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, 1996

                          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, 1996:

                           Class A Common            22,331,000
                           Class B Common               365,000



                                  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
                                                           1996          1995
                                                        -----------------------

Net sales                                                $ 150,859    $  79,705

Costs and expenses:
 Cost of products sold                                      94,671       54,586
 Selling, administrative and general                        33,322       14,179
 Research and development                                    4,757        3,027
                                                         ---------    ---------

                                                           132,750       71,792
                                                         ---------    ---------

                            OPERATING INCOME                18,109        7,913

Other income (expense):
 Interest income and sundry                                    132          167
 Interest expense                                           (5,449)        (451)
                                                         ---------    ---------

                                                            (5,317)        (284)
                                                         ---------    ---------

                            INCOME BEFORE INCOME TAXES      12,792        7,629

Income Taxes                                                 5,780        3,052
                                                         ---------    ---------

                            NET INCOME                   $   7,012    $   4,577
                                                         =========    =========

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

Net income per share--Note B $                                0.30    $    0.20
                                                         =========    =========


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
                                                            1996          1995
                                                        -----------------------

Net sales                                                $ 355,841    $ 245,559

Costs and expenses:
 Cost of products sold                                     228,118      165,030
 Selling, administrative and general                        76,776       44,545
 Research and development                                   12,547        9,698
 Restructuring charges                                       9,607            0
                                                         ---------    ---------

                                                           327,048      219,273
                                                         ---------    ---------

                            OPERATING INCOME                28,793       26,286

Other income (expense):
 Interest income and sundry                                    471          349
 Interest expense                                           (9,073)      (1,581)
                                                         ---------    ---------

                                                            (8,602)      (1,232)
                                                         ---------    ---------

                            INCOME BEFORE INCOME TAXES      20,191       25,054

Income Taxes                                                 9,077       10,022
                                                         ---------    ---------

                            NET INCOME                   $  11,114    $  15,032
                                                         =========    =========

Cash dividends per share--Note B                         $    0.24    $    0.23
                                                         =========    =========
Average number of shares and equivalent shares
 of capital stock outstanding--Note B                       23,050       23,200
                                                         =========    =========

Net income per share--Note B                             $    0.48    $    0.65
                                                         =========    =========


See notes to consolidated condensed financial statements.









                                  Page 3 of 13



<PAGE>



CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)


                                                        August 31    November 30
                                                          1996            1995
                                                       ------------------------

ASSETS

CURRENT ASSETS
 Cash and cash equivalents                              $   9,749     $  20,260
 Accounts receivable, less allowances
  for doubtful accounts (8/31/96, $3,078;
  11/30/95, $2,051)                                        82,981        40,911
 Inventories--Note C                                       46,156        15,411
 Other                                                      8,037           349
                                                        ---------     ---------

                            TOTAL CURRENT ASSETS          146,923        76,931


OTHER ASSETS                                               26,771        13,781

INTANGIBLE ASSETS                                         254,419        47,401

PROPERTY AND EQUIPMENT
 Land, buildings and equipment                            121,066        86,273
 Allowances for depreciation (deduction)                  (40,900)      (40,804)
                                                        ---------     ---------
                                                           80,166        45,469
                                                        ---------     ---------

                                                        $ 508,279     $ 183,582
                                                        =========     =========















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
                                                      1996         1995
                                                    ---------    ---------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
 Accounts Payable                                   $  46,107    $  23,982
 Other                                                 19,596       10,415
 Current portion of long-term debt                     14,520        7,029
                                                    ---------    ---------

                       TOTAL CURRENT LIABILITIES       80,223       41,426


LONG-TERM DEBT                                        262,680       21,200

OTHER LIABILITIES                                      49,489       11,582

SHAREHOLDERS' EQUITY Capital stock:
  Class A (limited voting)                             15,082       14,947
  Class B (voting)                                        300          300
 Additional capital                                    75,125       73,450
 Retained earnings                                     57,139       51,446
 Currency translation adjustments                          94          288
 Cost of capital stock in treasury
  (deduction)                                         (31,853)     (31,057)
                                                    ---------    ---------
                                                      115,887      109,374
                                                    ---------    ---------
                                                    $ 508,279    $ 183,582
                                                    =========    =========











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
                                                                     1996        1995
                                                                 ---------    ---------
OPERATING ACTIVITIES
<S>                                                              <C>          <C>      
 Net income                                                      $  11,114    $  15,032
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Depreciation                                                     4,618        3,406
    Amortization of intangibles                                      6,096        2,931
    Restructuring charges                                            9,607           --
    Deferred income taxes                                           (3,000)        (100)
    Changes in operating  assets and  liabilities,
     net of effects from acquired business:
      Accounts receivable                                           (4,238)       3,052
      Inventories                                                   (5,240)       3,621
      Other current assets                                             299          (52)
      Accounts payable and other current liabilities                  (521)     (12,066)
     Sundry                                                          3,571       (1,226)
                                                                 ---------    ---------
      NET CASH PROVIDED BY OPERATING ACTIVITIES                     22,306       14,598

