FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

(Mark One)
     X          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended March 31, 1999

                                       OR
                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from      to

         For Quarter Ended March 31, 1999 Commission file number 1-9915

                          GAYLORD CONTAINER CORPORATION
             (Exact name of registrant as specified in its charter)

             Delaware                                   36-3472452
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                       Identification No.)

                          500 Lake Cook Road, Suite 400
                            Deerfield, Illinois 60015
                            Telephone: (847) 405-5500
          (Address, including zip code, and telephone number, including
                  area code, of registrant's principal offices)


         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  period  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 by check mark whether the  registrant  has filed all documents
and reports  required to be filed by Section 12, 13, or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.
Yes _X_   No ___

         As of May 6, 1999, the registrant had outstanding  53,427,224 shares of
its $0.0001 par value Class A Common Stock  (including  1,482,497 shares held in
trust  for  the  benefit  of  the  warrant  holders)  and  1,482,497  redeemable
exchangeable warrants to obtain Class A Common Stock.


<PAGE>




                                                                     PAGE
PART I.        FINANCIAL INFORMATION                                NUMBERS
-------        ---------------------                                -------

Item 1.        Financial Statements                                  1 - 9

Item 2.        Management's Discussion and Analysis of
               Financial Condition and Results of Operations         10 - 18

PART II.       OTHER INFORMATION
--------       -----------------

Item 1.        Legal Proceedings                                       19

Item 2.        Changes in Securities                                   19

Item 3.        Defaults Upon Senior Securities                         19

Item 4.        Submission of Matters to a Vote of Security
               Holders                                                 19

Item 5.        Other Information                                       19

Item 6.        Exhibits and Reports on Form 8-K                        19


SIGNATURES                                                             20
----------                             


<PAGE>


<TABLE>
<CAPTION>

GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
----------------------------------------------

CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND SEPTEMBER 30, 1998
--------------------------------------------------------------------------------------------------

                                                             MARCH 31,          SEPTEMBER 30,
                                                               1999                  1998
                                                            ---------              ---------       
 
<S>                                                       <C>                  <C>
                                   
ASSETS                                                                 (In millions)
CURRENT ASSETS:
    Cash and equivalents                                    $     9.8              $     5.7
    Trade receivables (less allowances of $6.0 million
      and $6.4 million, respectively)                           115.8                  122.4
    Inventories (Note 2)                                         85.9                   73.2
    Other current assets                                         13.3                    9.5
                                                            ---------              ---------
        Total current assets                                    224.8                  210.8
                                                            ---------              ---------
PROPERTY, PLANT AND EQUIPMENT:
    Property, plant and equipment, at cost                    1,126.6                1,104.1
    Less accumulated depreciation                              (556.2)                (530.7)
                                                            ---------              ---------
        Property - net                                          570.4                  573.4
                                                            ---------              ---------
DEFERRED INCOME TAXES                                           143.1                  121.5

OTHER ASSETS                                                     73.1                   74.1
                                                            ---------              ---------
        TOTAL                                               $ 1,011.4              $   979.8
                                                            =========              =========

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
    Current maturities of long-term debt                    $     9.7              $     9.7
    Trade payables                                               52.0                   42.3
    Accrued interest payable                                     16.2                   16.2
    Accrued and other liabilities                                89.3                   69.0
                                                            ---------              ---------
        Total current liabilities                               167.2                  137.2
                                                            ---------              ---------

LONG-TERM DEBT                                                  900.5                  863.3

OTHER LONG-TERM LIABILITIES                                      25.2                   26.8

COMMITMENTS AND CONTINGENCIES (Note 3)                            -                      -

STOCKHOLDERS' DEFICIT:
   Class A common stock - par value, $.0001 per share;  
    authorized 125,000,000 shares; issued 54,818,792 shares
    and 54,786,492 shares, respectively, and outstanding
    53,334,878 shares and 53,273,928 shares, respectively         -                      -
   Capital in excess of par value                               177.6                  177.4
   Retained deficit                                            (245.0)                (210.6)
   Common stock in treasury - at cost; 1,483,914
      shares and 1,512,564 shares, respectively                 (11.0)                 (11.2)
   Minimum pension liability                                     (3.1)                  (3.1)
                                                            ---------              ---------
    Total stockholders' deficit                                 (81.5)                 (47.5)
                                                            ---------              ---------

        TOTAL                                               $ 1,011.4              $   979.8
                                                            =========              =========

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

                                                       1


<PAGE>

<TABLE>
<CAPTION>

GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
----------------------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 (In millions, except per share data)
-------------------------------------------------------------------------------------------------

                                                                   THREE MONTHS ENDED MARCH 31,
                                                                ---------------------------------                               
                                                                  1999                    1998
                                                                ---------               ---------
<S>                                                             <C>                     <C>

NET SALES                                                       $   201.0               $   219.1
COST OF GOODS SOLD                                                  185.7                   197.5
                                                                ---------               ---------
GROSS MARGIN                                                         15.3                    21.6
SELLING AND ADMINISTRATIVE COSTS                                    (24.8)                  (22.7)
                                                                ---------               ---------
OPERATING LOSS                                                      ( 9.5)                   (1.1)
INTEREST EXPENSE - Net                                              (21.5)                  (20.6)
OTHER EXPENSE - Net                                                 ( 0.2)                   (2.4)
                                                                ---------               ---------
LOSS BEFORE TAXES AND EXTRAORDINARY ITEM                            (31.2)                  (24.1)
INCOME TAX BENEFIT                                                   11.9                     9.3
                                                                ---------               ---------
NET LOSS BEFORE EXTRAORDINARY ITEM                                  (19.3)                  (14.8)
EXTRAORDINARY LOSS (Note 4)                                           -                     (23.9)
                                                                ---------               ---------
NET LOSS                                                            (19.3)              $   (38.7)
                                                                =========               =========

