machinery, equipment and software 3 to 15 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 undiscounted future cash flows, a current charge to income is recognized. WARRANTY RESERVES The Company accrues for warranty claims when events exist that make the loss probable and the loss can be reasonably estimated. Adjustments are made to established reserves when changes in management's estimates and industry conditions occur. 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. Deferred tax liabilities and assets are adjusted in the period of an enacted change in tax laws or rates and the effect is included in income from continuing operations. 38 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 APB No. 25, compensation expense is recognized when the market price of the underlying stock award on the date of grant exceeds the related exercise price. The Company's policy is to grant options at the prevailing market price and, 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. These estimates are based upon quoted amounts, the current rates available for similar financial instruments or calculations discounting expected cash flows at rates currently offered to the Company for debt of the same maturity. 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 December 31, 2000; July 3, 1999; and June 27, 1998; consisted of 52, 53 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 fiscal years and fiscal quarters, unless otherwise stated. During the transition period, 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 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 in the transition period. 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 twelve-month and six-month periods ended December 31, 1999, and January 2, 1999, respectively, is presented in the table below and includes any normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation. 39 COMBINED CONSOLIDATED STATEMENTS OF INCOME (as restated) Calendar Year Ended Six Months Ended -------------------------------- ---------------------------------- (Unaudited) (Unaudited) December 31, December 31, December 31, January 2, In thousands, except share data 2000 1999 1999 1999 ---------------------------------------------------------------------------------------------------------------------------- Net sales $ 857,479 $ 897,914 $ 421,641 $ 428,696 Cost of sales 720,503 760,890 357,083 366,846 ------------------------------------------------------------------------ Gross profit 136,976 137,024 64,558 61,850 Operating expenses: Selling, general and administrative 80,266 80,438 37,563 40,823 Research and development 35,179 31,617 16,463 19,067 Restructuring and other charges (3,796) 8,777 0 0 ------------------------------------------------------------------------ Total operating expenses 111,649 120,832 54,026 59,890 ------------------------------------------------------------------------ Operating income 25,327 16,192 10,532 1,960 Non-operating (income) expenses: Interest expense 7,660 6,551 2,875 4,182 Interest income (435) (379) (342) (287) Royalty income (2,504) (800) (227) (266) Gain on sale of equity investments (352) (23,588) (18,458) (368) Other (income) expenses, net (623) (2,096) 198 (273) ------------------------------------------------------------------------ Total non-operating (income) expenses 3,746 (20,312) (15,954) 2,988 ------------------------------------------------------------------------ Income (loss) before taxes on income 21,581 36,504 26,486 (1,028) Taxes on income (credit) 7,137 11,581 9,447 (676) ------------------------------------------------------------------------ Income (loss) before minority interest and equity earnings 14,444 24,923 17,039 (352) Minority interest in net (income) losses of subsidiaries (129) 1,428 389 (146) Equity in loss of affiliated companies (3,192) (2,890) (1,122) (1,669) ------------------------------------------------------------------------ Income (loss) before cumulative effect of change in accounting principle 11,123 23,461 16,306 (2,167) Cumulative effect of change in accounting principle -- (1,010) (1,010) -- ------------------------------------------------------------------------ Net income (loss) $ 11,123 $ 22,451 $ 15,296 $ (2,167) ======================================================================== Per share of common stock: Basic EPS Income (loss) before cumulative effect of change in accounting principle $ 1.09 $ 2.32 $ 1.61 $ (0.22) Cumulative effect of change in accounting principle -- (0.10) (0.10) -- ----------------- ---------------- ------------------------------------ Net income (loss) $ 1.09 $ 2.22 $ 1.51 $ (0.22) ================= ================ ==================================== Average common shares outstanding 10,167,999 10,119,385 10,139,473 10,082,230

3. INVESTMENTS IN AND ADVANCES TO AFFILIATES On February 28, 2001, the Company acquired all of the outstanding common stock of Donnelly Electronics, not then owned by the Company for $4.5 million, paid equally in cash and through the issuance of shares of the Company's Class A Common Stock. The acquisition has been accounted for under the purchase method of accounting, and the goodwill and intagibles recorded on a preliminary basis as a result of the acquisition are being amortized over 20 years. Due to the acquisition of the remaining interest, the Company began consolidating Donnelly Electronics' financial statements beginning in March 2001. Prior to the acquisition of the remaining interest, the Company owned 18.2% of the common stock of Donnelly Electronics and had advanced funds for its operations. Due to the funding of Donnelly Electronics by Donnelly Corporation, 100% of the operating losses incurred by Donnelly Electronics have been recognized under the equity method of accounting prior to consolidation. Donnelly Electronics designs and manufactures circuit board assemblies for a variety of electronic products and sub-assemblies. It produces many of the electronic components that the Company uses for products such as Electrochromic rearview mirrors and electronic compass systems, and also produces products for other automotive suppliers and non-automotive customers. In October 2000, the Company acquired its partner's 50% interest in its Brazilian joint venture for $1.6 million and began consolidating the financial statements of its now wholly-owned subsidiary, Donnelly do Brazil, LTDA ("Donnelly do Brazil"). 40 The 50-50 joint venture was formed in 1998 to produce interior and exterior mirrors for the South American automotive industry and began producing replacement parts for distribution within the South American market in 1999. Donnelly do Brazil is in the process of launching new programs for the Brazilian market. Equity in the results of the Company's Brazilian joint venture are no longer included in equity in earnings (losses) of affiliated companies after October 2000 due to the Company's acquisition of the remaining interest in this venture and subsequent consolidation of the financial statements of this subsidiary. In 2000, the Company purchased the remaining minority interest in Donnelly Hohe Espana, S.A., for approximately $1.9 million. In 1999, the Company's partner in its Shunde Donnelly Zhen Hua Automotive Systems Co. Ltd. ("Shunde Donnelly Zhen Hua") joint venture, agreed to sell its portion of the joint venture to Ganxiang Automobile Mirror Company ("Ganxiang"), the largest automotive mirror supplier in China. Shunde Donnelly Zhen Hua manufactures interior and exterior mirror systems for automakers in China. Subsequently, in the fourth quarter of calendar 1999, the Company formed an additional joint venture with Ganxiang; Shanghai Donnelly Ganxiang Automotive Systems Co. Ltd. ("Shanghai Donnelly Ganxiang") for the manufacture, sale and distribution of outside mirrors primarily for the Chinese automotive market. The Company's investment in Shanghai Donnelly Ganxiang consisted of technology and a transfer to Ganxiang of a 5% interest of its Shunde Donnelly Zhen Hua joint venture. As a result of these transactions, the Company holds a 25% interest in both of these joint ventures. In September 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 pre-tax gain of $14.1 million, or $0.82 per share, after-tax, which was recognized in the third quarter of calendar 1999. 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 pre-tax gain to the Company of $4.4 million, or $0.29 per share, after-tax, which was recognized in the fourth quarter of calendar 1999. 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 seeking to develop 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 pre-tax 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") for $8.6 million and recognized a combined pre-tax gain of approximately $5.5 million, or $0.35 per share, after-tax. The Company's equity in the financial results of VISION Group have not been 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 have not been 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, net of taxes and related out of pocket fees, and recognized a pre-tax gain 41 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 after November 1997. The Company has advanced 80 million German marks to Donnelly Hohe, valued at $38.5 million at December 31, 2000, under subordinated loan agreements. Amounts advanced to Donnelly Hohe under the subordinated loan agreements provide for 10% interest per annum with no principal payments due until maturity. Outstanding loan maturities range from October 1, 2001, to October 1, 2002. These advances are eliminated as inter-company transactions in the consolidation of Donnelly Hohe with the Company's financial statements. The Company has the option to purchase the remaining minority 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. Summarized balance sheet and income statement information for the Company's non-consolidated affiliates accounted for using the equity method is shown below: 6 months ended In thousands 2000 Dec. 31, 1999 1999 1998 ------------------------------------------------------ ------------- ------------- ------------- ------------- Summarized Balance Sheet Information Current assets 8,378 4,009 50,128 64,389 Noncurrent assets 6,586 5,655 43,158 51,708 Current liabilities 21,469 2,483 36,340 32,541 Noncurrent liabilities 254 14,942 36,945 31,893 ------------- ------------- ------------- ------------- Net equity (deficit) (6,759) (7,761) 20,001 51,663 ============= ============= ============= ============= Summarized Income Statement Information Net sales 19,427 6,849 225,430 103,825 Costs and expenses 27,478 9,831 233,092 112,049 ------------- ------------- ------------- ------------- Net loss (8,051) (2,982) (7,662) (8,224) ============= ============= ============= =============

