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, 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 June 30, 1998:

                   Class A Common                     22,757,000
                   Class B Common                        420,000



                                  Page 1 of 12


<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)

<TABLE>
<CAPTION>

                                                               Three Months Ended
                                                             May 31          May 31
                                                              1998            1997
                                                           ---------       ---------
<S>                                                        <C>             <C>      
Net Sales                                                  $ 159,198       $ 154,238

Costs and expenses
              Cost of products sold                           97,404          95,045
              Selling, general and administrative             37,836          36,062
              Research and development                         4,929           4,656
                                                           ---------       ---------

                                                             140,169         135,763
                                                           ---------       ---------

                           OPERATING INCOME                   19,029          18,475

Sundry income (expense)                                          (61)            (29)
Interest expense, net                                         (4,258)         (4,989)
                                                           ---------       ---------

                           INCOME BEFORE INCOME TAXES         14,710          13,457

Income Taxes                                                   5,995           6,056
                                                           ---------       ---------
                                                           ---------       ---------

                           NET INCOME                      $   8,715       $   7,401
                                                           =========       =========
                                                           =========       =========

Cash dividends per share                                   $    0.08       $    0.08

Net income per share (Note B)
              Basic                                        $    0.38       $    0.32
              Diluted                                      $    0.37       $    0.32
</TABLE>


See notes to consolidated condensed financial statements.





                                  Page 2 of 12
<PAGE>



CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

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

<TABLE>
<CAPTION>

                                                               Six Months Ended
                                                            May 31          May 31
                                                             1998            1997
                                                           ---------       ---------
<S>                                                        <C>             <C>      
Net sales                                                  $ 302,532       $ 296,398

Costs and expenses
         Cost of products sold                               187,307         185,157
         Selling, general and administrative                  72,122          70,063
         Research and development                             10,295           9,251
                                                           ---------       ---------

                                                             269,724         264,471
                                                           ---------       ---------

                           OPERATING INCOME                   32,808          31,927

Sundry income (expense)                                         (128)            121
Interest expense, net                                         (8,792)        (10,029)
                                                           ---------       ---------

                           INCOME BEFORE INCOME TAXES         23,888          22,019

Income Taxes                                               $  10,033       $   9,908
                                                           ---------       ---------

                           NET INCOME                      $  13,855       $  12,111
                                                           =========       =========

Cash dividends per share                                   $    0.16       $    0.16

Net income per share (Note B)
         Basic                                             $    0.60       $    0.53
         Diluted                                           $    0.59       $    0.52
</TABLE>



See notes to consolidated condensed financial statements.













                                  Page 3 of 12


<PAGE>



CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)




                                                       May 31        November 30
                                                        1998            1997
                                                     ---------       ---------
ASSETS

CURRENT ASSETS
  Cash and cash equivalents                          $  13,256       $  10,079
  Accounts receivable, less allowances
       for doubtful accounts (5/31/98, $2,276;
       11/30/97, $2,139)                                82,482          80,011
  Inventories (Note C)                                  48,466          45,704
  Other                                                  7,491          10,880
                                                     ---------       ---------

                           TOTAL CURRENT ASSETS        151,695         146,674

OTHER ASSETS                                            18,318          21,326

INTANGIBLE ASSETS                                      246,659         250,956

PROPERTY AND EQUIPMENT
  Land, buildings and equipment                        151,915         137,088
  Allowances for depreciation (deduction)              (58,649)        (54,249)
                                                     ---------       ---------

                                                        93,266          82,839
                                                     ---------       ---------
                                                     $ 509,938       $ 501,795
                                                     =========       =========





See notes to consolidated condensed financial statements.