RETAINED DEFICIT:
 Beginning of period                                               (225.7)
                                                                ---------
 End of period                                                  $  (245.0)
                                                                =========

LOSS PER COMMON SHARE:
 Basic:

   Loss before extraordinary item                               $   (0.36)              $   (0.28)
   Extraordinary loss                                                 -                     (0.45)
                                                                ---------               ---------
   Net Loss                                                     $   (0.36)              $   (0.73)
                                                                =========               =========

 Diluted: (A)

   Loss before extraordinary item                               $   N/A                 $    N/A
   Extraordinary loss                                               N/A                      N/A
                                                                ---------               ---------
   Net Loss                                                     $   N/A                 $    N/A
                                                                =========               =========


WEIGHTED AVERAGE OUTSTANDING AND
POTENTIAL COMMON SHARES OUSTANDING:

 BASIC:
  WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                         53.3                   53.1

 DILUTED:
  EFFECT OF DILUTIVE SECURITIES:
     Employee and director incentive
     stock options                                                    0.5                    0.4
                                                                ---------              ---------

Weighted Average Outstanding and
Potential Common Shares 
 Outstanding                                                         53.8                   53.5
                                                                =========              =========

<FN>
See notes to condensed consolidated financial statements.

(A) Not presented where the effect of potential shares is antidilutive.
</FN>
</TABLE>

                                                       2

<PAGE>



<TABLE>
<CAPTION>

GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
----------------------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED
MARCH 31, 1999 AND 1998 (In millions, except per share data)
--------------------------------------------------------------------------------------------------

                                                                   SIX MONTHS ENDED MARCH 31,
                                                                ---------------------------------- 
                                                                    1999                    1998
                                                                ---------                ---------
<S>                                                              <C>                      <C>

NET SALES                                                       $   399.8               $    416.7
COST OF GOODS SOLD                                                  364.1                    383.6
                                                                ---------                ---------
GROSS MARGIN                                                         35.7                     33.1
SELLING AND ADMINISTRATIVE COSTS                                    (48.3)                   (43.3)
                                                                ---------                ---------
OPERATING LOSS                                                      (12.6)                   (10.2)
INTEREST EXPENSE - Net                                              (42.1)                   (41.7)
OTHER EXPENSE - Net                                                  (1.0)                    (2.6)
                                                                ---------                ---------
LOSS BEFORE TAXES AND EXTRAORDINARY ITEM                            (55.7)                   (54.5)
INCOME TAX BENEFIT                                                   21.3                     20.9
                                                                ---------                ---------
NET LOSS BEFORE EXTRAORDINARY ITEM                                  (34.4)                   (33.6)
EXTRAORDINARY LOSS (Note 4)                                           -                      (23.9)
                                                                ---------                ---------
NET LOSS                                                            (34.4)              $    (57.5)
                                                                =========               ==========

RETAINED DEFICIT:
 Beginning of period                                               (210.6)
                                                                ---------
 End of period                                                  $  (245.0)
                                                                =========

LOSS PER COMMON SHARE:

 Basic:

   Loss before extraordinary item                               $   (0.64)              $    (0.63)
   Extraordinary loss                                                -                       (0.45)
                                                                ---------               ----------
      Net Loss                                                  $   (0.64)              $    (1.08)
                                                                =========               ==========

 Diluted: (A) 

   Loss before extraordinary item                               $   N/A                 $   N/A
   Extraordinary loss                                               N/A                     N/A
                                                                ---------               ----------
   Net Loss                                                     $   N/A                 $   N/A
                                                                =========               ==========


WEIGHTED AVERAGE OUTSTANDING AND
POTENTIAL COMMON SHARES OUSTANDING:

 BASIC:
  WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                          53.3                    53.1

 DILUTED:
  EFFECT OF DILUTIVE SECURITIES:
     Employee and director incentive
     stock options                                                     0.4                     0.5
                                                                 ---------                ---------
Weighted Average Outstanding and
Potential Common Shares
 Outstanding                                                         53.7                     53.6
                                                                 =========                =========
<FN>
See notes to condensed consolidated financial statements.

(A) Not presented where the effect of potential shares is antidilutive.
</FN>
</TABLE>

                                                       3

<PAGE>
<TABLE>
<CAPTION>


GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
----------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
MARCH 31, 1999 AND 1998
------------------------------------------------------------------------------------------------

                                                                  SIX MONTHS ENDED MARCH 31,
                                                              ----------------------------------   
                                                                   1999                    1998
                                                              ---------                ---------
<S>                                                          <C>                       <C>
CASH FLOWS FROM OPERATIONS:                                                (In Millions)
     Net loss                                                 $   (34.4)               $   (57.5)

     Adjustments to reconcile net loss to net cash 
       used for operations:
         Extraordinary loss                                          -                      23.9
         Depreciation and amortization                             28.0                     33.0
         Deferred tax benefit                                     (21.5)                   (10.5)
         Change in current assets and liabilities,
           excluding acquisitions and dispositions                  7.0                    (59.8)
         Other - net                                               (0.4)                     1.7
                                                              ---------                ---------
Net cash used for operations                                      (21.3)                   (69.2)
                                                              ---------                ---------

CASH FLOWS FROM INVESTMENTS:
     Capital expenditures                                          (9.0)   .               (23.9)
     Capitalized interest                                          (0.5) .                  (0.7)
     Other investments - net                                       (1.5)                     0.8
                                                              ---------                ---------
Net cash used for investments                                     (11.0)                   (23.8)
                                                              ---------                ---------

CASH FLOWS FROM FINANCING:
     Senior debt - repayments                                      (3.9)                    (6.2)
     Early retirement of debt                                       -                     (436.9)
     Issuance of Senior Notes                                       -                      200.0
     Issuance of Senior Subordinated Notes                          -                      250.0
     Debt issuance costs                                            -                       (9.5)
     Revolving credit agreement borrowings - net                   41.0                     94.5
     Other financing - net                                         (0.7)                     0.9
                                                              ---------                ---------
Net cash provided by financing                                     36.4                     92.8
                                                              ---------                ---------