4. NATURE OF OPERATIONS The Company is a technology-driven, customer-focused, growth-oriented global supplier to the automotive and information display industries 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 rear vision systems, modular window systems and handle products, which incorporate increasing electronic capabilities. The Company has been managed primarily on a geographical basis. For 2000, the Company had two reportable segments: North American Operations ("NAO") and European Operations ("EO"). The operating segments were managed separately as they each represented regional operational components, which offered the Company's product lines in different geographic markets. While each reportable 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 NAO. NAO sales also include touch screen sales, which are supplied to the information display industry. Operating financial information is available and is utilized regularly by the Company's corporate management team to assess each segment's performance. The corporate management team, which establishes the overall strategy and policy standards for the Company, has included 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 was a member of the corporate management team, has been responsible for the management of profitability and cash flow for each respective segment's operations. The NAO segment includes all of the Company's majority-owned North American operations, which includes non-automotive businesses. This represents a change to the previous segment definition that was based on a combination of geographic location and the product markets they served. This change was made in accordance with the guidance provided in SFAS No. 131 as a result of changes in the manner in which the Company has managed the business. During 2000, the Company also changed the way in which it allocated corporate expenses to the various segments. Due to these changes, data for all prior periods has been restated to conform to the current segment definitions and allocation methods. During 2001, the Company will be transitioning to a new corporate organization structure that will focus its worldwide business into two main operating groups: Electronic Systems and Exterior Systems. Each of these operating groups will be represented by a group president who will be a member of the corporate management team. The Company will be reevaluating its segment definitions over the course of 2001 as it transitions to this new corporate organization structure. 42 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 NAO of centralized corporate costs incurred in support of NAO. Centralized European overhead costs are included in EO. The Company accounts for inter-segment sales and transfers at current market prices and inter-segment services at cost. 43 A summary of the Company's operations by its business segments follows: Other Inter-segment Total In thousands (as restated) NAO EO Segments* Eliminations Segments ---------------------------------------------------------- ------------ ------------ ------------- ---------------- ------------ Year ended December 31, 2000: Revenues......................................... $ 579,588 $ 267,483 $ 20,813 $ (10,405) $ 857,479 Segment profit................................... 55,027 9,394 279 -- 64,700 Depreciation and amortization.................... 15,832 10,197 393 -- 26,422 Identifiable assets.............................. 253,163 136,105 38,011 (16,893) 410,386 Investment in equity affiliates.................. -- -- 4,376 -- 4,376 Capital expenditures............................. 30,814 11,047 875 -- 42,736 Year ended December 31, 1999 (unaudited): Revenues......................................... $ 556,202 $ 276,369 $ 71,472 $ (6,129) $ 897,914 Segment profit................................... 57,697 9,263 (2,982) -- 63,978 Six months ended December 31, 1999: Revenues......................................... $ 263,458 $ 135,633 $ 25,990 $ (3,440) $ 421,641 Segment profit................................... 24,913 6,998 (1,203) -- 30,708 Depreciation and amortization.................... 7,014 5,473 66 -- 12,553 Identifiable assets.............................. 235,934 128,884 31,275 (12,077) 384,016 Investment in equity affiliates.................. -- -- 2,903 -- 2,903 Capital expenditures............................. 15,607 5,184 733 -- 21,524 Six months ended January 2, 1999 (unaudited): Revenues......................................... $ 254,786 $ 139,978 $ 35,595 $ (1,663) $428,696 Segment profit................................... 20,772 5,128 (775) -- 25,125 Fiscal year ended July 3, 1999: Revenues......................................... $547,531 $280,714 $81,077 $ (4,353) $904,969 Segment profit................................... 53,557 7,394 (2,555) -- 58,396 Depreciation and amortization.................... 12,799 10,277 (387) -- 22,689 Identifiable assets.............................. 211,351 129,193 28,326 (9,612) 359,258 Investment in equity affiliates.................. -- -- 11,291 -- 11,291 Capital expenditures............................. 38,871 13,598 3,068 -- 55,537 Fiscal year ended June 27, 1998: Revenues......................................... $477,518 $261,635 $ 27,628 $ (3,470) $763,311 Segment profit................................... 45,768 12,058 4,504 -- 62,330 Depreciation and amortization.................... 12,389 10,855 (682) -- 22,562 Identifiable assets.............................. 202,784 140,701 19,654 (5,423) 357,716 Investment in equity affiliates.................. -- -- 16,730 -- 16,730 Capital expenditures............................. 28,531 14,257 1,552 -- 44,340

*Other Segments category includes the Company's automotive joint ventures. 44 Years Ended Six Months Ended Fiscal Years Ended ----------------------------------- ------------------------------- ------------------------- (unaudited) (unaudited) December 31, December 31, December 31, January 2, July 3, June 27, In thousands (as restated) 2000 1999 1999 1999 1999 1998 ------------------------------------------------------------------------------------------------------------------------------ Segment profit from reportable segments......................... $ 64,421 $ 66,960 $ 31,911 $ 25,900 $ 60,951 $ 57,826 Segment profit from other segments......................... 279 (2,982) (1,203) (775) (2,555) 4,504 Interest, net.................... (7,225) (6,172) (2,533) (3,895) (7,533) (7,817) Depreciation and amortization.... (27,042) (22,900) (12,936) (13,363) (23,328) (23,134) Restructuring and other (charges) credits................ 3,796 (8,777) -- -- (8,777) (3,468) Gain on sale of equity investments...................... 352 23,588 18,458 368 5,498 4,598 Gain on formation of joint venture.......................... -- 2,000 -- -- 2,000 -- Corporate and other expenses*.... (13,000) (15,213) (7,211) (9,263) (17,266) (13,894) --------------------------------------------------------------------------------------------- Income (loss) before taxes on income..................... $ 21,581 $ 36,504 $ 26,486 $ (1,028) $ 8,990 $ 18,615 =============================================================================================

* Corporate and other expenses category includes centralized corporate functions such as advanced research, corporate administration including information technology, human resources and finance and other costs associated with corporate development and financing initiatives. December 31, December 31, In thousands (as restated) 2000 1999 -------------------------------------------------------------------------------------------------------------------------------- Identifiable Assets: Total assets of reportable segments..................................................... $ 389,268 $ 364,818 Total assets of other segments.......................................................... 38,011 31,275 Elimination of intersegment receivables................................................. (16,893) (12,077) Corporate and other assets*............................................................. 13,610 17,806 --------------------------------- Total Consolidated Assets............................................................... $ 423,996 $ 401,822 =================================

* 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: Year Six Months Ended Ended Fiscal Years Ended --------------------------------- December 31, December 31, July 3, June 27, In thousands 2000 1999 1999 1998 -------------------------------------------------------------------------------------------------------------------------------- Mirror systems and components..................... $ 434,493 $ 203,534 $ 414,981 $ 355,823 Modular window systems............................ 328,140 161,594 335,345 286,470 Interior lighting and trim........................ 11,503 21,806 73,626 42,175 Handle products................................... 45,871 19,273 57,318 51,251 Other products.................................... 37,472 15,434 23,699 27,592 -------------------------------------------------------------------------- $ 857,479 $ 421,641 $ 904,969 $ 763,311 ==========================================================================

45 Sales to major automobile manufacturers as a percentage of the Company's net sales follows: Year Six Months Ended Ended Fiscal Years Ended ------------------------------- December 31, December 31, July 3, June 27, 2000 1999 1999 1998 ------------------------------------------------------------------ Ford ...................................................... 27% 28% 24% 27% DaimlerChrysler............................................ 19 21 21 20 General Motors............................................. 7 8 6 5 Honda...................................................... 7 7 7 8 BMW........................................................ 7 6 6 7 Volkswagen................................................. 7 6 6 6 ------------------------------------------------------------------ 74% 76% 70% 73% ==================================================================

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: Year Six Months Ended Ended Fiscal Years Ended ------------------------------ December 31, December 31, July 3, June 27, In thousands 2000 1999 1999 1998 ------------------------------------------------------------------------------------------------------------------------------- Revenues: North American: United States.......................................... $ 464,321 $ 223,791 $ 482,062 $ 420,544 Export: Americas........................................... 115,511 53,754 122,513 76,433 Asia............................................... 8,994 4,853 6,847 3,313 Europe............................................. 45 488 1,355 2,002 Other.............................................. 461 140 386 350 ----------------------------------------------------------------- $ 589,332 $ 283,026 $ 613,163 $ 502,642 Germany..................................................... 137,443 79,329 177,196 173,857 Ireland..................................................... 71,664 30,431 61,682 43,245 Other Foreign............................................... 59,040 28,855 52,928 43,567 ----------------------------------------------------------------- $ 857,479 $ 421,641 $ 904,969 $ 763,311 =================================================================

December 31, December 31, In thousands (as restated) 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- Long-Lived Assets: United States........................................................................... $ 139,992 $ 125,750 Germany................................................................................. 45,370 48,393 Ireland................................................................................. 10,145 9,563 Other Foreign........................................................................... 22,994 19,400 ---------------------------------- $ 218,501 $ 203,106 ==================================

