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, 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 March 31, 1997:

                     Class A Common                   22,507,000
                     Class B Common                      353,000



                                  Page 1 of 13



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                          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 29
                                                        1997           1996
                                                   --------------------------

Net sales                                             $ 142,160    $  73,271

Costs and expenses:
 Cost of products sold                                   90,112       49,210
 Selling, administrative and general                     34,001       14,869
 Research and development                                 4,595        3,172
                                                      ---------    ---------

                                                        128,708       67,251
                                                      ---------    ---------

                         OPERATING INCOME                13,452        6,020

Other income (expense):
 Interest income and sundry                                 150          166
 Interest expense                                        (5,040)        (471)
                                                      ---------    ---------

                                                         (4,890)        (305)
                                                      ---------    ---------

                         INCOME BEFORE INCOME TAXES       8,562        5,715

Income Taxes                                              3,852        2,229
                                                      ---------    ---------

                         NET INCOME                   $   4,710    $   3,486
                                                      =========    =========

Cash dividends per share--Note B                      $    0.08    $    0.08
                                                      =========    =========
Average number of shares and equivalent shares
 of capital stock outstanding--Note B                    23,300       22,900
                                                      =========    =========

Net income per share--Note B                          $    0.20    $    0.15
                                                      =========    =========


See notes to consolidated condensed financial statements.




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<PAGE>



CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)


                                                        February 28  November 30
                                                           1997         1996
                                                        ------------------------

ASSETS

CURRENT ASSETS
 Cash and cash equivalents                               $  4,372      $  6,790
 Accounts receivable, less allowances
  for doubtful accounts (2/28/97, $2,844;
  11/30/96, $2,706)                                        86,751        84,592
 Inventories--Note C                                       48,382        47,546
 Other                                                     11,820        19,790
                                                         --------      --------

                            TOTAL CURRENT ASSETS          151,325       158,718


OTHER ASSETS                                               26,083        23,749

INTANGIBLE ASSETS                                         255,973       258,811

PROPERTY AND EQUIPMENT
 Land, buildings and equipment                            129,201       127,538
 Allowances for depreciation (deduction)                  (48,857)      (46,956)
                                                         --------      --------
                                                           80,344        80,582
                                                         --------      --------

                                                         $513,725      $521,860
                                                         ========      ========









See notes to consolidated condensed financial statements.







                                  Page 3 of 13



<PAGE>



CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)


                                                        February 28  November 30
                                                            1997        1996
                                                        ------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
 Accounts Payable                                        $  56,718    $  56,593
 Other                                                      28,734       35,022
 Current portion of long-term debt                          16,675       16,524
                                                         ---------    ---------

                            TOTAL CURRENT LIABILITIES      102,127      108,139


LONG-TERM DEBT                                             239,886      245,037

OTHER LIABILITIES                                           46,077       46,795

SHAREHOLDERS' EQUITY Capital stock:
  Class A (limited voting)                                  15,150       15,103
  Class B (voting)                                             300          300
 Additional capital                                         76,200       75,433
 Retained earnings                                          65,881       62,990
 Currency translation adjustments                              284           88
 Cost of capital stock in treasury
  (deduction)                                              (32,180)     (32,025)
                                                         ---------    ---------
                                                           125,635      121,889
                                                         ---------    ---------
                                                         $ 513,725    $ 521,860
                                                         =========    =========











See notes to consolidated condensed financial statements.





                                  Page 4 of 13



<PAGE>



CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)

                                                           Three Months Ended
                                                        February 28  February 29
                                                             1997        1996
                                                        ------------------------
OPERATING ACTIVITIES:
 Net income                                              $  4,710      $  3,486
  Adjustments to reconcile net income to net                         
   cash provided by operating activities:                            
    Depreciation                                            2,211         1,195
    Amortization of intangibles                             2,906           900
    Changes in operating assets and liabilities:                     
      Accounts receivable                                  (2,159)         (291)
      Inventories                                            (836)       (5,098)
      Accounts payable and accrued expenses                (6,163)       (1,310)
     Sundry                                                 3,077        (1,031)
                                                         --------      --------
      NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES      3,746        (2,149)
                                                                     
INVESTING ACTIVITIES:                                                
 Purchases of property and equipment                       (3,556)       (3,315)
 Sundry                                                     3,551            32
                                                         --------      --------
      NET CASH USED BY INVESTING ACTIVITIES                    (5)       (3,283)
                                                                     
FINANCING ACTIVITIES:                                                
 Cash dividends paid                                       (1,819)       (1,800)
 Principal payments on long-term debt                      (3,625)       (7,000)
 Net payments on revolving note                            (1,375)            0
 Sundry                                                       660           479
                                                         --------      --------
      NET CASH USED BY FINANCING ACTIVITIES                (6,159)       (8,321)
                                                                     
                                                         --------      --------
      DECREASE IN CASH AND CASH EQUIVALENTS                (2,418)      (13,753)
                                                                     
Cash and cash equivalents at beginning of year              6,790        20,260
                                                         --------      --------
      CASH AND CASH EQUIVALENTS AT END OF PERIOD         $  4,372      $  6,507
                                                         ========      ========
                                                                   













See notes to consolidated condensed financial statements.


