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, 1997

                          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, 1997:

                Class A Common            22,750,000
                Class B Common               358,000



                                  Page 1 of 13



<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)


                                                          Three Months Ended
                                                         August 31    August 31
                                                           1997         1996
                                                         -----------------------
Net sales                                                $ 150,904    $ 150,859

Costs and expenses:
 Cost of products sold                                      93,832       94,671
 Selling, general and administrative                        33,638       33,322
 Research and development                                    4,757        4,757
                                                         ---------    ---------

                                                           132,227      132,750
                                                         ---------    ---------

                            OPERATING INCOME                18,677       18,109

Other income (expense):
 Sundry                                                         38          132
 Interest expense                                           (4,752)      (5,449)
                                                         ---------    ---------

                                                            (4,714)      (5,317)
                                                         ---------    ---------

                            INCOME BEFORE INCOME TAXES      13,963       12,792

Income Taxes                                                 6,284        5,780
                                                         ---------    ---------

                            NET INCOME                   $   7,679    $   7,012
                                                         =========    =========

Cash dividends per share                                 $    0.08    $    0.08
                                                         =========    =========
Average number of shares and equivalent shares
 of capital stock outstanding--Note B                       23,400       23,100
                                                         =========    =========

Net income per share--Note B                             $    0.33    $    0.30
                                                         =========    =========


See notes to consolidated condensed financial statements.




                                  Page 2 of 13



<PAGE>



CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

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


                                                           Nine Months Ended
                                                         August 31     August 31
                                                            1997         1996
                                                         ----------------------
Net sales                                                $ 447,302    $ 355,841

Costs and expenses:
 Cost of products sold                                     278,989      228,118
 Selling, general and administrative 103,701                76,776
 Research and development                                   14,008       12,547
 Restructuring charge                                            0        9,607
                                                         ---------    ---------

                                                           396,698      327,048
                                                         ---------    ---------

                            OPERATING INCOME                50,604       28,793

Other income (expense):
 Sundry                                                        159          471
 Interest expense                                          (14,781)      (9,073)
                                                         ---------    ---------

                                                           (14,622)      (8,602)
                                                         ---------    ---------

                            INCOME BEFORE INCOME TAXES      35,982       20,191

Income Taxes                                                16,192        9,077
                                                         ---------    ---------

                            NET INCOME                   $  19,790    $  11,114
                                                         =========    =========

Cash dividends per share                                 $    0.24    $    0.24
                                                         =========    =========
Average number of shares and equivalent shares
 of capital stock outstanding--Note B                       23,400       23,050
                                                         =========    =========

Net income per share--Note B                             $    0.85    $    0.48
                                                         =========    =========


See notes to consolidated condensed financial statements.




                                  Page 3 of 13




<PAGE>



CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

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


                                                        August 31    November 30
                                                          1997          1996
                                                       -------------------------
ASSETS

CURRENT ASSETS
 Cash and cash equivalents                              $   6,185     $   6,790
 Accounts receivable, less allowances
  for doubtful accounts (8/31/97, $2,793;
  11/30/96, $2,706)                                        76,567        84,592
 Inventories--Note C                                       46,504        47,546
 Other                                                     11,880        19,790
                                                        ---------     ---------

                            TOTAL CURRENT ASSETS          141,136       158,718


OTHER ASSETS                                               24,502        23,749

INTANGIBLE ASSETS                                         248,569       258,811

PROPERTY AND EQUIPMENT
 Land, buildings and equipment                            134,101       127,538
 Allowances for depreciation (deduction)                  (52,426)      (46,956)
                                                        ---------     ---------
                                                           81,675        80,582
                                                        ---------     ---------

                                                        $ 495,882     $ 521,860
                                                        =========     =========















See notes to consolidated condensed financial statements.