46 5. RESTRUCTURING AND OTHER CHARGES In February 1999, the Company announced a European restructuring plan ("the 1999 plan") 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 more 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) re-aligning sales and engineering functions throughout Europe. An $8.8 million pre-tax restructuring charge, or $4.7 million at net income, was recorded for the 1999 plan, including $1.4 million for the impairment of assets and $7.4 million for anticipated incremental cash expenditures for the severance and voluntary retirement programs for approximately 200 production, production support, sales and engineering employees. In May 1997, the Company had recorded a $10.0 million pre-tax restructuring charge, or $5.3 million at net income, for the elimination of redundant operations, as well as, outsourcing of inefficient operations in Europe ("the 1997 plan"). A reduction of $1.1 million was recorded to the restructuring reserve in 1998 associated with changes to the 1997 plan. The Company included the remaining actions of the 1997 plan in the 1999 plan. As of December 31, 2000, the Company had terminated 197 employees under the combined plans. In addition, the Company has experienced a net reduction of approximately 76 employees through normal attrition. The Company also funded approximately $3.1 million of capital expenditures for the construction of shipping and warehousing facilities associated with actions in support of the combined plans. These costs do not qualify as restructuring within the technical accounting guidelines and therefore were included in the Company's capital expenditures. As required by the generally accepted accounting principles for restructuring charges, the Company reduced its restructuring reserve by $3.8 million pre-tax, or $2.4 million at net income, in the fourth quarter of 2000. The reduction is attributable to (i) savings associated with higher than anticipated voluntary employee attrition and (ii) continuing developments within the market and the operations, which have made the outcome uncertain for some aspects of the combined plans. The ending reserve balance of $3.2 million represents the costs associated with the remaining planned actions expected to be substantially completed during 2001. While the Company believes that further restructuring actions may be appropriate in Europe and it continues to evaluate these operations for improvements, the assessment of possible actions has not yet been completed. Details of the European restructuring reserves are as follows: Severance and Asset Restructuring In thousands Benefits Impairment Total -------------------------------------------------------------------------------------------------------------------------------- 1997 plan.............................................. $ 9,965 $ -- $ 9,965 1999 plan.............................................. 7,426 1,351 8,777 1998 reserve reduction............................ (1,117) -- (1,117) 2000 reserve reduction............................ (3,448) (348) (3,796) Amounts utilized.................................. (8,172) (530) (8,702) Impact of foreign currency changes................ (1,775) (121) (1,896) ------------------------------------------------------------- Accrued Restructuring Costs at December 31, 2000 $ 2,879 $ 352 $ 3,231 =============================================================

Other In the fourth quarter of 1998, the Company recognized a $3.5 million pre-tax 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: December 31, December 31, In thousands 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- Finished products and work in process................................................. $ 18,124 $ 14,882 Raw materials......................................................................... 37,809 35,510 ----------------------------------- $ 55,933 $ 50,392 ===================================

47 7. DEBT AND OTHER FINANCING ARRANGEMENTS Debt consists of: December 31, December 31, In thousands 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- Borrowings under revolving credit agreements at 7.28% and 4.72 %...................... $ 78,031 $ 42,468 Senior Notes: 6.67%, due 2003, principal payable in semi-annual installments of $1,750......... 6,250 9,750 7.22%, due 2004, principal payable in semi-annual installments of $1,750......... 9,750 13,250 6.70%, due 2005, principal payable in semi-annual installments of $2,333......... 17,667 20,000 Industrial revenue bonds: Adjustable rates (4.84% at December 31, 2000 and 4.73% at December 31, 1999) due in 2008-2010................................................................. 9,500 9,500 8.13%, due in 2012............................................................... 5,000 5,000 Other................................................................................. 6,500 7,509 ----------------------------------- Total................................................................................. 132,698 107,477 Less current maturities............................................................... 90 94 ----------------------------------- $ 132,608 $ 107,383 ===================================

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, 2000, the Company was in compliance with all related covenants. Retained earnings available for dividends at December 31, 2000, are $20.2 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: Year ending In thousands Amount ---------------------------------------------------------------------------------------- 2001......................................................................... $ 90 2002......................................................................... 22,545 2003......................................................................... 53,619 2004......................................................................... 37,892 2005......................................................................... 2,066 2006 and thereafter.......................................................... 16,486 ---------- $ 132,698 ==========

Interest payments of $7.0 million, $4.1 million, $7.8 million and $8.6 million were made in 2000, the six-month period ended December 31, 1999, and years 1999 and 1998, 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 2001, however, it is renewable for one-year periods at the option of the Company and with the consent of bank participants. The Company expects to extend the current agreement or replace it on comparable terms. At December 31, 2000, and December 31, 1999, a $38.5 million and $38.9 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. The Company, as agent for the purchaser, retains collection and administrative responsibilities for the participating interests of the defined pool. 48 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, 2000, and December 31, 1999, the Company had interest rate swaps with an aggregate notional amount of $15 million and $30 million, respectively. These effectively converted $15 million and $30 million of the Company's variable interest rate debt to fixed rates at December 31, 2000, and December 31, 1999, respectively. The Company is currently paying a weighted-average fixed rate of 7.49%, 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 $1.4 million and $2.0 million at December 31, 2000, and December 31, 1999, 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, 2000, and December 31, 1999, are as follows: December 31, 2000 December 31, 1999 -------------------------------------------------- Carrying Fair Carrying Fair In thousands Value Value Value Value ------------------------------------------------------------------------------------------------------------------------------- Liabilities: Long-term, fixed-rate debt............................................. $38,667 $39,394 $48,000 $47,836 Derivatives: Interest rate swaps.................................................... -- (401) -- (230) Foreign exchange contracts............................................. -- 172 -- (134)

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 transaction, and if so, the type of hedge transaction. SFAS No. 133 is effective for the Company on January 1, 2001. The Company does not expect the implementation of this new standard to have a material impact on its results of operations or financial position. 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. 49 Assumptions used in determining net periodic pension cost are as follows: Year Six Months Ended Ended Fiscal Years Ended ------------------------------ December 31, December 31, July 3, June 27, 2000 1999 1999 1998 ----------------------------------------------------------------------------------------------------------------------------------- Discount rate............................................ 8.00% 7.50% 7.00% 7.75% Compensation increase.................................... 5.00% 5.00% 5.00% 5.00% Expected return on plan assets........................... 9.50% 9.50% 9.50% 9.50% In thousands: ------------ Service cost............................................. $ 4,355 $ 2,371 $ 5,085 $ 4,284 Interest cost............................................ 7,069 3,343 6,459 5,881 Expected return on plan assets........................... (7,725) (3,727) (7,087) (6,023) Net amortization and deferral............................ (684) (147) (175) 84 --------------------------------------------------------------------- Net periodic benefit cost................................ $ 3,015 $ 1,840 $ 4,282 $ 4,226 =====================================================================

The following tables provide a reconciliation of the changes in the plans' benefit obligations, fair value of assets and funded status: Year Six Months Ended Ended December 31, December 31, In thousands 2000 1999 ------------------------------------------------------------------------------------------------------------------------------ Change in benefit obligation Benefit obligation at beginning of period............................................. $ 86,278 $ 91,314 Service cost.......................................................................... 4,355 2,371 Interest cost......................................................................... 7,069 3,343 Plan participants' contributions...................................................... 103 81 Actuarial losses (gains).............................................................. 10,492 (9,850) Foreign exchange rate changes......................................................... (592) (121) Benefits paid......................................................................... (1,999) (860) -------------------------------- Benefit obligation at end of period................................................... $ 105,706 $ 86,278 ================================ Change in plan assets Fair value of plan assets at beginning of period...................................... $ 86,326 $ 82,811 Actual return on plan assets.......................................................... 685 4,533 Foreign exchange rate changes......................................................... (1,149) (270) Plan participants' contributions...................................................... 168 81 Benefits paid......................................................................... (2,087) (829) -------------------------------- Fair value of plan assets at end of period............................................ $ 83,943 $ 86,326 ================================ Funded status......................................................................... $ (21,763) $ 48 Unrecognized net actuarial (gain)..................................................... (359) (19,066) Unrecognized transition obligation.................................................... 38 123 Unrecognized prior service cost....................................................... (3,851) (4,115) -------------------------------- Accrued benefit cost.................................................................. $ (25,935) $ (23,010) ================================

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. 50 Assumptions used in determining net periodic postretirement benefit cost are as follows: Year Six Months Ended Ended Fiscal Years Ended -------------------------- December 31, December 31, July 3, June 27, 2000 1999 1999 1998 ---------------------------------------------------------------------------------------------------------------------------- Discount rate............................................... 8.00% 7.50% 7.00% 7.75% Health care cost trend (a).................................. 7.00% 7.00% 8.00% 9.00% In thousands: Service cost............................................. $ 581 $ 318 $ 650 $ 504 Interest cost............................................ 1085 497 938 977 Amortization of transition obligation over 22 periods.... 360 180 360 360 Net other amortization................................... 10 15 30 9 --------------------------------------------------------------- Net periodic benefit cost............................. $ 2,036 $ 1,010 $ 1,978 $ 1,850 ===============================================================

