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 May 31, 2000

                          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.)


                              200 WEST 103rd STREET
                           INDIANAPOLIS, INDIANA 46290

               (Address of principal executive offices) (Zip Code)

               Registrant's telephone number, including area code:
                                 (317) 814-8700

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 June 30, 2000

            Class A Common Stock                       22,717,752
            Class B Common Stock                          499,891

                                  Page 1 of 14


<PAGE>



                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)

                                                        Three Months Ended
                                                     May 31,          May 31,
                                                      2000             1999
                                                   ---------        ---------

Net sales                                          $ 176,373        $ 171,375

Costs and expenses:
         Cost of products sold                       108,675          104,257
         Selling, general and administrative          42,944           41,278
         Research and development                      5,260            5,358
                                                   ---------        ---------

                                                     156,879          150,893
                                                   ---------        ---------

                  Operating income                    19,494           20,482

Other expenses:
         Sundry (income) expense                         (23)             254
         Interest expense, net                         4,117            3,911
                                                   ---------        ---------

                  Income before income taxes          15,400           16,317

Income taxes                                           6,314            6,690
                                                   ---------        ---------

                  Net income                       $   9,086        $   9,627
                                                   =========        =========


Net income per share:
         Basic                                     $    0.39        $    0.41
         Diluted                                   $    0.39        $    0.41


Cash dividends per share                           $     .08        $     .08



See notes to condensed consolidated financial statements.

                                  Page 2 of 14


<PAGE>





CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)

                                                          Six Months Ended
                                                      May 31,         May 31,
                                                       2000            1999
                                                     --------        --------

Net sales                                            $337,424        $317,514

Costs and expenses:
         Cost of products sold                        210,614         194,340
         Selling, general and administrative           84,641          78,371
         Research and development                      10,532          10,517
                                                     --------        --------

                                                      305,787         283,228
                                                     --------        --------

                  Operating income                     31,637          34,286

Other expenses:
         Sundry expense                                   114             493
         Interest expense, net                          8,414           8,012
                                                     --------        --------

                  Income before income taxes           23,109          25,781

Income taxes                                            9,475          10,570
                                                     --------        --------

                  Net income                         $ 13,634        $ 15,211
                                                     ========        ========


Net income per share:
         Basic                                       $   0.59        $   0.65
         Diluted                                     $   0.59        $   0.65


Cash dividends per share                             $    .16        $    .16



See notes to condensed consolidated financial statements.

                                  Page 3 of 14


<PAGE>





CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)

                                                       May 31,      November 30,
                                                        2000           1999
                                                      ---------     ------------

ASSETS

Current assets:
     Cash and cash equivalents                      $   5,057        $   5,714
     Accounts receivable, less allowances
         for doubtful accounts(5/31/00, $1,545;
         11/30/99, $1,775)                             94,568           91,369
     Inventories                                       62,540           58,500
     Other                                              8,785            6,274
                                                    ---------        ---------

                  Total current assets                170,950          161,857

Other assets                                           24,630           22,755

Intangible assets                                     229,859          233,878

Property and equipment:
     Land, buildings and equipment                    212,632          199,714
     Accumulated depreciation                         (73,204)         (67,778)
                                                    ---------        ---------

                                                      139,428          131,936
                                                    ---------        ---------

                                                    $ 564,867        $ 550,426
                                                    =========        =========

See notes to condensed consolidated financial statements.

                                  Page 4 of 14


<PAGE>



CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)

                                                    May 31,       November 30,
                                                     2000             1999
                                                  ---------        ---------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                             $  69,214        $  60,317
     Other                                           44,672           52,820
                                                  ---------        ---------

                  Total current liabilities         113,886          113,137

Long-term debt                                      212,503          206,803

Other liabilities                                    36,091           38,315

Shareholders' equity:
     Capital stock:
           Class A (limited voting)                  15,559           15,539
           Class B (voting)                             300              300
     Additional capital                              84,363           83,833
     Retained earnings                              143,727          133,807
     Accumulated other comprehensive loss            (3,355)          (3,509)
     Cost of capital stock in treasury              (38,207)         (37,799)
                                                  ---------        ---------

                                                    202,387          192,171
                                                  ---------        ---------

                                                  $ 564,867        $ 550,426
                                                  =========        =========

See notes to condensed consolidated financial statements.

