FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


                      For the quarter ended August 31, 1998

                          Commission file number 0-6953


                             LILLY INDUSTRIES, INC.

             (Exact name of registrant as specified in its charter)



          INDIANA                                            35-0471010
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                           Identification No.)




                            733 SOUTH WEST STREET
                           INDIANAPOLIS, INDIANA               46225
                   (Address of principal executive offices)   (Zip Code)

               Registrant's telephone number, including area code:
                                 (317) 687-6700




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  periods 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 the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.


               Number of shares outstanding at September 30, 1998:

                 Class A Common                     22,789,000
                 Class B Common                        419,000



                                  Page 1 of 12


<PAGE>




                          PART I. FINANCIAL INFORMATION



Item 1.  Financial Statements.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
<TABLE>
<CAPTION>



                                                                  Three Months Ended
                                                           August 31            August 31
                                                              1998                 1997

                                                          ----------------------------------

<S>                                                       <C>                <C>            
Net Sales                                                 $      159,345     $       150,904

Costs and expenses
              Cost of products sold                               97,593              93,832
              Selling, general and administrative                 37,371              33,638
              Research and development                             5,235               4,757
                                                          --------------     ----------------

                                                                 140,199             132,227
                                                          --------------     ----------------
                                                          --------------     ----------------

                           OPERATING INCOME                       19,146              18,677

Sundry income (expense)                                              (51)                 38
Interest expense, net                                             (4,140)             (4,752)
                                                          --------------     ----------------

                           INCOME BEFORE INCOME TAXES             14,955              13,963

Income Taxes                                                       6,281               6,284
                                                          --------------     ----------------

                           NET INCOME                     $        8,674     $         7,679
                                                          ==============     ================

Cash dividends per share                                  $         0.08     $          0.08

Net income per share (Note B)
              Basic                                       $         0.37     $          0.33
              Diluted                                     $         0.37     $          0.33

</TABLE>




See notes to consolidated condensed financial statements.











                                  Page 2 of 12



<PAGE>

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)

<TABLE>
<CAPTION>
                                                            Nine Months Ended
                                                         August 31      August 31
                                                           1998            1997
                                                         --------------------------

<S>                                                       <C>            <C>      
Net sales                                                 $ 461,877      $ 447,302

Costs and expenses
         Cost of products sold                              284,900        278,989
         Selling, general and administrative                109,493        103,701
         Research and development                            15,530         14,008
                                                          ---------      ---------

                                                            409,923        396,698
                                                          ---------      ---------

                           OPERATING INCOME                  51,954         50,604

Sundry income (expense)                                        (179)           159
Interest expense, net                                       (12,932)       (14,781)
                                                          ---------      ---------

                           INCOME BEFORE INCOME TAXES        38,843         35,982

Income Taxes                                                 16,314         16,192
                                                          ---------      ---------

                           NET INCOME                     $  22,529      $  19,790
                                                          =========      =========

Cash dividends per share                                  $    0.24      $    0.24

Net income per share (Note B)
         Basic                                            $    0.97      $    0.86
         Diluted                                          $    0.96      $    0.85
</TABLE>



See notes to consolidated condensed financial statements.








                                  Page 3 of 12


<PAGE>



CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)

<TABLE>
<CAPTION>
                                                    August 31     November 30
                                                       1998           1997
                                                    ---------      ---------

ASSETS

CURRENT ASSETS
<S>                                                 <C>            <C>      
  Cash and cash equivalents                         $  16,850      $  10,079
  Accounts receivable, less allowances
       for doubtful accounts (8/31/98, $2,387;
       11/30/97, $2,139)                               81,860         80,011
  Inventories (Note C)                                 50,114         45,704
  Other                                                 7,023         10,880
                                                    ---------      ---------

                           TOTAL CURRENT ASSETS       155,847        146,674

OTHER ASSETS                                           19,678         21,326

INTANGIBLE ASSETS                                     243,420        250,956

PROPERTY AND EQUIPMENT
  Land, buildings and equipment                       156,191        137,088
  Allowances for depreciation (deduction)             (59,167)       (54,249)
                                                    ---------      ---------

                                                       97,024         82,839
                                                    ---------      ---------

                                                    $ 515,969      $ 501,795
                                                    =========      =========
</TABLE>



See notes to consolidated condensed financial statements.