                                  Page 5 of 13



<PAGE>



NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES

FEBRUARY 28, 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):

                                              February 28    November 30
                                                 1997            1996
                                              ----------     ------------

         Finished products                     $ 26,235       $ 25,847
         Raw materials                           29,823         29,375
                                               --------       --------
                                                 56,058         55,222
         Less adjustment of certain
         inventories to last in,
         first out (LIFO) basis                   7,676          7,676
                                               --------       --------

                                               $ 48,382       $ 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.





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<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 fiscal 1997.

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        $      365       $ 7,462
Termination benefits                1,780               574         1,206
                                  ----------     -----------      -------
                                  $ 9,607        $      939       $ 8,668
                                  ==========     ===========      =======

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          $ 1,889         $ 4,643
Termination benefits                    2,476              878           1,598
                                      ----------       -------         -------
                                      $ 9,008          $ 2,767         $ 6,241
                                      ==========       =======         =======



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. The fair value
of net assets  acquired  include  $40,031,000 net working  capital,  $50,246,000
noncurrent assets,  $213,642,000 intangible assets,  $28,549,000 long-term debt,
and  $40,370,000  noncurrent  liabilities.  Goodwill is being  amortized  by the
straight-line method over 40 years.










                                  Page 7 of 13



<PAGE>



The following  unaudited pro forma  consolidated  results of operations  for the
three months ended  February 28, 1997 and February 29, 1996 are stated as though
the  acquisition  occurred on December 1, 1995 (in  thousands,  except per share
data):

                                                  Three Months Ended
                                               February 28,     February 29,
                                                   1997             1996
                                               --------------------

                  Net sales                       $142,160       $141,398
                  Net income                         4,710          3,569
                  Net income per share                 .20            .16


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, 1995, or of future results of operations.


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

Record Sales and Earnings

Our sales and earnings set new records for  performance for any first quarter in
our history.  Sales for the first quarter ended February 28 rose 94% to a record
$142.2 million  compared with $73.3 million for the same quarter a year earlier.
Earnings increased to a first quarter record of $4.7 million, 35% above the $3.5
million  recorded for the 1996 first  quarter.  Earnings per share were 20 cents
for 1997 compared with 15 cents for 1996. The  improvement in sales and earnings
reflected the contribution  realized from Guardsman Products,  Inc. (Guardsman),
which Lilly  acquired  last April,  and  improved  operations  from Lilly's core
businesses.

Our first quarter  results were on target with our  projections.  Traditionally,
our first quarter  revenues are lower than other quarters due to the seasonality
of our customers' volume  requirements.  Thus, we were pleased with our increase
in sales, which included contributions from the business acquired from Guardsman
and improved sales of wood and metal coatings.

Earnings held up reasonably well,  particularly in the face of the onetime costs
we are incurring at new manufacturing  facilities.  These costs include start-up
expenses  associated  with  three  new  facilities  located  at  Bowling  Green,
Kentucky;  Charlotte, North Carolina; and Ballinamore,  Ireland.  Investments in
new facilities are needed to satisfy customer requirements in 1998 and beyond.

On balance,  this year's first quarter is a continuation of the progress we made
during  the last  three  quarters  of  fiscal  1996.  We've  moved  through  the
acquisition of Guardsman in an accretive manner,  and we are continuing with our
plan to consolidate certain plants to improve  manufacturing  efficiencies.  One
such  consolidation is the recently announced movement of all manufacturing from
our South Gate, California facility to our Montebello, California site.







                                  Page 8 of 13



<PAGE>



The  consolidation  of these two plants will improve raw  material  procurement,
inventory management, manufacturing and customer service on the west coast.

New Chief Operating Officer

On February 24, 1997,  Robert A. Taylor was appointed  Executive  Vice President
and Chief Operating  Officer of the Company.  For the past 25 years,  Bob Taylor
has held various domestic and international  technical and management  positions
within  the  industrial  coatings  industry.  Most  recently,  he was  the  Vice
President and General Manager of our global wood coatings business unit.

Technology Exchange Agreement

On February 20, 1997,  Lilly reached an agreement  with the Sigma Coatings Group
("Sigma"),  a  subsidiary  of  PetroFina,  to enter into a  technology  exchange
agreement between our respective coil coatings  business units.  Sigma is one of
Europe's leading suppliers of chemical coatings.

This   agreement   will  provide  both   companies  with  access  to  additional
technologies to better serve market and customer requirements. Our combined coil
research  and  development  programs  will be  synergized  by the support of the
largest  team  of  highly  qualified  scientists  cooperating  together  on coil
coatings projects.

233rd Consecutive Cash Dividend

The Board of Directors declared the 233rd consecutive quarterly cash dividend on
March 21, 1997.  The eight cent per share  dividend will be paid on July 1, 1997
to shareholders of record on June 10, 1997.












                                  Page 9 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 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 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)

April 14, 1997

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



                                            PRINCIPAL FINANCIAL OFFICER


April 14, 1997
                                            /s/ Kenneth L. Mills
                                            ------------------------------------
                                            Kenneth L. Mills
                                            Corporate Accounting Director















                                  Page 11 of 13