                                  Page 4 of 13



<PAGE>



CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)


                                                         August 31   November 30
                                                            1997         1996
                                                         -----------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
 Accounts Payable                                        $  51,958    $  56,593
 Other                                                      32,319       35,022
 Current portion of long-term debt                          29,645       16,524
                                                         ---------    ---------

                            TOTAL CURRENT LIABILITIES      113,922      108,139


LONG-TERM DEBT                                             202,261      245,037

OTHER LIABILITIES                                           43,108       46,795

SHAREHOLDERS' EQUITY Capital stock:
  Class A (limited voting)                                  15,341       15,103
  Class B (voting)                                             300          300
 Additional capital                                         78,671       75,433
 Retained earnings                                          77,292       62,990
 Currency translation adjustments                           (1,129)          88
 Cost of capital stock in treasury
  (deduction)                                              (33,884)     (32,025)
                                                         ---------    ---------
                                                           136,591      121,889
                                                         ---------    ---------
                                                         $ 495,882    $ 521,860
                                                         =========    =========











See notes to consolidated condensed financial statements.










                                  Page 5 of 13



<PAGE>



CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)

<TABLE>
<CAPTION>

                                                              Nine Months Ended
                                                             August 31    August 31
                                                                1997         1996
                                                             ----------------------
OPERATING ACTIVITIES:
<S>                                                          <C>          <C>      
 Net income                                                  $  19,790    $  11,114
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Depreciation                                                 6,583        4,618
    Amortization of intangibles                                  8,669        6,096
    Restructuring charge                                             0        9,607
    Deferred income taxes                                        1,701       (3,000)
    Changes in operating
      assets and  liabilities,
      net of effects from acquired
      business:
       Accounts receivable                                       8,025       (4,238)
       Inventories                                               1,042       (5,240)
       Accounts payable and accrued expenses                    (7,338)        (521)
    Sundry                                                      (1,589)       3,870
                                                             ---------    ---------
      NET CASH PROVIDED BY OPERATING ACTIVITIES                 36,883       22,306

INVESTING ACTIVITIES:
 Purchases of property and equipment                            (9,618)     (15,433)
 Payment for acquired business                                       0     (235,000)
 Sundry                                                          5,656        1,598
                                                             ---------    ---------
      NET CASH USED BY INVESTING ACTIVITIES                     (3,962)    (248,835)

FINANCING ACTIVITIES:
 Cash dividends paid                                            (5,491)      (5,417)
 Proceeds from short-term and long-term borrowings                   0      292,000
 Principal payments on short-term and long-term borrowings     (29,655)     (71,578)
 Sundry                                                          1,620        1,013
                                                             ---------    ---------
      NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES         (33,526)     216,018

                                                             ---------    ---------
DECREASE IN CASH AND CASH EQUIVALENTS                             (605)     (10,511)

Cash and cash equivalents at beginning of year                   6,790       20,260
                                                             ---------    ---------
      CASH AND CASH EQUIVALENTS AT END OF PERIOD             $   6,185    $   9,749
                                                             =========    =========
</TABLE>






See notes to consolidated condensed financial statements.


                                  Page 6 of 13



<PAGE>

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES

AUGUST 31, 1997

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, 1996.

NOTE B--SHARE AND PER SHARE AMOUNTS

Equivalent  shares of capital stock represent  additional  shares assumed issued
upon exercise of stock options.

NOTE C--INVENTORIES

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

                                              August 31       November 30
                                                1997              1996
                                             ----------       -----------

         Finished products                    $ 25,540         $ 25,847
         Raw materials                          29,040           29,375
                                              --------         --------
                                                54,580           55,222
         Less adjustment of certain
         inventories to last in,
         first out (LIFO) basis                  8,076            7,676
                                              --------         --------

                                              $ 46,504         $ 47,546
                                              ========         ========

The Company uses the LIFO method in inventory valuation for approximately 82% 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 7 of 13



<PAGE>

NOTE D--RESTRUCTURING

In 1996 the Company  implemented  plans for the  consolidation  of manufacturing
facilities related to the Guardsman acquisition. These plans include the closure
of some Lilly and Guardsman plants and workforce  reductions.  It is anticipated
these plans will be completed by the end of the first half of fiscal 1998.