Net increase(decrease) in cash and equivalents                      4.1                     (0.2)

Cash and equivalents, beginning of period                           5.7                      6.1
                                                              ---------                ---------

Cash and equivalents, end of period                           $     9.8                $     5.9
                                                              =========                =========

SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid (refunded) for:
     Interest                                                 $    40.7                $    42.3
                                                              =========                =========

     Income taxes                                             $      -                 $    (5.1)
                                                              =========                =========

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
   ACTIVITIES:
     Write-off of deferred financing fees                     $      -                 $     6.1
                                                              =========                =========

     Property additions                                       $    11.1                $     8.9
                                                              =========                =========

     Increase in total debt                                   $      -                 $    10.5
                                                              =========                =========

     Increase in accrued & other liabilities                  $    11.1                $     1.6
                                                              =========                =========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>

                                                       4


<PAGE>








GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
----------------------------------------------

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------

1. GENERAL
   -------

In the opinion of management,  the accompanying unaudited condensed consolidated
financial  statements include all normal and recurring  adjustments and accruals
necessary to present fairly the financial  position as of March 31, 1999 and the
results of  operations  for the three months and six months ended March 31, 1999
and 1998,  and cash  flows for the six  months  ended  March 31,  1999 and 1998,
including  all the  accounts of Gaylord  Container  Corporation  (including  its
subsidiaries,  the Company),  and are in conformity with Securities and Exchange
Commission Rule 10-01 of Regulation S-X. The financial statements should be read
in conjunction with the audited consolidated  financial statements and the notes
thereto on Form 10-K for the fiscal year ended September 30, 1998.

2. INVENTORIES                                   
   -----------
<TABLE>
<CAPTION>


                                      MARCH 31,             SEPTEMBER 30,
                                        1999                     1998
                                     ----------               ----------
                
                                                (In millions)
Inventories consist of:
<S>                                  <C>                       <C>
Finished products                    $     17.4               $     19.0
In process                                 46.4                     31.6
Raw materials                              11.5                     12.4
Supplies                                   14.7                     13.6
                                     ----------               ----------
                                           90.0                     76.6
LIFO valuation adjustment                  (4.1)                    (3.4)
                                     ----------               ----------
      Total                          $     85.9               $     73.2
                                     ==========               ==========
</TABLE>

3. CONTINGENCIES
   -------------
The  Company  is not a party to any  legal  proceedings  other  than  litigation
incidental to normal business activities, except as described below:

On October 18 and December 4, 1995,  the Company,  its  directors and certain of
its officers were named in complaints which have been  consolidated in the Court
of Chancery of the State of Delaware  alleging breach of fiduciary duties on two
counts.  The first count is a putative class action and the second is an alleged
derivative  claim  brought  on  behalf of the  Company  against  the  individual
defendants.  Both  counts  allege  that  (i) the  Company's  stockholder  Rights
Agreement,  adopted on June 12, 1995 and approved by the Company's  shareholders
on June 28, 1995; (ii) amendments to the Company's charter and by-laws,  adopted
on July 21,  1995;  and (iii) a  redemption  of  warrants  in June 1995 all were
designed to entrench the individual defendants in their capacities as directors
at the expense of stockholders who otherwise would have been able to take


                                        5
<PAGE>





GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
----------------------------------------------

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------

advantage of a sale of the Company.  The complaint  asks the court,  among other
things, to rescind the amendments and prohibit the use of the stockholder Rights
Agreement  to  discourage  any  bona  fide  acquirer.  In the  alternative,  the
plaintiffs  seek  compensatory  damages.  On December  19,  1996,  the  Delaware
Chancery  Court  denied the  Company's  motion to dismiss the  complaint  in its
entirety.  The case is now in the discovery  stage.  The Company  believes that,
after  investigation  of the facts,  the  allegations  are without  merit and is
defending itself vigorously. No trial date has been set.

On October 23, 1995,  a rail tank car exploded on the premises of the  Bogalusa,
Louisiana plant of Gaylord Chemical Corporation,  a wholly owned,  independently
operated  subsidiary  of the Company.  The  accident  resulted in the venting of
certain chemicals,  including by-products of nitrogen tetroxide,  a raw material
used  by the  plant  to  produce  dimethyl  sulfoxide,  a  solvent  used  in the
manufacture of pharmaceutical and agricultural chemicals. More than 160 lawsuits
have been filed in both federal and state courts  naming as  defendants  Gaylord
Chemical  Corporation and/or the Company,  certain of their respective  officers
and other  unrelated  corporations  and  individuals.  The lawsuits,  which seek
unspecified  damages,  allege personal injury,  property damage,  economic loss,
related  injuries and fear of injuries as a result of the accident.  On April 1,
1996, the federal judge dismissed all but one of the federal actions for failing
to state claims under federal law and remanded the remaining state law claims to
the  district  court in  Washington  Parish,  Louisiana,  where  they  have been
consolidated.  Discovery  in the  remaining  federal  action,  a suit to recover
alleged clean-up costs, was ordered coordinated with the Louisiana state action.

Under an agreed Case Management  Order (CMO),  all actions in Louisiana  arising
out  of  the  October  23,  1995  explosion  have  been   consolidated   in  the
Twenty-Second   Judicial  district  in  Washington  Parish,   Louisiana,   where
plaintiffs  have  filed a single  Consolidated  Master  Petition  (CMP)  against
Gaylord Chemical Corporation,  the Company and twenty-one other defendants.  The
CMP, as amended,  asserts  substantially  all of the claims and theories made in
prior  lawsuits,  including  negligence,  strict  liability and other  statutory
liability.  Compensatory  and  punitive  damages  are  sought.  No  officers  or
directors of Gaylord Chemical or the Company are named defendants in the CMP, as
amended.  The status of all lawsuits  pending before the filing of the CMP, some
of which name officers of Gaylord Chemical or the Company, will be determined by
the trial court after class certification issues are finally resolved.

