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 February 28, 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 March 31, 1998:

                            Class A Common 22,714,000
                             Class B Common 418,000


                                  Page 1 of 11


<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
                                                 February 28   February 28
                                                    1998           1997
                                                 -------------------------
Net sales                                        $ 143,334      $ 142,160

Costs and expenses
         Cost of products sold                      89,903         90,112
         Selling, general and administrative        34,286         34,001
         Research and development                    5,366          4,595
                                                 ---------      ---------

                                                   129,555        128,708
                                                 ---------      ---------

OPERATING INCOME                                    13,779         13,452

Sundry income (expense)                                (67)           150
Interest expense, net                               (4,534)        (5,040)
                                                 ---------      ---------


INCOME BEFORE INCOME TAXES                           9,178          8,562

Income Taxes                                         4,038          3,852
                                                 ---------      ---------

NET INCOME                                       $   5,140      $   4,710
                                                 =========      =========

Cash dividends per share                         $    0.08      $    0.08

Net income per share (Note B)
         Basic                                   $    0.22      $    0.21
         Diluted                                 $    0.22      $    0.20



See notes to consolidated condensed financial statements.





                                  Page 2 of 11


<PAGE>



CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

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


                                             February 28    November 30
                                                 1998           1997
                                             --------------------------
ASSETS

CURRENT ASSETS
 Cash and cash equivalents                   $  12,617      $  10,079
 Accounts receivable, less allowances
  for doubtful accounts (2/28/98, $2,355;
  11/30/97, $2,139                              80,862         80,011
 Inventories (Note C)                           47,157         45,704
 Other                                           6,869         10,880
                                             ---------      ---------

TOTAL CURRENT ASSETS                           147,505        146,674


OTHER ASSETS                                    20,111         21,326

INTANGIBLE ASSETS                              249,548        250,956

PROPERTY AND EQUIPMENT
 Land, buildings and equipment                 149,373        137,088
 Allowances for depreciation (deduction)       (56,540)       (54,249)
                                             ---------      ---------
                                                92,833         82,839
                                             ---------      ---------

                                             $ 509,997      $ 501,795
                                             =========      =========








See notes to consolidated condensed financial statements.







                                  Page 3 of 11


<PAGE>



CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)


                                         February 28   November 30
                                            1998          1997
                                        ---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
 Accounts Payable                        $  59,025      $  60,510
 Other                                      25,447         34,038
                                         ---------      ---------

TOTAL CURRENT LIABILITIES                   84,472         94,548


LONG-TERM DEBT                             234,000        224,171

OTHER LIABILITIES                           45,516         40,637

SHAREHOLDERS' EQUITY Capital stock:
  Class A (limited voting)                  15,390         15,375
  Class B (voting)                             300            300
 Additional capital                         80,414         79,417
 Retained earnings                          87,035         83,745
 Currency translation adjustments           (2,763)        (2,254)
 Cost of capital stock in treasury
  (deduction)                              (34,367)       (34,144)
                                         ---------      ---------
                                           146,009        142,439
                                         ---------      ---------
                                         $ 509,997      $ 501,795
                                         =========      =========











See notes to consolidated condensed financial statements.










                                  Page 4 of 11


<PAGE>




CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)

<TABLE>
<CAPTION>

                                                                  Three Months Ended
                                                              February 28   February 28
                                                                 1998          1997
                                                              -------------------------
OPERATING ACTIVITIES
<S>                                                            <C>           <C>     
 Net income                                                    $  5,140      $  4,710
 Adjustments to reconcile net income to net
   cash provided by operating activities:
    Depreciation                                                  2,460         2,211
    Amortization of intangibles                                   2,546         2,906
    Changes in operating assets and liabilities net
      of effects from acquired business:
       Accounts receivable                                          755        (2,159)
       Inventories                                                1,065          (836)
       Accounts payable and accrued expenses                    (11,504)       (6,163)
       Sundry                                                     4,852         3,077
                                                               --------      --------
      NET CASH PROVIDED BY OPERATING ACTIVITIES                   5,314         3,746