(a) Gradually declining to 6.5% in 2004 and remaining level thereafter. The following tables provide a reconciliation of the changes in the plans' benefit obligations, fair value of assets and funded status: Year Six Months Ended Ended December 31, December 31, In thousands 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- Change in benefit obligation Benefit obligation at beginning of period........................................... $ 13,185 $ 13,276 Service cost........................................................................ 581 318 Interest cost....................................................................... 1,085 497 Actuarial (gains) losses............................................................ 1,065 (812) Benefits paid....................................................................... (200) (94) ------------------------------------ Benefit obligation at end of period................................................. $ 15,716 $ 13,185 ==================================== Funded status....................................................................... $ (15,716) $ (13,185) Unrecognized net actuarial (gain) loss and prior service cost....................... (98) (1,152) Unrecognized transition obligation.................................................. 5,221 5,581 ------------------------------------ Accrued benefit cost................................................................ $ (10,593) $ (8,756) ====================================

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: In thousands 1% Increase 1% Decrease --------------------------------------------------------------------------------------------------------------------------- Effect on service and interest cost components............................................ $ 124 $ (146) Effect on postretirement benefit obligation............................................... $ 845 $ (934)

51 11. TAXES ON INCOME (as restated) Year Six Months Ended Ended Fiscal Years Ended ------------------------------ December 31, December 31, July 3, June 27, In thousands 2000 1999 1999 1998 -------------------------------------------------------------------------------------------------------------------------------- Income before taxes on income consists of: Domestic.................................................. $ 20,089 $ 28,637 $ 27,655 $ 21,937 Foreign................................................... 1,492 (2,151) (18,665) (3,322) ----------------------------------------------------------------- $ 21,581 $ 26,486 $ 8,990 $ 18,615 ================================================================= Tax expense (benefit) consists of: Current: Domestic.................................................. $ 704 $ 9,787 $ 1,169 $ 818 Foreign................................................... 1,457 908 1,839 79 ----------------------------------------------------------------- $ 2,161 $ 10,695 $ 3,008 $ 897 ----------------------------------------------------------------- Deferred: Domestic.................................................. $ 3,781 $ 1,156 $ 5,484 $ 5,025 Foreign................................................... 1,195 (2,404) (7,034) (879) ----------------------------------------------------------------- 4,976 (1,248) (1,550) 4,146 ----------------------------------------------------------------- $ 7,137 $ 9,447 $ 1,458 $ 5,043 ================================================================= Deferred Tax Benefits Recorded on Equity Losses........... $ 2,281 $ 882 $ 1,367 $ 172 =================================================================

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: Year Six Months Ended Ended Fiscal Years Ended ------------------------------ December 31, December 31, July 3, June 27, 2000 1999 1999 1998 ---------------------------------------------------------------------------------------------------------------------------- Income taxes at federal statutory rate........... 35% 35% 34% 35% Impact of: Tax asset adjustment for rate change........ 15 -- -- -- Available tax credits....................... (2) -- (10) (6) Foreign subsidiary earnings................. (7) 2 5 (1) Export sale tax benefits.................... (11) (2) (15) (4) Other....................................... 3 1 2 3 ---------------------------------------------------------------------- Effective tax rate............................... 33% 36% 16% 27% ---------------------------------------------------------------------- Income taxes paid (in thousands)................. $ 8,237 $ 10,584 $ 1,506 $ 2,164 ======================================================================

The tax rate in Germany decreased by approximately 10 percentage points during the fourth quarter of 2000. As a result of this change, the related deferred tax assets and net income were reduced by $3.4 million. 52 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 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: December 31, December 31, In thousands 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- Fixed assets.................................................................... $ (18,679) $ (13,779) Retirement plans................................................................ 9,396 8,146 Postretirement benefits......................................................... 3,778 3,065 Loss carryforwards.............................................................. 22,652 21,525 Accrued expenses and other...................................................... (10,140) (9,481) Valuation allowance............................................................. (889) (850) ------------------------------------------- Net deferred tax asset ......................................................... $ 6,118 $ 8,626 ===========================================

Deferred taxes are classified in the accompanying balance sheets as follows: December 31, December 31, In thousands 2000 1999 --------------------------------------------------------------------------------------------------------------------------------- Current income tax asset........................................................ $ 4,499 $ 2,594 Non-current income tax asset.................................................... 1,619 6,032 ------------------------------------------- Net deferred tax asset.......................................................... $ 6,118 $ 8,626 ===========================================

At December 31, 2000, the Company has $56.1 million of consolidated net operating loss carryforwards which do not expire and $8.1 million of consolidated net operating loss carryforwards which expire in 2020. A significant portion of the loss carry-forwards resulted from the European restructuring charges. These tax assets, which are largely offset by related liabilities, are also expected to be realized based on the improvements from the restructuring initiative, and continuous improvement in overall operational earnings from the implementation of the Company's production system throughout Europe. 12. PREFERRED STOCK AND COMMON STOCK (as restated) 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, 2000. 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 with none outstanding. 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: Year Six Months Ended Ended Fiscal Years Ended -------------------------- December 31, December 31, July 3, June 27, In thousands, except per share data 2000 1999 1999 1998 ---------------------------------------------------------------------------------------------------------------------------------- Net income.................................................... $ 11,123 $ 15,296 $ 4,989 $ 11,577 Less: Preferred stock dividends............................. (40) (20) (40) (40) ---------------------------------------------------------------- Income available to common stockholders....................... $ 11,083 $ 15,276 $ 4,949 $ 11,537 ================================================================ Weighted-average shares....................................... 10,168 10,139 10,091 9,961 Plus: Effect of dilutive stock options...................... 14 31 29 111 ---------------------------------------------------------------- Adjusted weighted-average shares............................. 10,182 10,170 10,120 10,072 ================================================================ Basic earnings per share...................................... $ 1.09 $ 1.51 $ 0.49 $ 1.16 ================================================================ Diluted earnings per share.................................... $ 1.09 $ 1.50 $ 0.49 $ 1.15 ================================================================

53 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 31,038 shares in 2000, 16,287 shares in the six-month period ended December 31, 1999, and 14,182 shares in 1999 under this plan. The Company also issued 16,831 shares in 1999 and 18,963 shares in 1998 under a 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 975,000 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 Plan 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, 2000, 579,629 options were available for grant. A summary of the Company's stock option activity and related information follows: Weighted- Average Shares Under Exercise Price In thousands, except per share data Option Per Share ---------------------------------------------------------------------------------------------------------------------------- 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 ---------------------------------------------------------------------------------------------------------------------------- Granted in fiscal 2000 87 12.40 Exercised (9) 9.96 Canceled (45) 16.48 ---------------------------------------------------------------------------------------------------------------------------- Outstanding at December 31, 2000 750 15.80 ---------------------------------------------------------------------------------------------------------------------------- Exercisable at December 31, 2000 580 $ 16.35 ----------------------------------------------------------------------------------------------------------------------------

Weighted-Average ------------------------------------------------------ Number of Options Option Price Remaining ----------------------------------------------------------------------- Exercise Price Range Outstanding Exercisable Outstanding Exercisable Contractual Life -------------------------------------------------------------------------------------------------------------------------------- $8.48 - $14.938 333 250 $13.16 $13.41 5.25yrs $15.44 - $22.69 417 330 $17.92 $18.58 7.08yrs

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: risk-free interest rates of 5.15%, 6.52%, 6.07% and 5.45%; dividend yield of 2.9%, 2.6%, 2.5% and 2.06%; expected market price volatility factors of 0.319, 0.313, 0.316 and 0.311; and an expected option life of seven 54 years, for 2000, the six-month period ended December 31, 1999, and the fiscal years ended July 3, 1999, and June 27, 1998, respectively. The weighted-average, grant-date fair value of options were $3.80, $5.28, $5.76 and $7.53 for stock options granted in 2000, the six-month period ended December 31, 1999, and the fiscal years ended July 3, 1999; and June 27, 1998; respectively. Pro forma information under SFAS No. 123 is as follows: Year Six Months Ended Ended Fiscal Years Ended December 31, December 31 --------------------------- 2000 1999 July 3, June 27, In thousands, except per share data 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ Net income: As reported.......................................... $ 11,123 $ 15,296 $ 4,989 $ 11,577 Pro forma............................................ 10,732 14,924 4,145 10,544 Basic net income per share of common stock: As reported.......................................... $ 1.09 $ 1.51 $ 0.49 $ 1.16 Pro forma............................................ 1.05 1.47 0.41 1.05 Diluted net income per share of common stock: As reported.......................................... $ 1.09 $ 1.50 $ 0.49 $ 1.15 Pro forma............................................ 1.05 1.46 0.41 1.04