Costs  associated  with the planned  closure of Lilly  facilities  and workforce
reductions  were recorded in the 1996 second quarter as a  restructuring  charge
totaling  $9,607,000,  which reduced net income by $5,284,000 or $.23 per share.
The components of the  restructuring  charge and amounts paid or charged against
these reserves are as follows (in thousands):

                                              Costs Paid       Ending
                                 Provision    or Charged       Balance
                                 ---------    ----------       -------
Facilities, equipment,
  inventories, and other         $7,827         $1,151         $6,676
Termination benefits              1,780            824            956
                                 ------         ------         ------
                                 $9,607         $1,975         $7,632
                                 ======         ======         ======
                                                         
Costs associated with the planned closure of Guardsman  facilities and workforce
reductions  were  recorded as  liabilities  in the opening  balance sheet of the
combined entity as of the acquisition  date. The components of these liabilities
and  amounts  paid  or  charged  against  these  reserves  are  as  follows  (in
thousands):

                                             Costs Paid        Ending
                               Liabilities   or Charged        Balance
                               -----------   ----------        -------
Facilities, equipment,
  inventories, and other         $6,532         $3,345         $3,187
Termination benefits              2,476          1,217          1,259
                                 ------         ------         ------
                                 $9,008         $4,562         $4,446
                                 ======         ======         ======
                                                        

NOTE E--ACQUISITION

On April 8, 1996 the Company  acquired all the  outstanding  shares of Guardsman
Products,  Inc.  ("Guardsman")  for  $235,000,000  in  cash.  The  Company  used
$275,000,000  of senior  secured credit  facilities to finance the  acquisition,
pay-off existing debt and to pay related expenses.  The acquisition was recorded
using the purchase method and the consolidated  financial statements include the
results of operations of Guardsman since the date of acquisition.















                                  Page 8 of 13



<PAGE>



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

Record  earnings were realized for the third quarter ended August 31, 1997.  Net
income for the third quarter increased 9.5 percent to a record $7.7 million,  or
33 cents per share,  compared with $7.0 million, or 30 cents per share, for last
year's  third  quarter.  The  increase  in  earnings  was the result of improved
operating  margins  and lower  interest  expense.  Third  quarter net sales were
$150.9 million,  virtually even with those of the 1996 third quarter.  Net sales
were affected by the absence of certain resin sales in the 1997 third quarter as
that  business  line was sold in August  1996,  and  negative  foreign  currency
exchange  rates in 1997.  For the nine months ended August 31, net sales were up
25.7 percent at $447.3 million compared with $355.8 million a year earlier.  Net
sales gains largely  reflected  Lilly's ownership of Guardsman for the full nine
months of fiscal 1997  compared  with five months in fiscal  1996.  Gross profit
margin  improved to 37.6% for the nine month  period  ended August 31, 1997 from
35.9% for the comparable period in fiscal 1996 due to efficiencies in purchasing
and manufacturing, as well as a better sales mix, realized through the Guardsman
acquisition and other Company  initiatives,  offset in part by start-up costs in
fiscal 1996 related to the Company's  facilities in Bowling Green,  Kentucky and
Charlotte,  North  Carolina.  Net income was $19.8 million,  or $0.85 per share,
compared with $11.1 million,  or $0.48 per share, for the same period last year,
which included a restructuring charge of $9.6 million that reduced net income by
$5.3 million, or $0.23 per share.

This year's third quarter results were solid,  but not as robust as anticipated.
Consequently,  we are looking to enhance  operating  results  primarily  through
additional reductions in operating expenses.

Ongoing cash management efforts have materially  strengthened the balance sheet.
Debt was  reduced by $45 million in the past  twelve  months to $232  million at
August 31, 1997. This debt reduction  helped to reduce interest  expense by $700
thousand in this year's third quarter.  Lower debt levels were accomplished with
improved cash flow from  operating  profits,  lower working  capital and sale of
certain nonoperating assets. 