                                  Page 4 of 12
<PAGE>

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)


                                                    August 31      November 30
                                                       1998            1997
                                                  ----------------------------


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts Payable                                  $  61,262      $  60,510
   Other                                                29,070         34,038
                                                     ---------      ---------

                    TOTAL CURRENT LIABILITIES           90,332         94,548

LONG-TERM DEBT                                         219,578        224,171

OTHER LIABILITIES                                       47,627         40,637

SHAREHOLDERS' EQUITY Capital stock:
     Class A (limited voting)                           15,455         15,375
     Class B (voting)                                      300            300
   Additional capital                                   81,791         79,417
   Retained earnings                                   100,721         83,745
   Currency translation adjustments                     (4,726)        (2,254)
   Cost of capital stock in treasury (deduction)       (35,109)       (34,144)
                                                     ---------      ---------

                                                       158,432        142,439
                                                     ---------      ---------

                                                     $ 515,969      $ 501,795
                                                     =========      =========







See notes to consolidated condensed financial statements.








                                  Page 5 of 12

                                       1
<PAGE>



CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                           August 31     August 31
                                                             1998          1997
                                                           --------      --------

OPERATING ACTIVITIES
<S>                                                        <C>           <C>     
Net income                                                 $ 22,529      $ 19,790
 Adjustments to reconcile net income to net
      cash provided by operating activities:
  Depreciation                                                7,292         6,583
  Amortization of intangibles                                 8,182         8,669
  Deferred income taxes                                           0         1,701
  Changes in operating  assets and  liabilities net of
      effects from acquired business:
         Accounts receivable                                   (243)        8,025
         Inventories                                         (1,892)        1,042
         Accounts payable and accrued expenses               (5,644)       (7,338)
         Sundry                                               5,262        (1,589)
                                                                         --------

NET CASH PROVIDED BY OPERATING ACTIVITIES                    35,486        36,883

INVESTING ACTIVITIES
  Purchases of property and equipment                       (11,584)       (9,618)
  Payment for acquired business                             (11,253)            0
  Sundry                                                      2,786         5,656
                                                           --------      --------

NET CASH USED BY INVESTING ACTIVITIES                       (20,051)       (3,962)

FINANCING ACTIVITIES
  Dividends paid                                             (5,553)       (5,491)
  Proceeds from borrowings                                   11,000             0
  Principal payments on borrowings                          (15,600)      (29,655)
  Sundry                                                      1,489         1,620
                                                           --------      --------

NET CASH USED BY FINANCING ACTIVITIES                        (8,664)      (33,526)
                                                           --------      --------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS              6,771          (605)

Cash and cash equivalents at beginning of year               10,079         6,790
                                                           --------      --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                 $ 16,850      $  6,185
                                                           ========      ========
</TABLE>


See notes to consolidated condensed financial statements.









                                  Page 6 of 12


<PAGE>

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES

AUGUST 31, 1998

NOTE A--BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Rule 10-01 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  For further  information,  refer to the  consolidated  financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended November 30, 1997.


NOTE B--NET INCOME PER SHARE

The Company adopted Statement of Financial  Accounting Standards (SFAS) No. 128,
"Earnings Per Share" during the first quarter of fiscal year 1998. Share and per
share  amounts shown for periods prior to adoption have been restated to conform
to the requirements of SFAS No. 128.

Basic and  diluted net income per share are  computed by dividing  net income as
reported by the average number of shares outstanding as follows (in thousands):

<TABLE>
<CAPTION>

                                                                              Three Months Ended    Nine Months Ended
                                                                                  August 31             August 31
                                                                               1998       1997       1998       1997
                                                                              ------     ------     ------     ------ 
<S>                                                                           <C>        <C>        <C>        <C>   
Basic
       Weighted-average common shares
          outstanding                                                         23,182     23,000     23,146     22,900
                                                                              ======     ======     ======     ======

Diluted
       Weighted-average common shares outstanding                             23,182     23,000     23,146     22,900
       Dilutive effect of stock options                                          295        400        272        500
                                                                              ------     ------     ------     ------


       Average common shares outstanding assuming dilution                    23,477     23,400     23,418     23,400
                                                                              ======     ======     ======     ======
                                                               
</TABLE>



                                  Page 7 of 12


NOTE C--INVENTORIES

The  principal   inventory   classifications   are  summarized  as  follows  (in
thousands):