                                        6                              
<PAGE>




GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
----------------------------------------------

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------

In November 1997, the Louisiana trial court certified these  consolidated  cases
as a class action. The trial court certified,  and the Court of Appeal upheld, a
class  consisting  of  allegedly  injured  parties in the City of  Bogalusa  and
portions of Washington Parish, Louisiana, and parts of Marion, Walthall and Pike
counties in Mississippi.  

Defendants  have requested the Louisiana  Supreme Court  to review the Court  of
Appeal's  decision  affirming the geographic  boundaries of  the  class  and the
trial court's failure to certify a single, mandatory class for punitive damages.
The trial court entered a stay of all class notice and related  issues until the
defendants'  suspensive  appeal to the  Louisiana  Supreme  Court on  geographic
boundaries is ultimately resolved. The Company and its subsidiary are vigorously
contesting all claims brought in these consolidated  actions.  No trial date has
been set for these Louisiana actions.

In addition, the Company,  Gaylord Chemical Corporation and numerous other third
party  companies  have  been  named  as  defendants  in 13  actions  brought  by
plaintiffs  in  Mississippi  state  court,  who claim  injury as a result of the
October 23, 1995 accident at the Bogalusa facility. These cases, which purported
to be on behalf of over 11,000 individuals, were not filed as a class action but
rather  have  all been  consolidated  before  a  single  judge in Hinds  County,
Mississippi.  All of these cases  allege  claims  similar to those in  Louisiana
State Court.  Discovery in the consolidated  cases has been coordinated with the
on-going  discovery in the Louisiana class action.  Following several rulings by
the  Mississippi   trial  court,  over  7,000   individuals'   claims  in  these
consolidated  actions have been either: (1) dismissed for failure to comply with
outstanding discovery orders or (2) voluntarily withdrawn. As with the Louisiana
class  action,  the Company  and Gaylord  Chemical  Corporation  are  vigorously
contesting  all  claims in  Mississippi  arising  out of the  October  23,  1995
explosion.  In addition, the Company and Gaylord Chemical Corporation have filed
cross-claims for indemnity and contribution against co-defendants in both of the
Mississippi and Louisiana actions.  The Mississippi trial court has selected the
first 20  plaintiffs  whose claims will be tried on all issues of liability  and
damages.  The initial trial of the 20 plaintiffs' claims began on March 29, 1999
and continues as of this date.  During trial, the Mississippi trial court denied
the Company's  motion for summary  judgment  dismissing  the action  against the
Company.  The trial court in an updated  order has  ordered  that the results of
this trial for the initial 20 Mississippi plaintiffs will not be binding, either
as to  liability  or  compensatory  or  punitive  damages,  on any of the  other
plaintiffs in the  Mississippi  consolidated  actions.  Rather,  the trial court
ordered that each of the approximately 4,000 Mississippi plaintiffs will have to
prove their own  individual  claims of  liability  or  compensatory  or punitive
damages.

                                        7
<PAGE>


GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
----------------------------------------------

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------

The Company and Gaylord  Chemical  Corporation  maintain $127 million of general
liability  insurance and filed  separate suits seeking  declaratory  judgment of
coverage for the October 23, 1995 accident  against their general  liability and
directors and officers liability insurance carriers.  The carrier with the first
layer of coverage  under the general  liability  policies  has agreed to pay the
Company's and Gaylord Chemical  Corporation's  defense costs under a reservation
of rights.

The  coverage  action  against the  liability  insurers  was tried to a judge in
December 1998.  During trial,  one of the excess carriers settled by agreeing to
pay $5 million,  its full policy limits.  Trial concluded  against the remaining
defendants on December 10, 1998 and on February 25, 1999, the trial court issued
an opinion holding that the Company and Gaylord Chemical have insurance coverage
for the October 23, 1995 accident  under eight of the nine  remaining  policies.
The judge held that language in one policy excluded coverage. On March 30, 1999,
the trial court  denied all the  insurers'  motions  for a new trial.  The eight
insurers  issuing  policies where coverage was found have filed an appeal of the
judgment with the Louisiana  Court of Appeal.  The Company and Gaylord  Chemical
have appealed that part of the judgment excluding  coverage.  Including coverage
afforded by the  settlement and by the trial court's  decision,  the Company and
Gaylord  Chemical  have in excess of $110 million in insurance  coverage for the
accident.

The Company  believes the outcome of such litigation  should not have a material
adverse effect on its financial position, results of operations or cash flows.

                                        8
<PAGE>






GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
----------------------------------------------

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
----------------------------------------------------------------



4. EXTRAORDINARY ITEM
   ------------------
During the second  quarter of fiscal  1998,  the  Company  issued  $200  million
principal  amount of 9 3/8%  Senior  Notes due 2007 and $250  million  principal
amount of 9 7/8% Senior Subordinated Notes due 2008 (collectively the New Notes)
and  used  the  proceeds  to  retire  all  of its  outstanding  12  3/4%  Senior
Subordinated  Discount Debentures ($404.3 million outstanding  principal amount)
due 2005 (the Old Notes). In conjunction with the retirement, approximately $6.1
million of deferred  financing  fees were written off. The early  retirement  of
debt resulted in an  extraordinary  loss of $23.9 million,  net of an income tax
benefit of $14.8 million.


5. ADOPTION OF NEW ACCOUNTING STANDARDS
   ------------------------------------
Effective  October 1, 1998,  the  Company  has adopted  Statement  of  Financial
Accounting Standards No. 130, "Reporting  Comprehensive  Income", which requires
the  reporting  and display of  comprehensive  income and its  components in the
financial  statements.  The  Company's  comprehensive  income  is  equal  to the
consolidated  net loss for the three  months and six months ended March 31, 1999
and 1998, which is reported on the Consolidated Statements of Operations.

