<PAGE>   1
                                    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 June 30, 1998

                                       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 June 30, 1998 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 July 31, 1998, the registrant had outstanding 53,264,540 shares of
its $0.0001 par value Class A Common Stock (including 1,783,410 shares held in
trust for the benefit of the warrant holders) and 1,783,410 redeemable
exchangeable warrants to obtain Class A Common Stock.



<PAGE>   2







                                                                           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 - 16


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

Item 1.        Legal Proceedings                                            17

Item 2.        Changes in Securities                                        17

Item 3.        Defaults Upon Senior Securities                              17

Item 4.        Submission of Matters to a Vote of Security Holders          17

Item 5.        Other Information                                            17

Item 6.        Exhibits and Reports on Form 8-K                             17


SIGNATURES                                                                  18
----------



<PAGE>   3



GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS,
JUNE 30, 1998 AND SEPTEMBER 30, 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                     JUNE 30,          SEPTEMBER 30,
                                                                       1998                1997
                                                                       ----                ----
ASSETS                                                                      (In millions)
------
<S>                                                                 <C>                  <C>       
CURRENT ASSETS:
   Cash and equivalents                                             $      8.8           $      6.1
   Trade receivables (less allowances of
        $7.5 million and $5.5 million, respectively)                     116.5                100.6
   Inventories (Note 2)                                                   88.3                 77.4
   Deferred income taxes                                                   4.7                  4.7
   Other current assets                                                   11.7                 15.4
                                                                    ----------           ----------
        Total current assets                                             230.0                204.2
                                                                    ----------           ----------

PROPERTY, PLANT AND EQUIPMENT:
   Property, plant and equipment, at cost                              1,094.5              1,061.5
   Less accumulated depreciation                                         517.1                475.4
                                                                    ----------           ----------
        Property - net                                                   577.4                586.1
                                                                    ----------           ----------

DEFERRED INCOME TAXES                                                     98.7                 71.2

OTHER ASSETS                                                              75.2                 68.4
                                                                    ----------           ----------
        TOTAL                                                       $    981.3           $    929.9
                                                                    ==========           ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
   Current maturities of long-term debt                             $     12.1           $     14.4
   Trade payables                                                         51.3                 65.2
   Accrued interest payable                                               11.0                 26.3
   Accrued and other liabilities                                          50.0                 61.4
                                                                    ----------           ----------
        Total current liabilities                                        124.4                167.3
                                                                    ----------           ----------

LONG-TERM DEBT                                                           865.0                701.7

OTHER LONG-TERM LIABILITIES                                               26.9                 26.3

COMMITMENTS AND CONTINGENCIES (Note 3)

STOCKHOLDERS' EQUITY (DEFICIT):
   Class A common stock - par value, $.0001 per share;
        authorized 125,000,000 shares; issued 54,779,742
        shares and 54,573,164 shares, respectively;
        and outstanding 53,256,074 shares and 53,026,961
        shares, respectively                                                --                   --
   Capital in excess of par value                                        177.3                175.6
   Retained deficit                                                     (199.5)              (128.1)
   Common stock in treasury - at cost; 1,523,668
        shares and 1,546,203 shares, respectively                        (11.3)               (11.4)
   Recognition of minimum pension liability                               (1.5)                (1.5)
                                                                    ----------           ----------
   Total stockholders' equity (deficit)                                  (35.0)                34.6
                                                                    ----------           ----------
        TOTAL                                                       $    981.3           $    929.9
                                                                    ==========           ==========
</TABLE>



   See notes to condensed consolidated financial statements.



                                        1

<PAGE>   4



GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
JUNE 30, 1998 AND 1997 (In millions, except per share data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED JUNE 30,
                                                             ---------------------------
                                                              1998                1997
                                                              ----                ----

<S>                                                         <C>                 <C>      
NET SALES                                                   $   212.1           $   189.4
COST OF GOODS SOLD                                              188.8               180.0
                                                            ---------           ---------
GROSS MARGIN                                                     23.3                 9.4
SELLING AND ADMINISTRATIVE COSTS                                (23.6)              (20.6)
                                                            ---------           ---------
OPERATING LOSS                                                   (0.3)              (11.2)
INTEREST EXPENSE - Net                                          (19.9)              (20.6)
OTHER EXPENSE - Net                                              (0.4)               (1.0)
                                                            ---------           ---------
LOSS BEFORE TAXES AND EXTRAORDINARY ITEM                        (20.6)              (32.8)
INCOME TAX BENEFIT                                               (7.9)              (12.9)
                                                            ---------           ---------
NET LOSS BEFORE EXTRAORDINARY ITEM                              (12.7)              (19.9)
EXTRAORDINARY LOSS (Note 4)                                      (1.2)               (7.7)
                                                            ---------           ---------
NET LOSS                                                        (13.9)          $   (27.6)
                                                                                =========

