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, 1999

                          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, 1999:

            Class A Common                               22,771,000
            Class B Common                                  436,000


                                  Page 1 of 13
<PAGE>




                          PART I. FINANCIAL INFORMATION


Item 1.  Financial Statements.

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

                                                                       Three Months Ended
                                                                 February 28        February 28
                                                                    1999               1998

                                                               ---------------    ----------------
<S>                                                            <C>                <C>            
Net sales                                                      $       146,139    $       143,334

Costs and expenses
              Cost of products sold                                     90,083             89,903
              Selling, general and administrative                       37,093             34,286
              Research and development                                   5,159              5,366
                                                               ---------------    ----------------

                                                                       132,335            129,555
                                                               ---------------    ----------------

                           OPERATING INCOME                             13,804             13,779

Sundry expense                                                             239                139
Interest expense, net                                                    4,101              4,462
                                                               ---------------    ----------------

                           INCOME BEFORE INCOME TAXES                    9,464              9,178

Income taxes                                                             3,880              4,038
                                                               ---------------    ----------------

                           NET INCOME                          $         5,584    $         5,140
                                                               ===============    ================

Cash dividends per share                                       $           .08    $           .08

Net income per share
              Basic                                            $          0.24    $          0.22
              Diluted                                          $          0.24    $          0.22


</TABLE>
See notes to consolidated condensed financial statements.


                                  Page 2 of 13
<PAGE>



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

<CAPTION>

                                                                        February 28              November 30
                                                                            1999                    1998
                                                                     -------------------      ------------------
<S>                                                                  <C>                      <C>           
ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                          $           10,054       $          13,326
  Accounts receivable, less allowances
       for doubtful accounts (2/28/99, $2,143;
       11/30/98, $1,981)                                                         86,728                  82,039
  Inventories                                                                    54,021                  50,796
  Other                                                                           6,353                   5,871
                                                                     -------------------      ------------------

                           TOTAL CURRENT ASSETS                                 157,156                 152,032

OTHER ASSETS                                                                     25,589                  21,257

INTANGIBLE ASSETS                                                               240,199                 241,028

PROPERTY AND EQUIPMENT
  Land, buildings and equipment                                                 168,438                 162,357
  Accumulated depreciation                                                      (61,835)                (60,189)
                                                                     --------------------     ------------------
                                                                                106,603                 102,168

                                                                     $          529,547       $         516,485
                                                                     ===================      ==================

</TABLE>

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
                                                    1999           1998
                                                  ---------      ---------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable                               $  64,812      $  66,156
   Other                                             27,940         35,805
                                                  ---------      ---------

                    TOTAL CURRENT LIABILITIES        92,752        101,961

LONG-TERM DEBT                                      225,500        203,700

OTHER LIABILITIES                                    41,438         45,249

SHAREHOLDERS' EQUITY Capital stock:
     Class A (limited voting)                        15,501         15,459
     Class B (voting)                                   300            300
   Additional capital                                82,999         81,890
   Retained earnings                                111,641        107,914
   Accumulated other comprehensive income            (3,881)        (4,096)
   Cost of capital stock in treasury                (36,703)       (35,892)
                                                  ---------      ---------

                                                    169,857        165,575
                                                  ---------      ---------

                                                  $ 529,547      $ 516,485
                                                  =========      =========


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 28
                                                          1999          1998
                                                        --------      --------

OPERATING ACTIVITIES
Net income                                              $  5,584      $  5,140
Adjustments to reconcile net income to net
      cash provided by operating activities:
  Depreciation                                             2,632         2,460
  Amortization of intangibles                              2,686         2,546
  Changes in operating  assets and  liabilities net
      of effects from acquired business:
         Accounts receivable                              (4,521)          755
         Inventories                                      (3,201)        1,065
         Accounts payable and accrued expenses            (9,284)      (11,504)
         Sundry                                           (8,354)        4,852
                                                        --------      --------

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES         (14,458)        5,314

INVESTING ACTIVITIES
  Purchases of property and equipment                     (6,843)       (2,455)
  Payments for acquired businesses                        (2,721)      (11,253)
  Sundry                                                     468         2,164
                                                        --------      --------

NET CASH USED BY INVESTING ACTIVITIES                     (9,096)      (11,544)

FINANCING ACTIVITIES
  Dividends paid                                          (1,857)       (1,850)
  Proceeds from borrowings                                21,800        11,000
  Principal payments on borrowings                             0        (1,171)
  Sundry                                                     339           789
                                                        --------      --------

NET CASH PROVIDED BY FINANCING ACTIVITIES                 20,282         8,768

                                                        --------      --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS          (3,272)        2,538

Cash and cash equivalents at beginning of year            13,326        10,079
                                                        --------      --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD              $ 10,054      $ 12,617
                                                        ========      ========


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, 1999

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, 1998.