The Company has adopted  Statement of Financial  Accounting  Standards  No. 131,
"Disclosures about Segments of an Enterprise and Related  Information".  Interim
period  segment  reporting is not required in the initial year of adoption  and,
therefore,  the Company will disclose the required segment  reporting under this
Statement in its fiscal 1999 year-end financial statements.

The Company has adopted  Statement of Financial  Accounting  Standards  No. 132,
"Employers'  Disclosures  about  Pensions and Other Post  Retirement  Benefits",
which revises  employers'  disclosures  about  pension and other  postretirement
benefit plans. The Company will disclose the required  information in its fiscal
1999 year-end financial statements.

                                        9
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS
---------------------

Second Quarter of Fiscal 1999 Compared with Second Quarter of
Fiscal 1998

Net sales for the second quarter of fiscal 1999 were $201.0 million  compared to
net sales of $219.1 million for the second quarter of fiscal 1998. The operating
loss for the current  quarter was $9.5 million  compared to $1.1 million for the
year-ago quarter. The net loss for the current quarter totaled $19.3 million, or
$0.36 per share,  compared to a net loss of $38.7  million,  or $0.73 per share,
for the  year-ago  quarter,  which  included a $23.9  million  ($0.45 per share)
extraordinary loss on the early retirement of debt.

Sales in the second  quarter of fiscal 1999 were  unfavorably  affected by lower
average net selling  prices,  which  decreased  net sales by  approximately  $18
million.

Gross margin for the second  quarter of fiscal 1999  decreased to $15.3  million
from $21.6 million in the prior-year  quarter primarily due to lower average net
selling  prices  ($14  million  net  of $4  million  lower  paper  costs  in the
converting  facilities) and lower volume ($2 million),  offset somewhat by lower
fiber costs ($11 million).

Quarter-over-quarter,  total  mill  production  decreased  to 4,033 tons per day
(TPD,  calculated  on the basis of the number of days in the period)  from 4,315
TPD principally  due to the Bogalusa mill annual  maintenance  outage  occurring
during the  second  quarter of fiscal  1999  versus the first  quarter of fiscal
1998.  Containerboard  production in the second quarter of fiscal 1999 decreased
approximately  9 percent to 3,305 TPD from 3,647 TPD in the prior-year  quarter.
Unbleached  kraft paper  production in the current quarter  increased to 728 TPD
from 668 TPD in the prior-year  quarter.  Corrugated  shipments increased to 3.8
billion square feet in the second quarter of fiscal 1999 compared to 3.5 billion
square feet in the  year-ago  quarter  primarily as a result of the opening of a
new sheet feeder plant in December  1997 and  increased  demand.  Multiwall  bag
shipments  decreased to 14.0  thousand tons in the current  quarter  compared to
shipments of 16.1 thousand tons in the second quarter of fiscal 1998.

Average selling prices decreased for the Company's domestic  linerboard,  export
linerboard and unbleached kraft paper, by approximately 22 percent,  15 percent,
and 28 percent,  respectively,  in the second quarter of fiscal 1999 compared to
the  previous-year  quarter.  Average selling prices  increased  approximately 6
percent for multiwall bags (mix related) and decreased  approximately  7 percent
for corrugated  products in the current-year  quarter compared to the prior-year
quarter.

                                        10
<PAGE>


Fiber  costs  decreased  primarily  due to lower  average  delivered  costs  for
recycled  fiber  (consisting  primarily of old corrugated  containers  (OCC) and
doubled lined kraft (DLK) clippings) and wood chips. The average  delivered cost
for OCC and DLK decreased approximately 32 percent and 31 percent, respectively,
in the  quarter-over-quarter  comparison,  primarily due to decreased demand for
these materials.  In addition, the cost of wood chips decreased by approximately
17 percent  in the second  quarter of fiscal  1999  compared  to the  prior-year
quarter mainly due to improved weather conditions in the southern United States.

Selling and  administrative  costs were $24.8  million  for the current  quarter
compared  to  $22.7  million  for the  year-ago  period.  This  increase  is due
primarily to higher information system costs related to the Year 2000 effort and
long-term incentive costs.

Net interest expense  increased to $21.5 million in the second quarter of fiscal
1999 from $20.6 million in the  prior-year  quarter.  Higher average debt levels
increased  interest expense by approximately  $1.8 million,  while lower average
borrowing rates reduced  interest  expense by  approximately  $0.9 million.  The
lower average borrowing rates are the result of the refinancing of the Company's
12 3/4% Senior Subordinated  Discount  Debentures,  due 2005 (the Old Notes), in
the second quarter of fiscal 1998.

In the second  quarter of fiscal  1999,  the  Company  recognized  an income tax
benefit of $11.9 million compared to $9.3 million in the prior-year quarter. The
effective tax rate was  approximately  38 percent in each of the second quarters
of fiscal 1999 and fiscal 1998.

During the second  quarter of fiscal  1998,  the  Company  issued  $200  million
principal  amount of 9 3/8%  Senior  Notes due 2007 and $250  million  principal
amount of 9 7/8% Senior Subordinated Notes due 2008 (collectively the New Notes)
and used the proceeds to retire all of its outstanding Old Notes ($404.3 million
outstanding principal amount). In conjunction with the retirement, approximately
$6.1 million of deferred  financing fees were written off. The early  retirement
of debt resulted in an extraordinary loss of $23.9 million, net of an income tax
benefit of $14.8 million.