                                  Page 5 of 14


<PAGE>



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)

<TABLE>
<CAPTION>
                                                                      Six Months Ended
                                                                   May 31,         May 31,
                                                                    2000            1999
                                                                  --------        --------

OPERATING ACTIVITIES
<S>                                                               <C>             <C>
Net income                                                        $ 13,634        $ 15,211
Adjustments to reconcile net income to
   net cash provided by operating activities:
     Depreciation                                                    6,090           5,265
     Amortization                                                    5,638           5,657
     Changes in operating assets and liabilities
       net of effects from acquired business:
           Accounts receivable                                      (3,199)        (10,053)
           Inventories                                              (4,040)         (5,007)
           Accounts payable and accrued expenses                       749          (1,211)
           Sundry                                                   (7,088)        (10,898)
                                                                  --------        --------

                  Net cash provided (used)
                     by operating activities                        11,784          (1,036)

INVESTING ACTIVITIES

Purchases of property and equipment                                (14,656)        (15,981)
Payments for acquired businesses                                    (1,250)         (2,721)
Sundry                                                               1,337           1,091
                                                                  --------        --------

                  Net cash used by investing activities            (14,569)        (17,611)

FINANCING ACTIVITIES

Dividends paid                                                      (3,714)         (3,713)
Proceeds from borrowings                                             5,700          16,100
Sundry                                                                 142             418
                                                                  --------        --------

                  Net cash provided by financing activities          2,128          12,805
                                                                  --------        --------

Decrease in cash and cash equivalents                                 (657)         (5,842)

Cash and cash equivalents at beginning of period                     5,714          13,326
                                                                  --------        --------

Cash and cash equivalents at end of period                        $  5,057        $  7,484
                                                                  ========        ========
</TABLE>



See notes to condensed consolidated financial statements.

                                  Page 6 of 14


<PAGE>



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
MAY 31, 2000

NOTE A--BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated 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 Article 10 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.  The results of  operations  for the three and six month periods
ended May 31, 2000 are not  necessarily  indicative  of the results for the full
year.

The  balance  sheet at  November  30,  1999 has been  derived  from the  audited
financial  statements  at that date but does not include all of the  information
and footnotes required by generally accepted accounting  principles for complete
financial statements.

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, 1999.

NOTE B--INVENTORIES

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

                                              May 31,    November 30,
                                               2000          1999
                                             -------       -------

Finished products                            $35,887       $33,628
Raw materials                                 32,529        30,048
                                             -------       -------
                                              68,416        63,676
Less adjustment of certain inventories
     to LIFO basis                             5,876         5,176
                                             -------       -------
                                             $62,540       $58,500
                                             =======       =======

The Company uses the LIFO method of inventory valuation for approximately 61% of
inventories.  For these inventories, 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 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.

NOTE C--SEGMENT INFORMATION

The Company  operates  within three business  segments which serve three end-use
markets:  wood coatings;  metal  coatings;  and  composites and glass  coatings.
Products sold to these markets have similar economic characteristics, production
processes,  distribution  methods, and regulatory  environments.  Based on these
similarities, the Company's products are aggregated into one reportable segment,
Industrial Coatings and Specialty Chemicals.

Net sales of  Industrial  Coatings and  Specialty  Chemical  products by end-use
markets are as follows (in thousands):

<TABLE>
<CAPTION>
                                       Three Months Ended             Six Months Ended
                                     May 31,        May 31,        May 31,        May 31,
                                      2000           1999           2000           1999
                                    --------       --------       --------       --------
<S>                                 <C>            <C>            <C>            <C>
Wood Coatings                       $ 79,215       $ 76,408       $153,511       $141,521
Metal Coatings                        78,032         74,958        145,616        138,620
Composites and Glass Coatings         19,126         20,009         38,297         37,373
                                    --------       --------       --------       --------
                                    $176,373       $171,375       $337,424       $317,514
                                    ========       ========       ========       ========
</TABLE>



                                  Page 7 of 14


<PAGE>




NOTE D--COMPREHENSIVE INCOME

Total  comprehensive  income is comprised of net income and net foreign currency
translation  adjustments.  Total comprehensive income for the three month period
ended  May 31,  2000 and  1999 was  approximately  $9,119,000  and  $10,172,000,
respectively.  Total comprehensive income for the six month period ended May 31,
2000 and 1999 was approximately $13,788,000 and $15,971,000, respectively.