                                      August 31        November 30
                                        1998              1997
                                       -------           -------
                                                       
Finished products                      $28,035           $26,361
Raw materials                           28,735            27,019
                                       -------           -------
                                                       
                                        56,770            53,380
                                                       
Less adjustment of certain                             
     inventories to last in,                           
     first out (LIFO) basis              6,656             7,676
                                       -------           -------
                                                       
                                       $50,114           $45,704
                                       =======           =======
                                           


The Company uses the LIFO method in inventory valuation for approximately 68% of
inventories  where an actual  valuation can be made only at the end of each year
based on the inventory levels and costs at that time. Accordingly,  interim LIFO
calculations  must  necessarily be based on  management's  estimates of expected
year-end  inventory  levels and costs.  Since  these are  subject to many forces
beyond management's  control,  interim results are subject to the final year-end
LIFO inventory  valuation.  The Company estimates the annual adjustment for LIFO
and allocates it to quarters based on actual inflation  experienced in a quarter
as it relates to anticipated inflation for the year.















                                  Page 8 of 12
<PAGE>



Item 2.  Management's  Discussion  and  Analysis  of Results of  Operations  and
         Financial Condition.



               The Company reports  all-time  record  quarterly sales and record
               third quarter net income and net income per share.  Sales for the
               quarter ended August 31, 1998 of $159.3  million rose 6% compared
               with 1997 third  quarter  sales of $150.9  million.  Record  1998
               third quarter net income was up 13% at $8.7 million,  or 37 cents
               per share on a diluted  basis,  compared to $7.7  million,  or 33
               cents per share, for the third quarter of 1997.

               For the nine months  ended August 31,  1998,  sales  increased to
               $461.9 million  compared to $447.3 million a year ago. Net income
               for the 1998  nine-month  period was $22.5  million,  up 14% over
               last year's $19.8 million. Diluted net income per share increased
               13% to 96 cents from 85 cents last year.

               Sales trends  during the third  quarter were  positive with gains
               registered by each of our major businesses. Sales from our German
               acquisition  earlier this year were offset by unfavorable foreign
               currency  translation and divested business.  Higher sales, lower
               interest expense,  and a lower effective tax rate are the primary
               reasons for our improved performance.

               We have  recently  combined  our  liquid  and  powder  industrial
               coatings  units  to  bring  improved  focus  to the  marketplace.
               Additionally,  our glass coatings unit has assumed responsibility
               for our composites business, which was formerly combined with our
               liquid industrial  business.  We are excited about these changes,
               and expect fiscal 1998 to be another successful,  record year for
               the Company.

               The Board of Directors  declared a regular quarterly  dividend of
               eight  cents per  common  share,  payable  January  4,  1999,  to
               shareholders  of  record  on  December  10,  1998.  This  is  the
               Company's 239th consecutive quarterly cash dividend.

               Statements in this release that are not strictly  historical  may
               be   "forward-looking"   statements,   which  involve  risks  and
               uncertainties. Risk factors include general economic and industry
               conditions,   effects   of   leverage,   environmental   matters,
               technological  developments,  product pricing,  raw material cost
               changes,  and international  operations,  among others, which are
               set  forth in the  Company's  annual  report on Form 10-K for the
               year ended November 30, 1997.













                                  Page 9 of 12
<PAGE>



                           PART II: OTHER INFORMATION







Item 6.  Exhibits and Reports on Form 8-K.


(a)  The following exhibit is included herein:




             EXHIBIT 27            Financial Data Schedule


(b)  The Company  did not file any  reports on Form 8-K during the three  months
     ended August 31, 1998.


Note:  All other item numbers under this section are not applicable.











                                  Page 10 of 12


<PAGE>



                                   SIGNATURES
                                   ----------


Pursuant  to the  requirements  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.

                                            LILLY INDUSTRIES, INC.  (Registrant)

October 14, 1998


                                            /s/ Douglas W. Huemme
                                            ----------------------------
                                            Douglas W. Huemme
                                            Chairman, President and
                                            Chief Executive Officer
                                              
                                



                                            PRINCIPAL FINANCIAL OFFICER

October 14, 1998


                                            /s/ John C. Elbin
                                            ----------------------------
                                            John C. Elbin
                                            Vice President,
                                            Chief Financial Officer
                                            and Secretary
                                    










                                  Page 11 of 12