                                        11

<PAGE>


First Six Months of Fiscal 1999 Compared with First Six Months of Fiscal 1998


Net sales for the first six months of fiscal 1999 were $399.8  million  compared
to net sales of $416.7  million  for the first six  months of fiscal  1998.  The
operating  loss for the  current  period  was $12.6  million  compared  to $10.2
million for the year-ago  period.  The net loss for the current  period  totaled
$34.4 million,  or $0.64 per share,  compared to a net loss of $57.5 million, or
$1.08 per share, for the year-ago period,  which included a $23.9 million ($0.45
per share) extraordinary loss on the early retirement of debt.

Sales in the first six months of fiscal 1999 were unfavorably  affected by lower
average net selling  prices,  which  decreased  net sales by  approximately  $24
million.  Higher  corrugated  shipments  increased net sales by approximately $8
million in the period-over-period comparison.

Gross margin for the first six months of fiscal 1999  increased to $35.7 million
from $33.1 million in the prior-year  period  primarily due to lower fiber costs
($24  million)  and higher  volume ($4  million),  offset by lower  average  net
selling  prices  ($20  million  net  of $4  million  lower  paper  costs  in the
converting  facilities),  reduced chemical  subsidiary earnings as a result of a
significant decline in Asian demand ($3 million) and increased insurance costs.

Period-over-period,  total mill production decreased to 4,153 tons per day (TPD,
calculated  on the basis of the  number of days in the  period)  from 4,196 TPD.
Containerboard  production  in the first six  months  of fiscal  1999  decreased
approximately  1 percent to 3,423 TPD from 3,463 TPD in the  prior-year  period.
The  current  period  unbleached  kraft  paper  production  of 730 TPD  remained
relatively  flat  with  prior-year   production  levels.   Corrugated  shipments
increased  approximately  9 percent to 7.4 billion  square feet in the first six
months of fiscal 1999 compared to 6.8 billion square feet in the year-ago period
primarily  as a result of the  opening of a new sheet  feeder  plant in December
1997 and increased demand. Multiwall bag shipments decreased to 27 thousand tons
in the current period compared to shipments of 31 thousand tons in the first six
months of fiscal 1998.

Average selling prices decreased for the Company's domestic  linerboard,  export
linerboard and unbleached kraft paper, by  approximately 21 percent,  9 percent,
and 25 percent, respectively, in the first six months of fiscal 1999 compared to
the prior-year period. Average selling prices increased  approximately 8 percent
for multiwall  bags (mixed  related) and decreased  approximately  3 percent for
corrugated  products  in the  current-year  period  compared  to the  prior-year
period.

                                        12
<PAGE>


Fiber  costs  decreased  primarily  due to lower  average  delivered  costs  for
recycled  fiber  and wood  chips.  The  average  delivered  cost for OCC and DLK
decreased  approximately  36  percent  and  43  percent,  respectively,  in  the
period-over-period  comparison,  primarily  due to  decreased  demand  for these
materials.  In addition,  the cost of wood chips decreased by  approximately  15
percent  in the first  six  months of fiscal  1999  compared  to the  prior-year
period, mainly due to improved weather conditions in the southern United States.

Selling and  administrative  costs were $48.3  million  for the  current  period
compared  to  $43.3  million  for the  year-ago  period.  This  increase  is due
primarily to higher information system costs related to the Year 2000 effort and
increased long-term incentive and litigation costs.

Net  interest  expense  increased  to $42.1  million  in the first six months of
fiscal 1999 from $41.7 million in the  prior-year  period.  Higher  average debt
levels increased  interest expense by  approximately  $5.2 million,  while lower
average borrowing rates reduced interest expense by approximately  $4.8 million.
The lower  average  borrowing  rates are the  result of the  refinancing  of the
Company's Old Notes in the second quarter of fiscal 1998.

In the first six months of fiscal  1999,  the Company  recognized  an income tax
benefit of $21.3 million compared to $20.9 million in the prior-year period. The
effective tax rate was  approximately  38 percent in both the  current-year  and
prior-year periods.

During the second  quarter of fiscal 1998,  the Company issued the New Notes and
used the proceeds to retire all of its  outstanding  Old Notes.  In  conjunction
with the retirement,  approximately $6.1 million of deferred financing fees were
written off. The early retirement of debt resulted in an  extraordinary  loss of
$23.9 million, net of an income tax benefit of $14.8.

                                        13
<PAGE>





LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

General

The Company has  historically  financed its operations  through cash provided by
operations,  borrowings under its credit agreements and the issuance of debt and
equity  securities.  The Company's  principal  uses of cash are to pay operating
expenses, fund capital expenditures and service debt.

Net cash used for  operations  was  $21.3  million  for the first six  months of
fiscal 1999, compared with net cash used for operations of $69.2 million for the
year-ago  period.  The  improvement  was  primarily due to a decrease in working
capital requirements versus the prior-year period.

In the first six months of fiscal 1999 cash flows used for investing  activities
decreased to $11.0 million from $23.8 million in the year-ago period,  primarily
due to $14.9 million decrease in capital expenditures in the current year period
compared to the year-ago period.  Furthermore, in the first six months of fiscal
1999, the Company incurred an $11.1 million  liability for costs associated with
a capital  project that will be vendor  financed in the third fiscal  quarter of
1999 through a debt obligation  secured by the project assets.  During the first
six months of fiscal  1998,  the Company  acquired  $10.5  million of  equipment
financed by a capital lease.

Cash flows from financing activities decreased to $36.4 million in the first six
months of fiscal 1999 from $92.8 million in the year-ago period. The decrease is
primarily due to decreased net borrowings  from the Company's  revolving  credit
facility.

At the end of fiscal 1992, the Company  determined it would be unlikely that its
Antioch,  California  unbleached  kraft  paper mill (the East  Mill),  which was
closed in fiscal 1991,  could be sold as a mill site or that the East Mill, or a
portion thereof, could be operated economically by the Company. During the first
six months of fiscal 1999, the Company has incurred  approximately  $2.1 million
of costs for demolition and asbestos removal and to maintain the East Mill. Such
costs were net of any  proceeds  from the sale of scrap.  Management  expects to
complete the majority of the remaining  demolition and asbestos  removal efforts
during fiscal 1999. At March 31, 1999, balance sheet reserves for demolition and
asbestos removal were  approximately  $1.2 million and the net book value of the
East Mill was $9.6 million.