NOTE B--NET INCOME PER SHARE

Basic and  diluted net income per share are  computed by dividing  net income as
reported by the average number of shares outstanding as follows (in thousands):



                                                     Three Months Ended
                                                         February 28
                                                       1999       1998
                                                      ------     ------
         Basic
                Weighted-average common shares
                   outstanding                        23,180     23,116
                                                      ======     ======
         
         Diluted
                Weighted-average common shares
                   outstanding                        23,180     23,116
                Dilutive effect of stock options         150        258
                                                      ------     ------
                Average common shares outstanding
                   assuming dilution
                                                      23,330     23,374
                                                      ======     ======



                                  Page 6 of 13
<PAGE>



NOTE C--INVENTORIES
================================================================================

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



                                     February 28      November 30
                                        1999             1998
                                      -------          -------
                                                     
Finished products                     $31,226          $29,761
Raw materials                          28,671           27,411
                                      -------          -------
                                                     
                                       59,897           57,172
                                                     
Less adjustment of certain                           
     inventories to last in,                         
     first out (LIFO) basis             5,876            6,376
                                      -------          -------
                                                     
                                      $54,021          $50,796
                                      =======          =======
                                           


The Company uses the LIFO method in inventory valuation for approximately 64% 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.


NOTE D---ACCOUNTING CHANGES

The Company adopted Statement of Financial  Accounting Standards (SFAS) No. 130,
"Reporting  Comprehensive  Income" during the first quarter of fiscal year 1999.
SFAS 130  establishes  new rules for the reporting and display of  comprehensive
income and its components.  SFAS 130 requires the Company to report, in addition
to net income,  other  components of  comprehensive  income,  including  foreign
currency  translation  adjustments.  During the first  quarter of 1999 and 1998,
total comprehensive income was $5,799,000 and $4,631,000, respectively. Adoption
of this disclosure  standard had no effect on the Company's operating results or
financial position.

Effective  December 1, 1998,  the  Company  adopted the  American  Institute  of
Certified  Public  Accountants'   (AICPA)  Statement  of  Position  (SOP)  98-1,
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal Use". The statement  requires  capitalization of certain costs incurred
in the development of internal-use software,  including external direct material
and service costs,  employee payroll and payroll-related  costs, and capitalized
interest.  Prior to adoption of SOP 98-1,  the Company  expensed  these costs as
incurred.  The effect of the adoption of this statement on consolidated earnings
during the current period is immaterial.



                                  Page 7 of 13
<PAGE>



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

Results of Operations - Three Months Ended February 28, 1999

Net sales for the first  quarter of 1999  increased  2% over the same  period in
1998.  The increase was due to strong growth in powder  coatings,  wood coatings
and  composites.  Sales of powder  coatings  increased  by a double  digit  rate
reflecting  continued  market share growth.  Wood coatings  sales  increased due
primarily to a strong North American  housing  market and continued  penetration
into the  Asia/Pacific  region.  Composite  sales  increased  from  1998  levels
reflecting  improved demand from  transportation  and housing markets.  Sales of
glass  coatings  were down from prior year levels due to  increased  competitive
activity in North America and Europe.  Liquid metal sales also declined with the
largest  component of the decrease  relating to the softness in the agricultural
and construction equipment markets.

Gross profit for the first quarter of 1999 increased 4.9% over the same period a
year ago,  representing  38.4% and 37.3% of sales,  respectively.  Gross  profit
growth reflects the impact of Lilly's  continuing  efforts to lower raw material
costs through supply chain management.

Selling,  general and  administrative  expenses during the first quarter of 1999
increased  8.2% over the same  period in 1998,  due to  investments  in selling,
marketing and infrastructure enhancements directed toward global expansion.

Operating income for the first quarter of 1999 increased  slightly over the same
period a year ago, as SG&A increases offset sales and gross profit gains.

Interest expense during the first quarter of 1999 decreased 8.1% compared to the
first  quarter  of 1998,  due to lower  average  interest  rates and lower  debt
levels.

Net income and net income per share for the first quarter of 1999 increased 8.6%
and 9%,  respectively,  over the same period of 1998,  due to increased  pre-tax
earnings and a lower effective tax rate. The effective tax rate decreased to 41%
in 1999  from  44%  during  the  first  quarter  of 1998,  primarily  due to the
implementation of international tax planning strategies.