                                  Page 4 of 12
<PAGE>

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)

<TABLE>
<CAPTION>

                                                            May 31         November 30
                                                             1998             1997
                                                           ---------       ---------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
<S>                                                        <C>             <C>      
 Accounts Payable                                          $  57,934       $  60,510
 Other                                                        33,487          34,038
                                                           ---------       ---------


                            TOTAL CURRENT LIABILITIES         91,421          94,548


LONG-TERM DEBT                                               220,933         224,171

OTHER LIABILITIES                                             44,905          40,637

SHAREHOLDERS' EQUITY Capital stock:
  Class A (limited voting)                                    15,410          15,375
  Class B (voting)                                               300             300
 Additional capital                                           80,824          79,417
 Retained earnings                                            93,900          83,745
 Currency translation adjustments                             (3,257)         (2,254)
 Cost of capital stock in treasury
  (deduction)                                                (34,498)        (34,144)
                                                           ---------       ---------

                                                             152,679         142,439
                                                           ---------       ---------

                                                           $ 509,938       $ 501,795
                                                           =========       =========
</TABLE>




See notes to consolidated condensed financial statements.










                                  Page 5 of 12

<PAGE>


CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>

                                                                  Three Months Ended
                                                                 May 31         May 31
                                                                  1998           1997
                                                                --------       --------
OPERATING ACTIVITIES
<S>                                                             <C>            <C>     
 Net income                                                     $ 13,855       $ 12,111
 Adjustments to reconcile net income to net
   cash provided by operating activities:
 Depreciation                                                      4,855          4,449
 Amortization of intangibles                                       5,092          5,881
 Deferred income taxes                                                 0          1,610
 Changes in  operating  assets  and  liabilities
   net of effects  from  acquired
   business:
     Accounts receivable                                            (865)         2,568
     Inventories                                                    (244)        (1,135)
     Accounts payable and accrued expenses                        (4,555)        (8,324)
     Sundry                                                        2,924            (74)
                                                                --------       --------

NET CASH PROVIDED BY OPERATING ACTIVITIES                         21,062         17,086

INVESTING ACTIVITIES
 Purchases of property and equipment                              (5,288)        (6,202)
 Payment for acquired business                                   (11,253)             0
 Sundry                                                            4,468          4,908
                                                                --------       --------

NET CASH USED BY INVESTING ACTIVITIES                            (12,073)        (1,294)

FINANCING ACTIVITIES
 Dividends paid                                                   (3,700)        (3,649)
 Proceeds from short-term and long-term borrowings                11,000              0
 Principal payments on short-term and long-term borrowings       (14,200)       (10,780)
 Sundry                                                            1,088          1,168
                                                                --------       --------

NET CASH USED BY FINANCING ACTIVITIES                             (5,812)       (13,261)
                                                                --------       --------

INCREASE IN CASH AND CASH EQUIVALENTS                              3,177          2,531

Cash and cash equivalents at beginning of year                    10,079          6,790
                                                                --------       --------


CASH AND CASH EQUIVALENTS AT END OF PERIOD                      $ 13,256       $  9,321
                                                                ========       ========
</TABLE>


See notes to consolidated condensed financial statements.









                                  Page 6 of 12


<PAGE>

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

LILLY INDUSTRIES, INC. AND SUBSIDIARIES

MAY 31, 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" during the first quarter of fiscal year 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):
<TABLE>
<CAPTION>


                                                                 Three Months Ended                  Six Months Ended
                                                               May 31          May 31             May 31          May 31
                                                                1998            1997               1998            1997
                                                             -----------     -----------        -----------     -----------
<S>                                                            <C>             <C>                <C>             <C>   
Basic
       Weighted-average common shares          
             outstanding                                       23,138          22,865             23,127          22,800
                                                             ========        ========           ========        ========
Diluted
       Weighted-average common shares
             outstanding                                       23,138          22,865            23,127          22,800
                                                              
       Dilutive effect of stock options                           265             535               261             600
                                                            ---------       ---------          --------        --------
       Average common shares outstanding
             assuming dilution                                 23,403          23,400            23,388          23,400
                                                             ========        ========          ========        ========
</TABLE>