Sales and  earnings  for the  full-year  1997  should be at  record  levels  and
implementation  of  strategies  for growing the company  internally  and through
acquisitions  continue.  The Company has entered  into a  non-binding  letter of
intent to acquire a foreign  industrial  coatings  company  with annual sales of
less  than $20  million  for a  purchase  price of less than $15  million.  This
acquisition,  which is  expected  to close by fiscal year end, is subject to the
execution of a mutually  agreeable stock purchase  agreement,  the completion of
due diligence and the satisfaction of other customary  closing  conditions.  The
Company  intends  to  fund  all or a  portion  of the  purchase  price  for  the
acquisition with a local unsecured credit facility.

The Board of Directors  declared a regular quarterly dividend of eight cents per
common share, payable January 2, 1998, to shareholders of record at the close of
business  on  December  10,  1997.  This  dividend  marks  the  Company's  235th
consecutive cash dividend.


















                                  Page 9 of 13



<PAGE>
                           PART II: OTHER INFORMATION

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

(a)  The following exhibits are included herein:

                 EXHIBIT 10(1)    Change in Control  Agreement,  dated September
                                  26, 1997, by and between  Registrant  and Hugh
                                  M. Cates

                 EXHIBIT 10(2)    Change in Control  Agreement,  dated September
                                  26, 1997, by and between  Registrant and Larry
                                  H. Dalton

                 EXHIBIT 10(3)    Change in Control  Agreement,  dated September
                                  26,  1997,  by  and  between   Registrant  and
                                  William C. Dorris

                 EXHIBIT 10(4)    Change in Control  Agreement,  dated September
                                  26, 1997, by and between  Registrant  and John
                                  C. Elbin

                 EXHIBIT 10(5)    Change in Control  Agreement,  dated September
                                  26, 1997, by and between Registrant and Ned L.
                                  Fox

                 EXHIBIT 10(6)    Change in Control  Agreement,  dated September
                                  26,  1997,  by  and  between   Registrant  and
                                  Douglas W. Huemme

                 EXHIBIT 10(7)    Change in Control  Agreement,  dated September
                                  26,  1997,  by and between  Registrant  and A.
                                  Barry Melnkovic

                 EXHIBIT 10(8)    Change in Control  Agreement,  dated September
                                  26, 1997, by and between  Registrant  and John
                                  H. Dalton

                 EXHIBIT 10(9)    Change in Control  Agreement,  dated September
                                  26,  1997,  by  and  between   Registrant  and
                                  Kenneth L. Mills

                 EXHIBIT 10(10)   Change in Control  Agreement,  dated September
                                  26, 1997, by and between  Registrant  and Gary
                                  D. Missildine

                 EXHIBIT 10(11)   Change in Control  Agreement,  dated September
                                  5, 1997, by and between  Registrant and Robert
                                  A. Taylor

                 EXHIBIT 10(12)   Change in Control  Agreement,  dated September
                                  26, 1997, by and between  Registrant and Keith
                                  C. Vander Hyde, Jr.

                 EXHIBIT 10(13)   Change in Control  Agreement,  dated September
                                  26, 1997, by and between Registrant and Jay M.
                                  Wiegner

                 EXHIBIT 11       Computation of Earnings Per Share

                 EXHIBIT 27       Financial Data Schedule


(b)  The Company  did not file any  reports on Form 8-K during the three  months
     ended August 31, 1997.

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


                                  Page 10 of 13

<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 10, 1997                           /s/ Douglas W. Huemme
                                           ------------------------------------
                                           Douglas W. Huemme
                                           Chairman, President and
                                           Chief Executive Officer
                              
                              
                              
                                           PRINCIPAL FINANCIAL OFFICER
                              
                              
October 10, 1997                           /s/ John C. Elbin
                                           ------------------------------------
                                           John C. Elbin
                                           Vice President and
                                           Chief Financial Officer
                         





                                  Page 11 of 13