14. COMMITMENTS AND CONTINGENCIES A. Litigation On October 5, 2000, the Company filed a complaint against Reitter & Schefenacker USA Limited Partnership and Reitter & Schefenacker GmbH & Co., KG in the U.S. District Court for the Western District of Michigan. The complaint alleges that the defendants have infringed three of the Company's patents relating to interior rearview mirror assemblies incorporating lighting features. The complaint seeks unspecified damages and an injunction against further infringement. Defendant Reitter & Schefenacker USA Limited Partnership has filed an answer denying infringement and alleging that the patents at issue are invalid and/or unenforceable. Defendant Reitter & Schefenacker GmbH & Co., KG has not yet filed an answer but has stated that it intends to assert that it is not subject to the jurisdiction of the court. 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, 2000, the Company had capital expenditure purchase commitments outstanding of approximately $11.2 million. The Company provides a guarantee for $7.1 million in municipal funding for one of the Company's manufacturing facilities in Michigan. 55 15. LEASES Future minimum lease payments, excluding renewal options, consist of: Capital Operating Year ending In thousands Leases Leases ------------------------------------------------------------------------------------------------------------------------------------ 2001.................................................................................... $ 168 $ 4,484 2002.................................................................................... 50 3,316 2003.................................................................................... 8 2,092 2004.................................................................................... -- 1,464 2005.................................................................................... -- 829 2006 and thereafter..................................................................... -- 101 ---------------------------- Total minimum lease payments............................................................ 226 $ 12,286 ========== Less amount representing interest and other............................................. (11) --------- Present value of net minimum lease payments............................................. $ 215 =========

The company has operating leases for office, warehouse, and manufacturing facilities and manufacturing equipment. Rental expense charged to operations amounted to approximately $4.5 million, $5.2 million, and $4.3 million for 2000, 1999, and 1998, respectively, and approximately $2.4 million for the six months ended December 31, 1999. 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: Year Ended Six Months Ended Fiscal Year Ended December 31, December 31, July 3, 2000 1999 1999 --------------------------------------------------------------------------------------------------------------------------------- Quarter High Low High Low High Low --------------------------------------------------------------------------------------------------------------------------------- First................................... $ 14.19 $ 11.75 $ 17.25 $ 14.00 $ 18.88 $ 14.13 Second.................................. 15.00 11.75 15.13 13.00 16.00 12.50 Third................................... 15.90 12.25 -- -- 15.25 12.13 Fourth.................................. 15.25 11.55 -- -- 17.50 12.88 ---------------------------------------------------------------------------------------------------------------------------------

56 17. QUARTERLY FINANCIAL DATA--UNAUDITED AND RESTATED First Second Third Fourth Total In thousands, except per share data Quarter Quarter Quarter Quarter Year --------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 2000: Net sales..................................................... $237,404 $227,492 $192,684 $199,899 $ 857,479 Gross profit.................................................. 41,280 38,794 25,328 31,574 136,976 Operating income (loss)....................................... 10,637 9,664 (2,586) 7,612 25,327 Net income.................................................... 5,567 5,530 (1,680) 1,706 11,123 Basic net income per share........................... 0.55 0.54 (0.17) 0.17 1.09 Diluted net income per share......................... 0.55 0.54 (0.17) 0.17 1.09 Dividends declared per share of common stock.................. 0.10 0.10 0.10 0.10 0.40 Six months ended December 31, 1999: Net sales..................................................... $208,917 $212,724 -- -- $ 421,641 Gross profit.................................................. 29,472 35,086 -- -- 64,558 Operating income.............................................. 2,698 7,834 -- -- 10,532 Net income.................................................... 8,230 7,065 -- -- 15,296 Basic net income per share........................... 0.81 0.70 -- -- 1.51 Diluted net income per share......................... 0.81 0.69 -- -- 1.50 Dividends declared per share of common stock.................. 0.10 0.10 -- -- 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.............................................. (1,232) 3,192 (1,107) 6,767 7,620 Net income.................................................... (2,967) 800 1,081 6,075 4,989 Basic net income per share............................. (0.30) 0.08 0.11 0.60 0.49 Diluted net income per share........................... (0.30) 0.08 0.11 0.60 0.49 Dividends declared per share of common stock.................. 0.10 0.10 0.10 0.10 0.40

Effective July 4, 1999, the Company changed its method of accounting for start-up and organization costs. 18. RESTATEMENT OF FINANCIAL STATEMENTS As described in Note 1, the Company's financial statements for the relevant periods have been restated to properly reflect financial position and net income. The following tables detail the effects of the restatement (in thousands, except per share data): Year Ended Six Months Ended Income Statement Data December 31, 2000 December 31, 1999 ------------------------------------------------------------------------------------------------------------------ As Previously As Restated As Previously As Restated Reported Reported ------------------------------------------------------------------ Net sales $857,479 $857,479 $421,641 $421,641 Gross profit 136,976 136,976 64,558 64,558 Net income 18,456 11,123 18,031 15,296 Basic net income per share $ 1.81 $ 1.09 $ 1.78 $ 1.51 Diluted net income per share $ 1.81 $ 1.09 $ 1.77 $ 1.50

57 Fiscal Year Ended Fiscal Year Ended Income Statement Data July 3, 1999 June 27, 1998 ------------------------------------------------------------------------------------------------------------------ As Previously As Restated As Previously As Restated Reported Reported ------------------------------------------------------------------ Net sales $904,969 $904,969 $763,311 $763,311 Gross profit 134,316 134,316 130,632 130,632 Net income 10,592 4,989 13,009 11,577 Basic net income per share $ 1.05 $ 0.49 $ 1.30 $ 1.16 Diluted net income per share $ 1.04 $ 0.49 $ 1.29 $ 1.15

Balance Sheet Data As of December 31, 2000 As of December 31, 1999 ------------------------------------------------------------------------------------------------------------------ As Previously As Restated As Previously As Restated Reported Reported --------------------------------------------------------------------- Current assets $172,741 $172,324 $163,934 $163,707 Total assets 464,020 423,996 428,863 401,822 Current liabilities 128,980 128,980 138,675 138,675 Total liabilities and minority interest 329,239 309,371 305,068 290,850 Shareholders' equity 134,781 114,625 123,795 110,972

The follow table details unauditied quarterly financial data as previously reported (refer to Note 17): First Second Third Fourth Total In thousands, except per share data Quarter Quarter Quarter Quarter Year --------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 2000: Net sales..................................................... $237,404 $227,492 $192,684 $199,899 $ 857,479 Gross profit.................................................. 41,280 38,794 25,328 31,574 136,976 Operating income (loss)....................................... 10,949 9,848 (2,387) 7,741 26,151 Net income.................................................... 6,774 7,137 631 3,914 18,456 Basic net income per share........................... 0.67 0.70 0.06 0.38 1.81 Diluted net income per share......................... 0.67 0.70 0.06 0.38 1.81 Dividends declared per share of common stock.................. 0.10 0.10 0.10 0.10 0.40 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........................... 0.98 0.80 -- -- 1.78 Diluted net income per share......................... 0.97 0.80 -- -- 1.77 Dividends declared per share of common stock.................. 0.10 0.10 -- -- 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............................. (0.20) 0.14 0.38 0.72 1.05 Diluted net income per share........................... (0.20) 0.14 0.38 0.72 1.04 Dividends declared per share of common stock.................. 0.10 0.10 0.10 0.10 0.40