                                        14

<PAGE>

Liquidity

At March 31, 1999,  the Company had cash and  equivalents  of $9.8  million,  an
increase of $4.1 million from  September  30, 1998,  as cash from  financing was
largely offset by cash used for operations and investments. Total debt increased
by $37.2  million to $910.2  million at March 31,  1999 from  $873.0  million at
September 30, 1998 as a result of increased revolver borrowings. The increase in
revolver  borrowings  was  primarily  due to interest  payments on the Company's
public  debt and term loan ($38  million).  At March 31,  1998,  the Company had
approximately  $80 million of borrowings  outstanding,  and  approximately  $154
million  of  credit  available  under  the  revolving  portions  of  its  credit
agreements.

At March 31, 1999, the Company had primary  working  capital (Trade  receivables
plus  Inventories  less Trade  payables) of $149.7  million,  a decrease of $3.6
million from  September  30, 1998  primarily due to seasonaly  higher  inventory
offset somewhat by lower accounts  receivable and higher accounts  payable.  The
decrease in accounts  receivable  was primarily due to lower average net selling
prices for the Company's products in fiscal 1999 versus fiscal 1998.

Published  industry prices for  linerboard have increased  approximately $45 per
ton from the  month  of  December  1998 to the  month  of  March  1999,  and are
relatively  unchanged  from  published  prices at March  1998.  The  increase in
published linerboard prices follow a decline in annual  containerboard  capacity
of  approximately 2 million tons announced by certain  producers.  At the end of
March 1999, the Company had  successfully  implemented a $50 per ton increase in
prices for its linerboard and is  implementing an increase of  approximately  10
percent in the prices of its corrugated products.

During the first six months of fiscal 1999, the Company's average delivered cost
of OCC and DLK decreased approximately 36 percent and 43 percent,  respectively,
from the prior-period  levels. At the end of March 1999, however, OCC prices had
risen by  approximately  41 percent from the low point  during this  period.  In
addition, the cost of wood chips decreased approximately 15 percent in the first
six months of fiscal 1999  compared to the  prior-year  period.  Fiber  markets,
however,  are difficult to predict,  and there can be no assurance of the future
direction of OCC, DLK and wood chip prices.

Based on post price  increase  pricing  and  current  raw  material  costs,  and
assuming maintenance levels of capital spending,  the Company believes that cash
provided by operations and borrowings available under its credit agreements will
provide adequate liquidity to meet debt service  obligations and other liquidity
requirements over the next 12 to 24 months.  Unless there is additional  product
price  improvement  however,  the Company will need to seek additional  covenant
modifications  to its bank credit  agreement by the end of June 2000 to maintain
continued access to its liquidity.

                                        15
<PAGE>





PENDING ACCOUNTING STANDARDS
----------------------------

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities," which establishes  accounting and reporting  standards
for  derivative  instruments.  The  statement  is  effective  for  fiscal  years
beginning  after June 15, 1999.  The statement will be adopted by the Company in
fiscal 2000. The Company has not determined  what affect,  if any, the statement
will have on its results of operations or financial position.


YEAR 2000 READINESS DISCLOSURE
------------------------------

The "Year 2000 Issue" refers  generally to the potential  problems that software
and processing  systems could  encounter in determining  the correct century for
the year. Software and processing systems with date-sensitive functions that are
not Year 2000 compliant may not be able to  distinguish  whether "00" means 1900
or 2000,  which may  result in system  failures  or the  creation  of  erroneous
results.

The Company has developed a  comprehensive  phased Year 2000  readiness  plan to
address its internal systems that are comprised of both  information  technology
("IT") and non-IT systems.  The Company's IT and non-IT systems are comprised of
computers  and  application  software for  financial  and  business  management,
electronic  data   interchange,   process  control  and  equipment   monitoring,
telecommunications, and environmental controls. The plan includes development of
corporate awareness, assessment, implementation (including remediation, upgrade,
replacement,  and  deployment  of certain  products),  validation  testing,  and
contingency  planning.  The Company  believes  that,  by  modifying or upgrading
existing systems,  and/or converting to new systems,  the Year 2000 Issue can be
resolved without material operational difficulties.  Based on current estimates,
the Company  expects to spend  approximately  $6 million  through fiscal 1999 to
correct  the Year 2000  Issue,  of which  approximately  $3.6  million  has been
incurred to date.  The Company plans to fund its Year 2000 effort with cash from
operations and borrowings under its revolving credit agreements.

                                        16
<PAGE>


The Company has largely  completed the awareness and  assessment  portion of its
Year  2000  readiness  plan.  Remediation  and  implementation   activities  for
business-critical  items are  proceeding  and are  scheduled  to be completed by
mid-1999. Verification testing on business critical systems will be completed by
mid-1999 while testing will continue on  non-business  critical  systems through
the  remainder of 1999.  IT systems are being  verified for accuracy  across the
Year 2000 boundary as well as other special calendar date situations. A national
consulting firm specializing in Year 2000 issues assisted the Company throughout
the  planning  process  and  has  been  retained  to  assist  in the  Year  2000
verification  testing. The testing approach employed is intended to identify all
potential  problems with  processing  the Year 2000. It is impractical to assure
that all potential problems will be identified during these testing  procedures.
Therefore,  the Company may  experience a  greater-than-normal  need for support
activities  immediately  following the change in the  millennium.  The IT staff,
with the assistance of designated  outside vendor support,  is prepared to react
and correct these  problems in a timely  fashion,  as it does with problems that
occur in the normal  course of  business.  A  consulting  firm  specializing  in
industrial  controls has been retained to develop an equipment  inventory and to
assist in the  validation of equipment  compliance for certain non-IT systems at
the Company's paper mills. At its other  facilities,  internal  resources,  both
operational  and IT staff,  are  being  used to  inventory  and to assist in the
validation of the non-IT systems.