INVESTING ACTIVITIES
 Purchases of property and equipment                               (15,433)      (8,106)
 Payment for acquired business                                    (235,000)          --
 Sundry                                                              1,598       (2,597)
                                                                 ---------    ---------
      NET CASH USED BY INVESTING ACTIVITIES                       (248,835)     (10,703)

FINANCING ACTIVITIES
 Cash dividends paid                                                (5,417)      (5,230)
 Proceeds from short-term and long-term borrowings                 292,000           --
 Principal payments on short-term and
  long-term borrowings                                             (71,578)      (7,060)
Purchases of capital stock for treasury                                 --       (2,543)
Sundry                                                               1,013        1,017
                                                                 ---------    ---------
      NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES             216,018      (13,816)

                                                                 ---------    ---------
DECREASE IN CASH AND CASH EQUIVALENTS                              (10,511)      (9,921)

Cash and cash equivalents at beginning of year                      20,260       26,581
                                                                 ---------    ---------
      CASH AND CASH EQUIVALENTS AT END OF PERIOD                   $ 9,749    $  16,660
                                                                 =========    =========
</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, 1996

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, 1995.


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
                                                 1996                1995
                                              ----------         -----------

         Finished products                     $ 25,100            $ 11,065
         Raw materials                           28,594              12,584
                                               --------            --------
                                                 53,694              23,649
         Less adjustment of certain
         inventories to last in,
         first out (LIFO) basis                   7,538               8,238
                                               --------            --------

                                               $ 46,156            $ 15,411
                                               ========            ========

The Company uses the LIFO method in inventory valuation for approximately 70% 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

The  Company  has  adopted  and  commenced   implementation  of  plans  for  the
consolidation  of  manufacturing   facilities  related  to  the  April  8,  1996
acquisition of Guardsman  Products,  Inc. These plans will result in the closure
of some plants and workforce  reductions  totaling  approximately 250 employees.
Closure costs consist of facility and equipment valuation adjustments, inventory
disposal costs, dismantling and maintenance costs, and termination benefits. The
primary employee groups affected include manufacturing,  selling, administrative
and research and development  personnel.  It is anticipated  these plans will be
completed by the end of fiscal 1997.

Costs associated with the planned closure of former Lilly facilities and related
reductions  in workforce  are  reflected as  restructuring  charges  included in
second  quarter  operations.  These charges  totaled  $9,607,000,  which reduced
second quarter net income by $5,284,000 or $.23 per share. The components of the
restructuring  charges 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         $  365         $7,462
Termination benefits           1,780             25          1,755
                              ------         ------         ------
                              $9,607         $  390         $9,217
                              ======         ======         ======
                                                    
Costs  associated  with the planned closure of former  Guardsman  facilities and
related  reductions  in  workforce  are 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          $1,100          $5,432
Termination benefits               2,476             700           1,776
                                  ------          ------          ------
                                  $9,008          $1,800          $7,208
                                  ======          ======          ======
                                                  


NOTE E--ACQUISITION

Lilly  acquired  9,322,583  shares or about  96.5% of the  outstanding  stock of
Guardsman Products,  Inc.  ("Guardsman")  pursuant to a cash tender offer of $23
per share for all the outstanding  stock of Guardsman.  The tender offer expired
on April 4, 1996 and the shares  tendered were accepted for purchase on April 8,
1996.  Pursuant to a follow-up merger, all non-tendered shares of Guardsman were
converted  into the  right to  receive  $23 net per  share in cash  (subject  to
perfected  dissenters' rights, if any). To finance the purchase of shares, Lilly
obtained  commitments  for $300 million of senior secured credit  facilities and
used $275  million of these  facilities  to pay-off  existing  debt and fund the
initial  purchase  of  shares,  and to pay  related  expenses.  The  acquisition
transactions were recorded using the purchase method and consolidated  financial
statements  include the results of  operations  of  Guardsman  since the date of
acquisition. The excess of the purchase price

                                  Page 8 of 13



<PAGE>




over the fair value of assets acquired is being  amortized by the  straight-line
method over 40 years.

The following  unaudited pro forma  consolidated  results of operations  for the
nine months ended August 31, 1996 and 1995 are stated as though the  acquisition
occurred on December 1, 1994 (in thousands, except per share data):

                                          Nine Months Ended
                                    August 31,          August 31,
                                      1996                 1995
                                   -----------         -----------
Net sales                           $445,587             $434,697
Net income                            13,105*              18,990
Net income per share                    .57*                  .82
                                        
*Pro  forma   results  for  the  nine  months  ended  August  31,  1996  include
restructuring  charges of $9,607 which  reduced net income by $5,284 or $.23 per
share.

The pro forma consolidated results of operations are not necessarily  indicative
of the actual  results of  operations  that would have occurred had the purchase
been made at December 1, 1994, or of future results of operations.