                                  Page 7 of 12



<PAGE>

NOTE C--INVENTORIES

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

                                   May 31    November 30
                                    1998         1997

Finished products                 $27,527      $26,361
Raw materials                      28,215       27,019
                                  -------      -------

                                   55,742       53,380
Less adjustment of certain
     inventories to last in,
     first out (LIFO) basis         7,276        7,676
                                  -------      -------

                                  $48,466      $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 8 of 12
<PAGE>



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




         Sales,  net income  and net  income  per share were the  highest of any
         quarter in the Company's  history.  Sales for the quarter ended May 31,
         1998 were at an all-time  record  $159.2  million  compared with $154.2
         million for the same quarter last year.  Net income for the 1998 second
         quarter was also an all-time  record at $8.7 million,  up 18% over last
         year's second  quarter net income of $7.4  million.  Diluted net income
         per share of 37 cents was up 16% from the second quarter of last year.

         Lilly's sales for the six months ended May 31, 1998 were $302.5 million
         compared to $296.4  million  for the same period last year.  Net income
         for the first half of fiscal  1998 was $13.9  million,  or 59 cents per
         share on a diluted  basis,  an increase of 15% over net income of $12.1
         million, or 52 cents per share, for the same period a year ago.

         Sales for the second  quarter  and first half  increased  modestly,  as
         sales of our recent German  acquisition  were  substantially  offset by
         unfavorable foreign currency translations and divestiture of our retail
         paint  business.  Improved  earnings for 1998 have  resulted from sales
         gains,  lower  interest  expense,  and a  reduction  in  the  Company's
         effective  income tax rate.  Lower  interest is due mainly to a reduced
         debt level,  $30 million  lower than a year ago.  Our annual  effective
         income tax rate has  improved  to 42  percent  from  implementation  of
         international and other tax strategies.

         We will continue to focus upon profitable  growth  initiatives and cost
         control.  We  expect to show  continued  improvement  in our  financial
         performance during the remainder of fiscal 1998.

         The Board of  Directors  declared a  quarterly  cash  dividend of eight
         cents per common share,  payable  October 1, 1998, to  shareholders  of
         record at the close of business on September  10, 1998.  This marks the
         Company's 238th consecutive quarterly dividend.

         Statements  in this  release that are not  strictly  historical  may be
         "forward-looking"  statements,  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, 1997.













                                  Page 9 of 12

<PAGE>



                           PART II: OTHER INFORMATION



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

At the Annual Meeting of  Shareholders  of Lilly  Industries,  Inc. on April 23,
1998, the following directors were elected by the votes indicated:

                                      Stock                          Votes
        Director                      Class        Votes For         Withheld
        --------------------          -----        ----------        --------
        James M. Cornelius              A          20,163,813        146,349
        John D. Peterson                A          20,161,245        148,917
        Thomas E. Reilly, Jr.           A          20,155,814        154,348
        Van P. Smith                    A          20,153,510        156,652
        William C. Dorris               B             422,687              0
        Paul K. Gaston                  B             422,687              0
        Douglas W. Huemme               B             422,687              0
        Harry Morrison, Ph.D.           B             422,687              0
        Norma J. Oman                   B             422,687              0
        Robert A. Taylor                B             422,687              0
                                            
Shareholders  of record on February 17, 1998 were  entitled to notice of, and to
vote at, the Annual Meeting of Shareholders.  On that date 22,702,280  shares of
the Company's  Class A Stock and 422,687  shares of the Company's  Class B Stock
were  outstanding,  each share (except the 8,606 shares of Class A Stock held by
the Employees Stock Purchase Plan) being entitled to one vote.




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


(a)       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 May 31, 1998.


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












                                  Page 10 of 12


<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, 1998


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



                                       PRINCIPAL FINANCIAL OFFICER


July 14, 1998


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










                                  Page 11 of 12