NOTE E--NET INCOME PER SHARE

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      Six Months Ended
                                                         May 31,     May 31,     May 31,     May 31,
                                                          2000        1999        2000        1999
                                                         ------      ------      ------      ------

Basic
<S>                                                      <C>         <C>         <C>         <C>
    Weighted-average common shares outstanding           23,217      23,200      23,211      23,190
                                                         ======      ======      ======      ======

Diluted
    Weighted-average common shares outstanding           23,217      23,200      23,211      23,190
    Dilutive effect of stock options                         --         130          18         140
                                                         ------      ------      ------      ------
Average common shares outstanding assuming dilution      23,217      23,330      23,229      23,330
                                                         ======      ======      ======      ======
</TABLE>



NOTE F--NEW ACCOUNTING STANDARD

Effective  December 1, 1999,  the  Company  adopted the  American  Institute  of
Certified  Public  Accountants'   (AICPA)  Statement  of  Position  (SOP)  98-5,
"Reporting  for the Costs of Start-Up  Activities."  The SOP  requires  start-up
costs  capitalized  prior to  December  1, 1999 to be written off and any future
start-up costs to be expensed as incurred.  The unamortized  balance of start-up
costs was  written  off as of  December  1, 1999.  The effect of this  change in
accounting principle on consolidated earnings was immaterial.

NOTE G--SUBSEQUENT EVENT

On June 26, 2000, the Company  announced it had entered into a definitive merger
agreement with The Valspar Corporation  ("Valspar") whereby Valspar will acquire
all  outstanding  shares of the  Company's  Class A and Class B common stock for
$31.75 per share in cash, and the Company will become a wholly-owned  subsidiary
of Valspar.

The merger is subject to the approval of the Company's  stockholders  as well as
regulatory and other customary closing conditions.  The merger is not subject to
a financing condition.

                                  Page 8 of 14


<PAGE>



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

Results of Operations - Three and six month periods ended May 31, 2000

The Company's net sales for the second quarter of 2000 increased by $5.0 million
or 2.9% to $176.4 million  compared to second quarter of 1999. Net sales for the
six month period ended May 31, 2000 increased by $19.9 million or 6.3% to $337.4
million  compared to the same period in 1999.  Sales for the three and six month
periods ended May 31, 2000 showed continued growth in most markets.

Gross profit for the second quarter of 2000 was 38.4% of net sales, representing
a decrease of 0.8 percentage points over the same period a year ago. For the six
month  period  ended May 31,  2000,  gross  profit was  37.6%,  a decline of 1.2
percentage   points  compared  to  last  year.  The  declines  in  gross  profit
percentages are directly related to the rapid cost escalation in petroleum-based
raw materials, and transition start-up costs associated with increased capacity.

Selling, general and administrative expenses for the three and six month periods
ended  May 31,  2000  increased  by 4.0%  and 8.0%  respectively,  over the same
periods in 1999.  These increases are due to higher selling  expenses related to
growth in international markets, increased freight and marketing initiatives.

Operating  income  for the  three  and six  month  periods  ended  May 31,  2000
decreased  by 4.8% and 7.7%  respectively,  over the same periods a year ago, as
increased raw material costs and selling,  general and  administrative  expenses
offset increases in net sales.

Net  interest  expense  for the three and six month  periods  ended May 31, 2000
increased by 5.3% and 5.0%  respectively,  over the same periods a year ago, due
to slightly higher average interest rates and debt levels.

Net income for the three and six month periods  ended May 31, 2000  decreased by
5.6% and 10.4%  respectively,  over the same periods in 1999,  due to higher raw
material costs and selling,  general and administrative  expenses. The effective
tax rate remained at 41%.

Liquidity and Capital Resources

Cash  provided by  operating  activities  for the six month period ended May 31,
2000  increased  by $12.8  million  compared to the same period a year ago.  The
increase in cash provided by operating activities is primarily due to changes in
working capital and non-current liabilities.

Cash used by  investing  activities  for the six month period ended May 31, 2000
decreased  by $3.0  million  compared to the same  period a year ago,  which was
primarily due to lower capital  expenditures of $1.3 million,  and a decrease in
payments for acquired businesses of $1.5 million.

Cash  provided by  financing  activities  for the six month period ended May 31,
2000 decreased by $10.7 million over the same period a year ago primarily due to
lower increases in borrowings as compared to the same period in 1999.

The Company  believes funds available from internal and external sources will be
sufficient to meet the liquidity needs of the Company.

Environmental

The  Company's  operations,  like  those  of most  companies  in the  industrial
coatings and specialty chemicals industry, are subject to regulations related to
maintaining or improving the quality of the environment. Such regulations, along
with the Company's own internal  compliance  efforts,  have  required,  and will
continue to require, ongoing expenditures. Spending for environmental compliance
is not  anticipated  to be material to the  Company's  financial  position.  The
Company  has  been  notified  that it is a  potentially  responsible  party  for
clean-up   costs  with   respect  to  several   government   investigations   at
independently-operated  waste  disposal  sites  previously  used by the Company.
Management has accrued,  as appropriate,  for these  environmental  liabilities.
Management believes the liabilities  associated with these sites will not have a
material adverse effect on its operating results or financial position.