The  Company  believes  that  many of its  customers,  suppliers  and  financial
institutions  are also  impacted by the Year 2000 Issue,  which could affect the
Company.  The Company is therefore  conducting an  assessment of the  compliance
efforts  of  the   Company's   critical   customers,   suppliers  and  financial
institutions.  At this time,  the Company is unable to  determine  the impact of
these  third-party  compliance  efforts.  If the  Company's  current  or  future
customers,  or suppliers,  however,  fail to achieve Year 2000  compliance,  the
Company  believes  that,  due to lack of  concentration  of major  customers  or
critical  suppliers,  results of  operations,  financial  position  or cash flow
should not be materially adversely affected.

The Company has projected that the "most likely  worst-case  Year 2000 scenario"
would be the result of  unidentified  Year 2000  issues,  which could  result in
unplanned  downtime of  production  facilities at a rate higher than is normally
experienced. Contingency plans are currently being developed and are expected to
be  completed  by the  fall  of 1999  to  respond  to the  likelihood  of  these
higher-than-normal  system  incidents.  Any system  failure  which  results in a
business  disruption  is  expected to be handled in a timely  fashion,  as would
normal day-to-day failures.  These potential  disruptions should not result in a
material  adverse  impact on the  Company's  results  of  operations,  financial
position or cash flow.

                                        17
<PAGE>

The preceding "Year 2000 Readiness Disclosure" contains various  forward-looking
statements  which  represent the  Company's  beliefs or  expectations  regarding
future events. The words "believes,"  "projected," "expects,"  "anticipates" and
similar  expressions  are  intended  to  identify  forward-looking   statements.
Forward-looking   statements   include,   without   limitation,   the  Company's
expectations  as to when it will complete the  remediation and testing phases of
its Year 2000 program as well as its Year 2000 contingency  plans; its estimated
cost of  achieving  Year  2000  readiness;  and the  Company's  belief  that its
internal systems and assets will be Year 2000 compliant in a timely manner.  All
forward-looking  statements  involve a number of risks  and  uncertainties  that
could cause the actual results to differ materially from the projected  results.
Factors that may cause these  differences  include,  but are not limited to, the
availability of qualified personnel and other information  technology resources;
the ability to identify and remediate all date-sensitive  lines of computer code
or to replace embedded computer chips in affected systems or equipment;  and the
actions and ability of  third-party  suppliers  and  customers  to  successfully
identify and eliminate any of their own Year 2000 problems.

                         ------------------------------


Forward-looking  statements in this filing,  including those in the footnotes to
the financial statements, are made pursuant to the safe harbor provisions of the
Private Securities  Litigation Reform Act of 1995. When used in this filing, the
words "believes," "projected," "expects," "anticipates," "estimates" and similar
expressions   are  intended  to  identify   forward-looking   statements.   Such
forward-looking  statements  are subject to risks and  uncertainties  and actual
results could differ materially.  Such risks and uncertainties  include, but are
not limited to, general  economic and business  conditions,  competitive  market
pricing,  increases  in raw  material,  energy  and other  manufacturing  costs,
fluctuations in demand for the Company's  products,  Year 2000 readiness issues,
potential  equipment   malfunctions  and  pending  litigation.   For  additional
information, see the Company's Form 10-K filing for the most recent fiscal year.

                                        18
<PAGE>






                           PART II. OTHER INFORMATION
                           --------------------------


Item 1.  Legal Proceedings.

         The  Company  is not a party to any legal  proceedings  other than
         litigation  incidental to normal  business  activities,  except as
         described in "Note 3 of Notes to Condensed  Consolidated Financial
         Statements."  The Company  believes the outcome of such litigation
         will not have a material adverse effect on the Company's financial
         position, results of operations or cash flows.

Item 2.  Changes in Securities.

         Not applicable.

Item 3.  Defaults Upon Senior Securities.

         Not applicable.

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

         On  February  10,  1999,  the Company  held its annual  meeting of
         stockholders  at which the  following  issues  were  voted upon by
         holders of the Company's common stock:

The Company's ten directors were re-elected by the following vote:

                                         For                    Withheld
         Mary Sue Coleman             50,734,916                 851,839
         Harve A. Ferrill             46,624,074               4,962,481
         John E. Goodenow             50,753,152                 833,403
         David B. Hawkins             50,748,926                 837,629
         Warren J. Hayford            50,740,462                 846,093
         Charles S. Johnson           50,709,752                 876,803
         Jerry W. Kolb                50,752,952                 833,603
         Ralph L. MacDonald Jr.       50,756,957                 829,598
         Marvin A. Pomerantz          50,659,542                 927,013
         Thomas H. Stoner             50,751,136                 836,419

The  appointment  of Deloitte & Touche LLP to continue to serve as the Company's
independent  auditors in fiscal 1999 was ratified by a vote of  51,134,558  for;
139,328 against; 312,669 withheld.

Item 5.  Other Information.

         Not applicable.

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

         Number and Description of Exhibit
         ---------------------------------
         a) 27.1(a) Financial Data Schedule

         b) No reports on Form 8-K were filed for the quarter ended 
            March 31, 1999
         ------------------
         (a) Filed with this Quarterly Report

                                        19

<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.


                                            GAYLORD CONTAINER CORPORATION

Date:  May 11, 1999                         /s/ Marvin A. Pomerantz
                                            ------------------------------------
                                            Marvin A. Pomerantz
                                            Chairman and Chief Executive Officer


Date:  May 11, 1999                         /s/ Jeffrey B. Park
                                            ------------------------------------
                                            Jeffrey B. Park
                                            Vice President-Controller
                                            (Principal Accounting Officer)

                                        20

<PAGE>