The above disclosures of restated net income includes tax benefits recorded of $2,737, $1,014, $1,443 and $182, respectively, primarily on equity losses of Donnelly Electronics. 58 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 which 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/ KEVIN BROWN Chief Financial Officer and Chief Accounting Officer 59 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, 2000 and 1999, and the related combined consolidated statements of income, shareholders' equity and cash flows for the year ended December 31, 2000, the six-month period ended December 31, 1999, and each of the two years for the periods ended July 3, 1999, and June 27, 1998. 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the results of their operations and their cash flows for the year ended December 31, 2000, the six-month period ended December 31, 1999, and each of the two years for the periods ended July 3, 1999, and June 27, 1998, in conformity with accounting principles generally accepted in the United States of America. As discussed in Notes 1 and 18, the combined consolidated financial statements have been restated to reflect the effect of a change in the accounting treatment for certain investments in and advances to affiliates. Also, 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 8, 2001, except Note 3, which is dated February 26, 2001 and Notes 1 and 18, which are dated August 20, 2001 60 ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors of Registrant. Information relating to the directors and director nominees of the Registrant contained in the Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders held May 11, 2001, 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 under Item 4 of this Form 10-K/A report. 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 held May 11, 2001, 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 held May 11, 2001, 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 held May 11, 2001, and the information within that section is incorporated by reference. PART IV. ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents Filed As Part Of This Report 1. Financial Statements. See Item 8. 2. Financial Statement Schedules. (i) Donnelly Corporation. The following are included in Part IV of this report for the year ended December 31, 2000, six-month period ended December 31, 1999, and for the years ended July 3, 1999 and June 27, 1998, as applicable: Report of Independent Certified Public Accountants on Financial Statement Schedule (page 64) Schedule II, Valuation and Qualifying Accounts (page 65) (ii) Donnelly Electronics, Inc. Financial Statements for Donnelly Electronics, Inc. with the report thereon of BDO Seidman, LLP dated August 15, 2001. See pages 66 to 82. 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 (as restated). 3. Exhibits. Reference is made to the Exhibit Index, which is found on the last two pages of the body of this Form 10-K/A Annual Report preceding the exhibits. 61 (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the year ended December 31, 2000. (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. 62 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 By /s/ J. DWANE BAUMGARDNER J. Dwane Baumgardner Chairman, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated. The persons named below each hereby appoint J. Dwane Baumgardner and Kevin Brown, 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/A. /s/ J. DWANE BAUMGARDNER /s/ KEVIN BROWN J. Dwane Baumgardner Kevin L. Brown Chairman, Director, Senior Vice President, Chief Executive Officer Chief Financial Officer and President and Chief Accounting Officer /s/ JOHN A. BORDEN* /s/ ARNOLD F. BROOKSTONE* Director Director /s/ B. PATRICK DONNELLY III* /s/ JOAN E. DONNELLY* Director Director /s/ R. EUGENE GOODSON* /s/ THOMAS E. LEONARD* Director Director /s/ GERALD T. MCNEIVE JR.* /s/ RUDOLPH B. PRUDEN* Director Director /s/ DONALD R. UHLMANN* Director *By: /s/ J. Dwane Baumgardner Attorney-In-Fact DATE: September 28, 2001 Donnelly Corporation Annual Report - Form 10-K/A 63 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE DONNELLY CORPORATION HOLLAND, MICHIGAN The audits referred to in our report dated February 8, 2001, relating to the combined consolidated financial statements of Donnelly Corporation and subsidiaries, which is included in Item 8 of this Form 10-K/A for the year ended December 31, 2000, 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 8, 2001 64 DONNELLY CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Changes in Reserve for Uncollectible Accounts and Sales Returns and Allowances: December 31, December 31, July 3, In thousands Period Ended 2000 1999 1999 ---------------------------------------------------------------------------------------------------------------- Balance at beginnin of period............................... $ 2,449 $ 1,665 $ 1,095 Increase due to potentially uncollectible receivables....... 160 685 662 Increase due to consolidation of subsidiary................. 90 Decrease due to significant recoveries*..................... (491) Decrease due to write-off of bad debts...................... (154) Decrease due to merger of subsidiary into non-consolidated joint venture....................... (100) Impact of foreign currency changes.......................... (133) Miscellaneous............................................... 6 9 8 ----------------------------------------------- Balance at end of period.................................... $ 1,837 $ 2,449 $ 1,665 ===============================================

* Significant recoveries related to process improvements in accounts receivable management which has substantially reduced exposure for overdue receivables. 65 Donnelly Electronics, Inc. Financial Statements Year Ended December 31, 2000 Six Months Ended December 31, 1999 Year Ended June 26, 1999 Year Ended June 27, 1998 (unaudited) 66 Donnelly Electronics, Inc. Contents Independent Auditors'Report 68 Financial Statements Balance Sheets 69-70 Statements of Operations 71 Statements of Equity (Deficit) 72 Statements of Cash Flows 73-74 Notes to Financial Statement 75-82 67 Independent Auditors' Report Donnelly Electronics, Inc. Holly, Michigan We have audited the accompanying balance sheets of Donnelly Electronics, Inc. as of December 31, 2000, December 31, 1999 and June 26, 1999, and the related statements of operations, equity (deficit) and cash flows for the year ended December 31, 2000, the six months ended December 31, 1999 and the year ended June 26, 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 auditing standards generally accepted in the United States of America. 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 financial statements referred to above present fairly, in all material respects, the financial position of Donnelly Electronics, Inc. as of December 31, 2000, December 31, 1999 and June 26, 1999, and the results of its operations and cash flows for the year ended December 31, 2000, the six months ended December 31, 1999 and the year ended June 26, 1999 in conformity with accounting principles generally accepted in the United States of America. /s/ BDO Seidman, LLP Grand Rapids, Michigan August 15, 2001 68 December 31, December 31, June 26, June 27, 2000 1999 1999 1998 (unaudited) ---------------------------------------------------------------------------------------------------------------------- Assets (Notes 6 and 9) Current Assets Cash and cash equivalents $ - $ 382,226 $ 28,200 $ 207,010 Accounts receivable - trade 945,667 385,429 377,013 30,071 Accounts receivable - affiliate (Note 9) 3,563,062 1,732,370 795,823 226,057 Inventories (Note 3) 2,315,161 1,154,510 831,616 385,052 Recoverable customer tooling 775,212 157,863 72,292 1,916 Prepaid expenses and other 3,925 38,614 13,214 11,061 ---------------------------------------------------------------------------------------------------------------------- Total Current Assets 7,603,027 3,851,012 2,118,158 861,167 ---------------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment Machinery and equipment 7,033,586 5,663,919 2,882,918 2,055,000 Tooling 128,137 361,953 64,853 2,134 Leasehold improvements 227,975 149,767 32,053 12,181 Furniture and fixtures 55,038 50,421 47,178 44,604 ---------------------------------------------------------------------------------------------------------------------- 7,444,736 6,226,060 3,027,002 2,113,919 Less accumulated depreciation and amortization 1,420,978 855,628 607,654 355,507 ---------------------------------------------------------------------------------------------------------------------- Net Property, Plant and Equipment 6,023,758 5,370,432 2,419,348 1,758,412 ---------------------------------------------------------------------------------------------------------------------- Other Assets (Note 4) Recoverable customer tooling 775,213 157,864 72,292 1,916 Notes receivable - shareholders 70,385 24,000 24,000 - Deposits 491,810 260,236 335,439 55,000 ---------------------------------------------------------------------------------------------------------------------- Total Other Assets 1,337,408 442,100 431,731 56,916 ---------------------------------------------------------------------------------------------------------------------- Total Assets $ 14,964,193 $ 9,663,544 $ 4,969,237 $ 2,676,495 ----------------------------------------------------------------------------------------------------------------------

69 Donnelly Electronics, Inc. Balance Sheets December 31, December 31, June 26, June 27, 2000 1999 1999 1998 (unaudited) -------------------------------------------------------------------------------------------------------------------- Liabilities and Equity (Deficit) Current Liabilities Checks issued in advance of deposits $ 269,425 $ - $ - $ - Outstanding borrowings on line of credit (Note 6) 650,000 - - 671,000 Accounts payable - trade 4,048,147 1,863,909 1,269,926 932,359 Accrued expenses 663,738 388,476 82,567 20,080 Deferred revenues 78,828 28,666 28,666 - Current maturities of advances from affiliate (Note 9) 15,540,572 - - - Current maturities of long-term debt (Note 6) 218,725 201,900 201,900 96,000 -------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 21,469,435 2,482,951 1,583,059 1,719,439 Advances from Affiliate (Note 9) - 14,483,553 7,606,305 1,219,574 Long-Term Debt, less current 253,726 458,427 559,378 293,971 maturities (Note 6) -------------------------------------------------------------------------------------------------------------------- Total Liabilities 21,723,161 17,424,931 9,748,742 3,232,984 -------------------------------------------------------------------------------------------------------------------- Equity (Deficit) Preferred stock, non-redeemablenon- voting, 7% cumulative, $1,000 par; shares authorized 15,000, shares issued and outstanding 9,000 (Note 9) 9,000,000 - - - Common stock, no par; shares authorized 150,000, shares issued and outstanding 100,000 - - - - Losses in excess of capital (8,924,642) Accumulated deficit (6,834,326) - - - Member's deficit - (7,761,387) (4,779,505) (556,489) -------------------------------------------------------------------------------------------------------------------- Total Deficit (6,758,968) (7,761,387) (4,779,505) (556,489) -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Deficit $ 14,964,193 $ 9,663,544 $ 4,969,237 $ 2,676,495 --------------------------------------------------------------------------------------------------------------------

See accompanying independent auditors' report and notes to financial statements. 70 Donnelly Electronics, Inc. Statements of Operations Year Six Months Ended Year Year Ended Ended December 31, 1999 Ended June 27, December 31, 2000 June 26, 1998 1999 (unaudited) -------------------------------------------------------------------------------------------------------------------- Net Sales (Note 9) $ 19,427,002 $ 6,848,587 $ 7,571,920 $ 7,072,763 Cost of Sales (Note 9) 15,886,035 5,949,085 6,914,859 5,614,506 -------------------------------------------------------------------------------------------------------------------- Gross profit 3,540,967 899,502 657,061 1,458,257 Selling, General and Administrative Expenses (Note 9) 9,956,232 3,424,907 4,571,072 2,576,208 -------------------------------------------------------------------------------------------------------------------- Operating Loss (6,415,265) (2,525,405) (3,914,011) (1,117,951) -------------------------------------------------------------------------------------------------------------------- Non-Operating Income (Expenses) Interest expense (1,408,170) (425,451) (378,774) (52,040) Interest income 8,614 12,603 9,238 12,772 Other, net (236,145) (44,629) 531 (759) -------------------------------------------------------------------------------------------------------------------- Non-Operating Expenses, net (1,635,701) (457,477) (369,005) (40,027) -------------------------------------------------------------------------------------------------------------------- Net Loss $ (8,050,966) $ (2,982,882) $ (4,283,016) $ (1,157,978) --------------------------------------------------------------------------------------------------------------------