Liquidity and Capital Resources

Cash used by operating  activities for the first quarter of 1999 increased $19.7
million  over the first  quarter of 1998,  primarily  due to  increased  working
capital, decreased non-current liabilities and increased non-current assets.

Cash used by investing  activities  for the first  quarter of 1999 declined $2.5
million  compared  to the same  period a year ago,  primarily  due to  decreased
payments for acquired businesses offset by increased capital expenditures.

Cash provided by financing activities during the first quarter of 1999 increased
$11.5  million  over the same period a year ago as the Company  utilized  credit
facilities to fund a portion of first quarter 1999  operating and investing cash
flows.

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

The Board of Directors  declared a regular quarterly dividend of eight cents per
common share, payable July 1, 1999, to shareholders of record on June 10, 1999.



                                  Page 8 of 13
<PAGE>



Year 2000

The Year 2000 issue  ("Y2K" or "Y2K  issue") is the result of computer  programs
being written using two digits rather than four to define the  applicable  year.
Any  computer  programs or any  hardware  that have date  sensitive  software or
embedded  chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a temporary inability to process transactions or
engage in normal manufacturing or other business activities.

The  Company  is  actively  engaged  in a  company-wide  effort to  achieve  Y2K
readiness for both information technology ("IT") and non-information  technology
("Non-IT") systems, and to determine the Y2K readiness of significant suppliers.
The Company is focusing its efforts on IT systems,  Non-IT systems and suppliers
that,  without  Y2K  readiness,  could  have a  material  adverse  effect on the
Company's operations.

The Company's approach to addressing Y2K preparedness consists of the following:

     o    Inventory - identification of items to be assessed for Y2K readiness.

     o    Assessment - prioritizing the inventoried  items,  assessing their Y2K
          readiness and defining  corrective actions and developing  contingency
          plans.

     o    Deployment - implementing corrective actions, verifying implementation
          and finalizing contingency plans.

The  Company's  IT systems  are  comprised  of  business  computer  systems  and
technical  infrastructure.  In 1996, the Company  determined that the IT systems
supporting its business units could be inadequate to meet business  requirements
after 1999 and thus  implemented  a project to replace all  critical IT systems.
All critical IT systems have been  inventoried and assessed,  and replacement of
non-conforming IT systems began during the fourth quarter of 1998. Deployment of
all critical IT systems is expected to be completed  during the third quarter of
1999.

The Company's  Non-IT  systems are comprised of  manufacturing  and  warehousing
systems and facility support systems. A preliminary  inventory and assessment of
these Non-IT  systems has been  completed and deployment of these Non-IT systems
is expected to be completed during the third quarter of 1999.

The Company is in the process of contacting significant raw material and service
suppliers  regarding  their Y2K  readiness.  The  Company's  supplier  readiness
program focuses on those suppliers  considered essential for the prevention of a
material disruption to the Company's business  operation.  The Company will make
efforts to address  third-party Y2K compliance  issues noted from the inquiries.
However,  there  can  be no  assurance  that  such  third-parties  will  be  Y2K
compliant.  Non-compliance by third parties could have a material adverse impact
on the  Company's  financial  position and business  operations.  The program is
expected to be completed during the third quarter of 1999.

The Company  utilizes both internal and external  resources in all phases of its
Y2K readiness program. The Company estimates the total cost of resolving the Y2K
issue to be approximately $5 million. Of this amount, the Company estimates $1.5
million  will be spent during the  remainder of fiscal year 1999.  Approximately
70% of total Y2K cost is comprised of equipment and software  replacement  costs
with the balance  being  comprised of  assessment  and  remediation  costs.  The
Company  expects all costs to be funded with  operating cash flow. Y2K costs are
expensed as incurred except for new systems and equipment, which are capitalized
and charged to expense over the estimated useful life of the related asset.



                                  Page 9 of 13
<PAGE>

While the  Company  believes  that its  efforts  to address  Y2K issues  will be
successfully  completed in a timely manner,  the Company recognizes that failing
to  resolve  Y2K issues  could,  in a  reasonably  likely  worst case  scenario,
increase costs and limit the Company's  ability to conduct business  operations.
The financial impact of such scenario can not be reasonably estimated.

Forward-Looking Statements

Statements   in  this  report   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, 1998.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

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



                                 Page 10 of 13
<PAGE>



                           PART II: OTHER INFORMATION

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 February 28, 1999.


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)

April 13, 1999


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





                                           PRINCIPAL FINANCIAL OFFICER

April 13, 1999



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



                                 Page 12 of 13