                                  Page 9 of 14


<PAGE>




Forward-Looking Statements

Statements  in  this  report  that  are  not  strictly   historical   constitute
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933 and  Section  21E of the  Securities  Exchange  Act of  1934,  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,  1999.  The  Company  disclaims  any
intentions  or obligation  to update or revise any forward  looking  statements,
whether as a result of new information, future events or otherwise.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

The  Company  is subject to market  risk in the form of  interest  rate risk and
foreign  currency  risk.  Both interest rate risk and foreign  currency risk are
considered immaterial to the Company.

                                  Page 10 of 14


<PAGE>



                           PART II: OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

The Company  held its Annual  Meeting of  Shareholders  on March 31,  2000.  The
following is a summary of matters voted on at the meeting:

(a)      The following directors were elected by the votes indicated:


                                       Stock                           Votes
         Director                      Class        Votes For        Withheld
         --------                      -----        ---------        --------

         James M. Cornelius              A          17,856,269       1,333,167
         Paul K. Gaston                  A          17,848,748       1,340,688
         John D. Peterson                A          17,854,817       1,334,619
         Thomas E. Reilly, Jr.           A          17,856,839       1,332,597
         William C. Dorris               B             486,306              --
         John C. Elbin                   B             486,306              --
         Douglas W. Huemme               B             486,306              --
         Harry Morrision, Ph.D.          B             486,306              --
         Norma J. Oman                   B             486,306              --
         Robert A. Taylor                B             486,306              --

         Shareholders of record on February 14, 2000 were entitled to notice of,
         and to vote at,  the  Annual  Meeting  of  Shareholders.  On that  date
         22,733,318  shares of the Company's Class A Stock and 486,306 shares of
         the Company's Class B Stock were outstanding.

(b)      Shareholders  also  approved  adoption  of  a  proposal  to  amend  the
         Company's 1992 Stock Option Plan to increase the shares reserved by one
         million.  Approval of this proposal  required the affirmative vote of a
         majority of the shares of the Class A Stock and Class B Stock voting as
         separate  voting  groups.  The  proposal  was adopted  with  13,673,679
         shares,  or 60%, of Class A Stock and 486,306 shares, or 100%, of Class
         B Stock voting for the proposal. Shares of Class A Stock voting against
         were 4,299,348. Shares of Class A stock either abstained or the subject
         of broker nonvotes were 1,216,407.

                                  Page 11 of 14


<PAGE>




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

(a)  The following exhibits are included herein:

          4.6     Third Amendment to Credit  Agreement  among Lilly  Industries,
                  Inc.,  the Lenders  Signatory  thereto and Bank One,  Indiana,
                  N.A., as agent, dated as of May 31, 2000

          10.28   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and Robert A. Taylor.

          10.29   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and John C. Elbin.

          10.30   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and William C. Dorris.

          10.31   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and Jay M. Wiegner.

          10.32   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and Keith C. Vander Hyde, Jr.

          10.33   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and Virgil E. Underwood.

          10.34   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and Hugh M. Cates.

          10.35   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and Kenneth L. Millls.

          10.36   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and John D. Million.

          10.37   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and A. Berry Melnkovic.

          10.38   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and Ned L. Fox.

          10.39   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and Alain DeBlandre.

          10.40   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and Larry H. Dalton.

          10.41   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and Olin R. Crocker.

          10.42   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and Gary D. Missildine.

          10.43   Change  of  Control  Agreement,  dated  May 11,  2000,  by and
                  between Registrant and Douglas W. Huemme.

          10.44   Amendment to the Lilly  Industries, Inc.  Executive Retirement
                  Plan, as of May 11, 2000.

          27      Financial Data Schedule

(b)      Reports on Form 8-K

                  The  Company  did not file any  reports on Form 8-K during the
                  three month period ended May 31, 2000.  On June 26, 2000,  the
                  Company  filed a Form 8-K to announce  they had entered into a
                  definitive  merger  agreement  with  The  Valspar  Corporation
                  ("Valspar"),  whereby  Valspar  will  acquire all  outstanding
                  shares of the Company's common stock.

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



                                  Page 12 of 14


<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)

July 14, 2000

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



                                           PRINCIPAL FINANCIAL OFFICER

July 14, 2000

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


                                  Page 13 of 14