See accompanying independent auditors' report and notes to financial statements. 71 Donnelly Electronics, Inc. Statements of Equity (Deficit) Preferred Common Losses in Accumulated Member's Total Stock Stock Excess of Deficit Equity Equity Capital (Deficit) (Deficit) -------------------------------------------------------------------------------------------------------------------- Balance, June 29, 1997 $ - $ - $ - $ - $ 601,489 $ 601,489 (unaudited) Net loss for the year - - - - (1,157,978) (1,157,978) (unaudited) ------------------------------------------------------------------------------------------------------------------- Balance, June 27, 1998 - - - - (556,489) (556,489) (unaudited) Member contributions - - - - 60,000 60,000 Net loss for the year - - - - (4,283,016) (4,283,016) ------------------------------------------------------------------------------------------------------------------- Balance, June 26, 1999 - - - - (4,779,505) (4,779,505) Member contributions - - - - 1,000 1,000 Net loss for the six month - - - - (2,982,882) (2,982,882) period ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 - - - - (7,761,387) (7,761,387) Member contributions - - - - 53,385 53,385 Net loss for the year (6,834,326) (1,216,640) (8,050,966) "C" Corporation conversion - - (8,924,642) - 8,924,642 - Preferred stock issued 9,000,000 - - - - 9,000,000 (Note 9) ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 $ 9,000,000 $ - $ (8,924,642) $ (6,834,326) $ - $ (6,758,968) -------------------------------------------------------------------------------------------------------------------

See accompanying independent auditors' report and notes to financial statements. 72 Donnelly Electronics, Inc. Statements of Cash Flows Year Six Months Year Year Ended Ended Ended Ended June 27, December 31, December 31, June 26, 1998 2000 1999 1999 (unaudited) ---------------------------------------------------------------------------------------------------------------------- Operating Activities Net loss $ (8,050,966) $(2,982,882) $ (4,283,016) $ (1,157,978) Depreciation and amortization 710,422 247,975 252,625 257,107 Loss (gain) on disposal of property and equipment 198,295 - (477) 1,301 Changes in operating assets and liabilities: Accounts receivable - trade (560,238) (8,416) (346,942) (8,825) Accounts receivable - affiliate (1,830,692) (936,547) (569,766) (70,252) Inventories (1,160,651) (322,894) (446,564) (777) Recoverable customer tooling (1,234,698) (171,143) (140,752) 31,977 Prepaid expenses and other 34,689 (25,400) (2,153) (11,061) Accounts payable - trade 2,184,238 593,983 335,567 504,164 Accrued expenses 275,262 305,909 62,487 6,670 Deferred revenues 50,162 - 28,666 - ---------------------------------------------------------------------------------------------------------------------- Net cash used for operating activities (9,384,177) (3,299,415) (5,108,325) (447,674) ---------------------------------------------------------------------------------------------------------------------- Investing Activities Issuance of notes receivable (53,385) - (24,000) - Payment received on notes receivable 7,000 - - - Capital expenditures (1,562,043) (3,199,059) (913,084) (1,460,350) Net change in deposits (231,574 ) 75,203 (280,439) (5,000) ---------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (1,840,002) (3,123,856) (1,217,523) (1,465,350) ----------------------------------------------------------------------------------------------------------------------

73 Donnelly Electronics, Inc. Statements of Cash Flows Year Six Months Year Year Ended Ended Ended Ended June 27, December 31, December 31, June 26, 1998 2000 1999 1999 (unaudited) ------------------------------------------------------------------------------------------------------------------- Financing Activities Net change in checks issued in advance of deposits 269,425 - - - Net change in outstanding borrowings on line of credit 650,000 - (671,000) 201,000 Proceeds from long-term debt - - 529,516 473,078 Repayments of long-term debt (187,876) (100,951) (158,209) (83,107) Advances from affiliates (Note 9) 10,057,019 6,877,248 6,386,731 1,068,074 Member contributions 53,385 1,000 60,000 - -------------------------------------------------------------------------------------------------------------------- Net cash from financing activities 10,841,953 6,777,297 6,147,038 1,659,045 -------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents (382,226) 354,026 (178,810 (253,979) Cash and Cash Equivalents, beginning of period 382,226 28,200 207,010 460,989 -------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents, end of period $ - $ 382,226 $ 28,200 $ 207,010 --------------------------------------------------------------------------------------------------------------------

See accompanying independent auditors' report and notes to financial statements. 74 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 2998 is unaudited) -------------------------------------------------------------------------------- 1. Summary of Nature of Business Significant Accounting Policies Donnelly Electronics, Inc. (Company) designs and manufactures advanced electronic circuit boards and related products which are sold to automotive suppliers as well as non-automotive customers primarily in Michigan. The Company was initially formed in 1996 as a Michigan Limited Liability Company and was subsequently converted into a "C" Corporation effective March 1, 2000. The Company was an 18% owned affiliate of Donnelly Corporation (Donnelly) as of December 31, 1999, June 26, 1999, and June 27, 1998. As of December 31, 2000, Donnelly owned 18% of the Company's common stock and held $9 million of 7% non-voting preferred stock. On December 29, 2000, Donnelly gave notice of its intent to acquire all of the outstanding stock of the Company which it did not currently own pursuant to an option agreement dated January 1, 1998. This transaction was finalized in February 2001, with Donnelly acquiring all of the outstanding equity of the Company not then owned by Donnelly for $4.5 million, paid equally in cash and through the issuance of Donnelly's Class A Common Stock. Unaudited Financial Information Unaudited financial information for the year ended June 27, 1998, as presented in the financial statements and the accompanying notes to the financial statements, is provided for comparison purposes and includes any normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation. 75 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 2998 is unaudited) -------------------------------------------------------------------------------- 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. Although management's estimates are not currently expected to change materially in the foreseeable future, the results the Company will ultimately experience could differ from the amounts assumed. Revenue Recognition The Company's source of revenue is generated from the sale of its products. Revenue is recognized when products are shipped. Amounts billed to customers for shipping and handling are included in net sales while shipping and handling costs incurred by the Company are included in cost of sales. 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. 76 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 2998 is unaudited) -------------------------------------------------------------------------------- Pre-Production Costs Pre-production costs incurred for tools that the Company will not own are capitalized as incurred up to the contractually guaranteed reimbursement amount and classified as recoverable customer tooling. These costs are recoverable from the customer under guaranteed contractual agreements at the time of tool completion, approval and billing or over the contractual period, which is generally three years, through piece rate charges at the time each part is shipped. Pre-production costs incurred for tools that the Company will own for use in producing products under contractual arrangements are capitalized as incurred and classified as property, plant and equipment. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation and amortization are computed over the estimated useful lives of the assets, generally three to ten years, primarily by the straight-line method. Long-Lived Assets The Company reviews long-lived 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 operating undiscounted cash flows, the asset is written down to its estimated net realizable value. Warranty Reserves The Company accrues for warranty claims when events exist that make the loss probable and the loss can be reasonably estimated. Adjustments are made to established reserves when changes in management estimates and industry conditions occur. 77 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 2998 is unaudited) -------------------------------------------------------------------------------- Income Taxes Prior to its conversion to a "C" Corporation effective March 1, 2000, the Company was a pass through entity for tax purposes. Effective March 1, 2000, deferred income taxes reflect the tax effects of temporary differences between the financial statement and tax base 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. Research and Development Costs Research, development and product improvement costs are charged to expense as they are incurred. Research, development and product improvement costs included in selling, general and administrative expenses approximated $4.7 million, $1.9 million, and $1.6 million for the years ended December 31, 2000, June 26, 1999, and June 27, 1998, and $1.4 million for the six months ended December 31, 1999. 2. Fiscal Year End Change Fiscal Year End Change Effective July 4, 1999, the Company changed the date of its fiscal year end from the last Saturday in June to December 31. The years ended December 31, 2000, June 26, 1999, and June 27, 1998, all consisted of 52 weeks. The six-month period ended December 31, 1999, consisted of 27 weeks. All year references relate to the Company's fiscal years, unless otherwise stated. 3. Inventories Inventories consist of: December 31, December 31, June 26, June 27, 2000 1999 1999 1998 (unaudited) -------------------------------------------------------------------------------- Finished goods and work in process $ 234,317 $ 160,557 $ 116,979 $ 98,776 Raw materials 2,080,844 993,953 714,637 286,276 -------------------------------------------------------------------------------- $ 2,315,161 $ 1,154,510 $ 831,616 $ 385,052 --------------------------------------------------------------------------------