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

Sales and Earnings Set Records
Both sales and earnings reached record levels for our third quarter ended August
31. Sales rose 89 percent to $150.9 million compared with $79.7 million for last
year's third quarter.  Third quarter earnings were also a record -- $7.0 million
-- 53 percent  ahead of the $4.6 million  earned in last year's  third  quarter.
Earnings per share for the comparable  third quarters were 30 cents for 1996 and
20 cents for 1995.

The sales gain is largely  the result of our  obtaining  a full three  months of
revenue  contribution  from  Guardsman  Products,  Inc.  (Guardsman),  which  we
acquired  last April,  as well as  generally  improved  sales  across our entire
product line.  The improved  earnings  reflect both better profits from our core
businesses as well as an enhanced profit contribution from Guardsman.

Cost Savings Increase
Our goal to reduce the redundant  expenses that  accompanied  our acquisition of
Guardsman  appears  well in hand.  To date we've  eliminated  $15  million on an
annualized basis -- after owning Guardsman for only five months.  Initially,  we
expected to  eliminate at least $20 million  from annual  operating  costs after
twelve to twenty-four months of combined  operations.  That $20 million goal now
seems rather conservative, and $25 million is more probable.

As part of our cost  savings  program,  we sold a resin  plant in Grand  Rapids,
Michigan  in  August.  We also  announced  plans  to  close  an  aging  coatings
manufacturing  plant in  Jamestown,  New York.  Both  closings  are  expected to
further reduce costs.





                                  Page 9 of 13



<PAGE>



These and other  cost  savings  are  expected  to more than  cover the  interest
expense on the $235 million we borrowed to acquire Guardsman. Consequently, once
the  identified  cost  savings  have  been  fully  realized,  we  expect  all of
Guardsman's  pre-tax  earnings ($15 million in calendar year 1995) to contribute
to our net income.

Powder Coatings Plant Purchased
We recently  purchased  an  ultra-modern  powder  coatings  manufacturing  plant
located at University Research Park in Charlotte,  North Carolina. This gives us
the  capacity  to  roughly  double  our sales of powder  coatings,  which is our
fastest  growing  product  line.  Our powder  coatings  plant in Kansas  City is
presently  operating  efficiently,  but at capacity,  and  therefore we needed a
second plant to sustain our momentum.

The facility  itself is as modern and up-to-date as any in the U.S. In addition,
its  superb  location  gives us  access  to many new  customers  in the East and
Southeast as well as the ability to service the entire U.S.  from two  strategic
locations.

231st Consecutive Dividend
The Board of Directors  declared its regular  quarterly  dividend of 8 cents per
share,  payable  January  2,  1997 to  shareholders  of  record  at the close of
business on December 11, 1996.  This is the 231st  consecutive  dividend paid by
Lilly Industries, Inc.

Near-term Outlook
We expect sales and  earnings to increase for the fourth  quarter of fiscal 1996
compared with the fourth quarter of fiscal 1995 because:

o        The fiscal 1996 fourth  quarter will include all of  Guardsman's  sales
         compared with none in 1995.

o        Sales have generally improved compared to levels a year ago.

o        Operating expenses, as a percent of sales, are moving lower as cost
         savings plans continue to be implemented.

Consequently,  we believe  profits for our fiscal year ended  November  30, 1996
will exceed those of last year, except for the onetime  restructuring  charge of
$9.6  million  incurred  in the second  quarter  related to the  acquisition  of
Guardsman last April.

















                                  Page 10 of 13






<PAGE>



                           PART II: OTHER INFORMATION


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


(a)     The following exhibits are included or incorporated by reference herein:

                  EXHIBIT  2Merger Agreement,  dated March 4, 1996, by and among
                           Lilly Industries,  Inc., LP Acquisition  Corporation,
                           and  Guardsman   Products,   Inc.   (incorporated  by
                           reference   to   Exhibit  2  to  Form  8-K  of  Lilly
                           Industries,  Inc. dated April 22, 1996 and filed with
                           the SEC on April 23, 1996)

                  EXHIBIT  4Credit Agreement, dated as of April 8, 1996, between
                           Lilly   Industries,   Inc.,  the  Lenders   Signatory
                           Thereto,  NBD Bank,  N.A., as Agent, and Harris Trust
                           and Savings Bank,  Comerica Bank,  Mercantile Bank of
                           St.  Louis,  and Bank  One,  Indianapolis,  N.A.,  as
                           Co-Agents  (incorporated by reference to Exhibit 4 to
                           Form 8-K of Lilly  Industries,  Inc.. dated April 22,
                           1996 and filed with the SEC on April 23, 1996)

                  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, 1996.



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


























                                  Page 11 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 15, 1996

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



                                        PRINCIPAL FINANCIAL OFFICER


October 15, 1996

                                         /s/ Kenneth L. Mills
                                        ------------------------------
                                         Kenneth L. Mills
                                         Director of Corporate Accounting








                                  Page 12 of 13