INVESTING ACTIVITIES
 Purchases of property and equipment                             (2,455)       (3,556)
 Payment for acquired business                                  (11,253)            0
 Sundry                                                           2,164         3,551
                                                               --------      --------
      NET CASH USED BY INVESTING ACTIVITIES                     (11,544)           (5)

FINANCING ACTIVITIES
 Dividends paid                                                  (1,850)       (1,819)
 Proceeds from short-term and long-term borrowings               11,000             0
 Principal payments on short-term and long-term borrowings       (1,171)       (5,000)
 Sundry                                                             789           660
                                                               --------      --------
      NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES            8,768        (6,159)
                                                               --------      --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  2,538        (2,418)

Cash and cash equivalents at beginning of year                   10,079         6,790
                                                               --------      --------
      CASH AND CASH EQUIVALENTS AT END OF PERIOD               $ 12,617      $  4,372
                                                               ========      ========
</TABLE>




See notes to consolidated condensed financial statements.





                                  Page 5 of 11

<PAGE>



NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES

FEBRUARY 28, 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" for the first quarter  ended  February 28, 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):

                                           Three Months Ended
                                       February 28    February 28
                                          1998            1997
                                       --------------------------
Basic                                                 
  Weighted-average common shares                      
          outstanding                    23,116          22,750
                                         ======          ======

Diluted                                               
  Weighted-average common shares                      
          outstanding                    23,116          22,750
  Dilutive effect of stock options          258             550
                                         ------          ------
  Average common shares outstanding                   
     assuming dilution                   23,374          23,300
                                         ======          ======
                                                  






                                  Page 6 of 11



<PAGE>

NOTE C--INVENTORIES

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

                                      February 28    November 30
                                         1998           1997
                                      --------------------------
Finished products                       $27,079        $26,361
Raw materials                            27,754         27,019
                                        -------        -------
                                         54,833         53,380
Less adjustment of certain                          
         inventories to last in,                    
         first out (LIFO) basis           7,676          7,676
                                        -------        -------
                                                    
                                        $47,157        $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 7 of 11
<PAGE>

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


Sales and net  income per share  were the  highest  of any first  quarter in the
Company's  history.  Sales for the quarter ended February 28, 1998 were a record
$143.3 million  compared with $142.2 million for the same quarter last year. The
Company's base revenue was up slightly as sales from the German acquisition were
offset by unfavorable  foreign  currency  translation  and the divestment of the
retail paint business.

Diluted  net  income  per share was 22 cents for the 1998  first  quarter,  a 10
percent increase from last year's 20 cents.  Basic net income per share was also
22 cents.  This result was achieved despite a $771,000  increase in Research and
Development  expense.  The  increase  in  R&D  is  attributable  to  the  German
acquisition, continued emphasis on new and improved products, and the pursuit of
new markets.

Interest  expense was down $506,000 for the quarter,  reflecting  lower interest
rates and debt  levels.  Total debt of $234  million is down $22.6  million from
February,  1997. The effective tax rate is 44%, down from 45% last year. Foreign
tax planning initiatives are the primary reason for the improvement.

Historically,  the first  quarter is the lowest  volume  quarter  due in part to
holiday  shutdowns.  With recent  marketplace  initiatives  and  continued  cost
controls, 1998 should be another successful year.

The Board of  Directors  declared a quarterly  cash  dividend of eight cents per
common share,  payable July 1, 1998, to  shareholders  of record at the close of
business on June 10, 1998. This marks the Company's 237th consecutive  quarterly
dividend.












                                  Page 8 of 11

<PAGE>


PART II:  OTHER INFORMATION



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


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 February 28, 1998.


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











                                  Page 9 of 11
<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)
                                           
                                           April 14, 1998
                                           

                                           /s/ Douglas W. Huemme   
                                           --------------------------------
                                           Douglas W. Huemme
                                           Chairman, President and
                                           Chief Executive Officer
                                           
                                           
                                           
                                           PRINCIPAL FINANCIAL OFFICER
                                           
                                           
                                           April 14, 1998
                                           
                                           
                                           /s/ John C. Elbin
                                           --------------------------------
                                           John C. Elbin
                                           Vice President,
                                           Chief Financial Officer
                                           and Secretary














                                 Page 10 of 11