RETAINED DEFICIT:
   BEGINNING OF PERIOD                                         (185.6)
                                                            ---------
   END OF PERIOD                                            $  (199.5)
                                                            =========

LOSS PER COMMON SHARE: (A)
   LOSS BEFORE EXTRAORDINARY ITEM                           $   (0.24)          $   (0.38)
   EXTRAORDINARY LOSS (Note 4)                                  (0.02)              (0.15)
                                                            ---------           ---------
   NET LOSS                                                 $   (0.26)          $   (0.53)
                                                            =========           =========

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: (A)                 53.2                52.8
                                                            =========           =========
</TABLE>



See notes to condensed consolidated financial statements.


(A)   Diluted loss per share and corresponding average potential shares
      outstanding have not been presented because of their antidilutive nature
      (see Note 5).


                                        2

<PAGE>   5



GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
JUNE 30, 1998 AND 1997 (In millions, except per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                             NINE MONTHS ENDED JUNE 30,
                                                             --------------------------
                                                              1998                1997
                                                              ----                ----

<S>                                                         <C>                 <C>      
NET SALES                                                   $   628.8           $   577.4
COST OF GOODS SOLD                                              572.4               534.3
                                                            ---------           ---------
GROSS MARGIN                                                     56.4                43.1
SELLING AND ADMINISTRATIVE COSTS                                (66.9)              (61.5)
                                                            ---------           ---------
OPERATING LOSS                                                  (10.5)              (18.4)
INTEREST EXPENSE - Net                                          (61.6)              (60.0)
OTHER EXPENSE - Net                                              (3.0)               (0.8)
                                                            ---------           ---------
LOSS BEFORE TAXES AND EXTRAORDINARY ITEM                        (75.1)              (79.2)
INCOME TAX BENEFIT                                              (28.8)              (31.1)
                                                            ---------           ---------
NET LOSS BEFORE EXTRAORDINARY ITEM                              (46.3)              (48.1)
EXTRAORDINARY LOSS (Note 4)                                     (25.1)               (7.7)
                                                            ---------           ---------
NET LOSS                                                        (71.4)          $   (55.8)
                                                                                =========

RETAINED DEFICIT:
   BEGINNING OF PERIOD                                         (128.1)
                                                            ---------
   END OF PERIOD                                            $  (199.5)
                                                            =========

LOSS PER COMMON SHARE: (A)
   LOSS BEFORE EXTRAORDINARY ITEM                           $   (0.87)          $   (0.91)
   EXTRAORDINARY LOSS (Note 4)                                  (0.47)              (0.15)
                                                            ---------           ---------
   NET LOSS                                                 $   (1.34)          $   (1.06)
                                                            =========           =========

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: (A)                 53.1                52.8
                                                            =========           =========
</TABLE>



See notes to condensed consolidated financial statements.


(A)   Diluted loss per share and corresponding average potential shares
      outstanding have not been presented because of their antidilutive nature
      (see Note 5).


                                        3

<PAGE>   6



GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
JUNE 30, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                NINE MONTHS ENDED JUNE 30,
                                                                --------------------------
                                                                  1998              1997
                                                                  ----              ----
                                                                      (In millions)
<S>                                                            <C>                <C>      
CASH FLOWS FROM OPERATIONS:
   Net loss                                                    $  (71.4)          $  (55.8)
   Adjustments to reconcile net loss
    to net cash from operating activities:
        Extraordinary loss                                         25.1                7.7
        Depreciation and amortization                              49.2               49.1
        Deferred tax provision                                    (12.0)             (27.9)
        Change in current assets and liabilities,
            excluding acquisitions and dispositions               (61.4)             (46.0)
        Other - net                                                 2.7                0.3
                                                               --------           --------
Net cash used for operations                                      (67.8)             (72.6)
                                                               --------           --------

CASH FLOWS FROM INVESTMENTS:
   Capital expenditures                                           (31.3)             (22.8)
   Capitalized interest                                            (1.1)              (0.7)
   Other investments - net                                         (0.6)              (0.2)
                                                               --------           --------
Net cash used for investments                                     (33.0)             (23.7)
                                                               --------           --------