78 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 2998 is unaudited) -------------------------------------------------------------------------------- 4. Other Assets Notes Receivable - shareholders The Company has notes receivable from shareholders. These notes require no monthly payments and bear interest at 7% with no specified maturity date. Deposits The Company makes deposits on certain equipment while in production by vendors. The deposit amounts will be used to decrease the amount due for the equipment upon its completion. 5. Employee Benefit Plans Employee Benefit Plans The Company has a defined contribution 401(k) plan covering substantially all employees with six months of service. Employees may contribute to the plan an amount not to exceed 15% of eligible compensation. The Company may make discretionary matching contributions to the plan, which approximated $36,000, $37,000, and $38,000 for the years ended December 31, 2000, June 26, 1999, and June 27, 1998, and $21,000 for the six months ended December 31, 1999. 6. Debt and Other Financing Arrangements The Company has a line of credit with a bank in the amount of $1,000,000 that bears interest at 0.5% below the prime rate (effectively 9.0% at December 31, 2000) and matures on April 1, 2001. The line of credit is secured by all tangible and intangible assets of the Company. Long-term debt consists of the following: December 31, December 31, June 26, June 27, 2000 1999 1999 1998 (unaudited) -------------------------------------------------------------------------------- Secured term loan payable to bank $ 154,762 $ 242,762 $ 290,762 $ 386,892 Secured term loan payable to bank 217,689 414,764 467,715 - Other - 2,801 2,801 3,079 -------------------------------------------------------------------------------- 472,451 660,327 761,278 389,971 Less current maturities 218,725 201,900 201,900 96,000 -------------------------------------------------------------------------------- $ 253,726 $ 458,427 $ 559,378 $ 293,971 --------------------------------------------------------------------------------

79 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 2998 is unaudited) -------------------------------------------------------------------------------- The Company has two secured term loan agreements with a bank which mature on August 1, 2002 and December 1, 2003, respectively. The agreements provide for monthly principal payments of $8,000 and $8,825, respectively, plus interest at the prime rate (effectively 9.5% at December 31, 2000). Maturities of long-term debt are as follows: Year ending -------------------------------------------------------------------------------- 2001 $ 218,725 2002 156,662 2003 97,064 -------------------------------------------------------------------------------- $ 472,451 --------------------------------------------------------------------------------

7. Taxes on Income The tax effect of temporary differences which give rise to deferred tax assets (liabilities) are as follows: December 31, 2000 -------------------------------------------------------------------------------- Net operating loss carryforwards $ 2,392,000 Accumulated depreciation (426,000) -------------------------------------------------------------------------------- 1,966,000 Valuation allowance (1,966,000) -------------------------------------------------------------------------------- Net deferred tax asset $ - --------------------------------------------------------------------------------

Net operating loss carryforwards of $6.8 million are available to offset federal taxable income in future years, expiring in 2020. At December 31, 2000, the Company's net deferred tax assets are fully offset by a valuation allowance. Prior to March 1, 2000, the Company was a pass through entity for tax purposes and no deferred tax assets or liabilities were recorded. 80 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 2998 is unaudited) -------------------------------------------------------------------------------- 8. Operating Lease The Company is obligated under a five-year operating lease arrangement, covering its entire manufacturing facility, which expires in September 2001. Future minimum lease payments under the lease, excluding renewals and purchase options, are $103,500 for 2001. Under the lease agreement, the Company has the option to renew the lease for another five years under the same terms, except the monthly rental charge may be adjusted to reflect changes in the landlord's cost of financing upon commencement of the renewal term. The Company also has the option to purchase the property prior to 180 days before the expiration of the lease, including the five-year extension period, under the terms specified in the lease agreement. Rent expense under all operating leases was approximately $281,000, $247,000, and $223,000 for the years ended December 31, 2000, June 26, 1999, and June 27, 1998, and $123,000 for the six months ended December 31, 1999. 9. Transactions With Affiliates Current affiliate receivable amounts represent trade accounts receivable from Donnelly. Accounts receivable with affiliated companies accounted for 79%, 82%, 68%, and 88% of the outstanding accounts receivable at December 31, 2000, December 31, 1999, June 26, 1999, and June 27, 1998. Advances from affiliate consists of funds advanced to the Company from Donnelly primarily for the purpose of funding negative results of operations and expenditures for ongoing capital projects. Advances from affiliate are due in full on the later of June 30, 2001 or the closing under "put" or "call" options. The current agreement provides for quarterly payments of interest only at a rate of 7.0%, with the entire unpaid balance due at maturity, and is secured by all of the assets of the Company. This interest is subordinate to any security interest of the Company's principal commercial bank in the Company's assets. In conjunction with the "C" Corporation conversion effective March 1, 2000, $9 million of funds previously advanced to the Company from Donnelly were converted to 9,000 preferred shares of the Company with par value of $1,000 per share. 81 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 2998 is unaudited) -------------------------------------------------------------------------------- Net sales include sales to Donnelly of approximately $12.6 million, $5.2 million, and $7.0 million for the years ended December 31, 2000, June 26, 1999, and June 27, 1998, and $5.1 million for the six months ended December 31, 1999. The Company is assessed charges by Donnelly included in cost of sales which approximated $.6 million, $1.4 million, and $0 for the years ended December 31, 2000, June 26, 1999, and June 27, 1998, and $.3 million for the six months ended December 31, 1999. The Company is also assessed charges by Donnelly related to the use of personnel, facilities and equipment reflected in selling, general and administrative expenses which approximated $5.6 million, $1.7 million and $1.1 for the fiscal years ended December 31, 2000, June 26, 1999, and June 27, 1998, and $2.3 million for the six months ended December 31, 1999. 82 ANNUAL REPORT - FORM 10-K/A Exhibit Index 3. Articles of Incorporation and Bylaws are incorporated by reference to Exhibit 3.1 and 3.2 of Registrant's Registration Statement on Form S-1, as amended, dated March 9, 1988, (Registration No. 33-17167) ("S-1 Registration Statement"). 4. A specimen stock certificate of the Class A Common Stock 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 Amended and Restated Non Employee Director's Stock Option Plan. 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. 10.11 The Donnelly Corporation Amended and Restated Unfunded Deferred Director Fee Plan. 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. 83 10.14 The Amended Donnelly Corporation Deferred Compensation Plan was filed as part of Form 10-Q for the quarter ended September 30, 2000, as Exhibit 10.1 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 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. 10.20 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. 10.21 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. 10.22 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. 10.23 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. The First Amendment to the Donnelly Corporation 401(k) Retirement Savings Plan (January 1, 1999, Restatemenet) was filed as part of Form S-8 filed on September 28, 2001, as Exhibit 4(b) and is hereby incorporated by reference. The Second Amendment to the Donnelly Corporation 401(k) Retirement Savings Plan (January 1, 1999, Restatement) was filed as part of Form S-8 filed on September 28, 2001, as Exhibit 4(c) and is hereby incorporated by reference. 10.24 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. 10.25 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. 10.26 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. 10.27 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, was filed as part of Form 10-K for the transition period dated July 4, 1999, to December 31, 1999, as Exhibit 10.28 and is hereby incorporated by reference. 10.28 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. 84 10.29 Agreement dated December 16, 1999, between Lear Corporation and Donnelly Corporation regarding the purchase by Donnelly Corporation of the outstanding capital stock of Eurotrim was filed as part of Form 10-K for the transition period dated July 4, 1999, to December 31, 1999, as Exhibit 10.30 and is hereby incorporated by reference. 10.30 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. 10.32 First amendment dated October 20, 2000, to the January 1, 1997, Donnelly Corporation Deferred Compensation Plan was filed as part of Form 10-Q for the quarter ended September 30, 2000, as Exhibit 10.1 and is hereby incorporated herein by reference. 10.33 Agreement and Plan of Merger among Donnelly Electronics, Inc., Donnelly Electronics Acquisition Corporation and Donnelly Corporation was filed as an Exhibit to Form 8-K dated March 13, 2001, and is incorporated herein by reference. 21 * Schedule of Affiliates. 23 Consent of BDO Seidman, LLP, independent public accountants. * Previously filed. 85 Exhibit 23 Consent of Independent Certified Public Accountants Donnelly Corporation Holland, Michigan We hereby consent to the incorporation by reference of our reports dated February 8, 2001, except for Note 3, which is dated February 26, 2001, and Notes 1 and 18, which are dated August 20, 2001, relating to the combined consolidated financial statements and schedule of Donnelly Corporation appearing in the corporation's annual report on Form 10-K/A for the year ended December 31, 2000, in that corporation's previously filed Form S-8 Registration Statements for the Amended 401(k) Retirement Savings Plan, Amended and Restated Nonemployee Director Stock Option Plan (Registration No. 333-55499), 1998 Employees' Stock Purchase Plan (Registration No. 333-67969), 1998 Employee Stock Option Plan (Registration No. 333-67967), 1997 Employee Stock Option Plan (Registration No. 333-40987), 1987 Stock Option Plan (Registration No. 33-26555), 1987 Employees' Stock Purchase Plan (Registration No. 33-34746) and Non-Employee Directors' Stock Option Plan (Registration No. 33-55499). /s/ BDO SEIDMAN, LLP Grand Rapids, Michigan September 28, 2001 86

DONNELLY CORP 10-K/A