CASH FLOWS FROM FINANCING:
   Senior debt - repayments                                        (9.5)              (9.4)
   Early retirement of debt                                      (436.9)            (189.7)
   Issuance of Senior Notes                                       200.0              225.0
   Issuance of Senior Subordinated Notes                          250.0               --
   Issuance of Term Loan                                          125.0               --
   Debt issuance costs                                            (15.2)              (5.6)
   Revolving credit agreement borrowings/
    (repayments) - net                                            (11.0)              43.0
   Other financing - net                                            1.1                0.7
                                                               --------           --------
Net cash provided by financing                                    103.5               64.0
                                                               --------           --------

Net increase (decrease) in cash and equivalents                     2.7              (32.3)
Cash and equivalents, beginning of period                           6.1               39.2
                                                               --------           --------
Cash and equivalents, end of period                            $    8.8           $    6.9
                                                               ========           ========

SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid (refunded) for:
   Interest                                                    $   62.9           $   77.7
                                                               ========           ========

   Income taxes                                                $   (5.1)          $    2.1
                                                               ========           ========

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
   AND FINANCING ACTIVITIES:
        Write-off of deferred financing fees                   $    8.0           $    2.8
                                                               ========           ========

        Property additions                                     $    8.9           $    0.8
                                                               ========           ========

        Increase in total debt                                 $   10.5           $    0.8
                                                               ========           ========

        Decrease in accrued and other liabilities              $    1.6           $   --
                                                               ========           ========
</TABLE>

 See notes to condensed consolidated financial statements.

                                        4

<PAGE>   7



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 June 30, 1998, the
results of operations for the three months and nine months ended June 30, 1998
and 1997, and cash flows for the nine months ended June 30, 1998 and 1997,
including all the accounts of Gaylord Container Corporation and 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, 1997. Certain
amounts in the consolidated statement of cash flows have been reclassified to
conform to the current year presentation.

2.  INVENTORIES

Inventories consist of:
                                     JUNE 30,         SEPTEMBER 30,
                                       1998               1997
                                       ----               ----
                                             (In millions)
Finished products                    $  21.8           $  22.5
In process                              46.1              39.3
Raw materials                           12.4               9.2
Supplies                                14.2              15.0
                                     -------           -------
                                        94.5              86.0
LIFO valuation adjustment               (6.2)             (8.6)
                                     -------           -------
     Total                           $  88.3           $  77.4
                                     =======           =======

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
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

                                        5

<PAGE>   8



GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES

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

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.

On May 21, 1996, the Louisiana state court established a Plaintiff's Liaison
Committee (PLC) to coordinate and oversee the consolidated cases on behalf of
plaintiffs. On June 26, 1996 the PLC and defendants agreed to a Case Management
Order (CMO) that was subsequently entered by the Court. Pursuant to the CMO, the
plaintiffs filed a single Consolidated Master Petition against Gaylord Chemical
Corporation, the Company and twenty-one other defendants. In the Consolidated
Master Petition all claims against individual defendants (including the officers
of Gaylord Chemical Corporation and the Company) were dropped. The Consolidated
Master Petition includes substantially all of the claims and theories asserted
in the prior lawsuits, including negligence and strict liability, as well as
several claims of statutory liability. Compensatory and punitive damages are
sought. The Company and its subsidiary are vigorously contesting all of these
claims.

On July 15, 1996 the Louisiana state court certified these consolidated actions
as a single class action. The class was tentatively defined to include all those
persons or entities who claim to have been injured as a result of the October
23, 1995 accident. On March 27, 1997, the Louisiana Court of Appeal for the
First Circuit reversed the trial court's order granting class certification,
defining the class, approving class notice, requiring all notice forms be
notarized and appointing the plaintiffs' attorneys to the PLC. The Court of
Appeal ordered the trial court to conduct a new class certification hearing to
allow additional evidence on the adequacy of class representatives and class
counsel and instructed the trial court to create a concise geographic definition
of the class of individuals allegedly impacted. Finally, the Court of Appeal
instructed the trial judge to approve a new class notice form that permits the
use of notice of claim forms and/or proof of claim forms only after a
determination of liability, if any. The Louisiana Supreme Court

                                        6

<PAGE>   9



GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES

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

declined to review that decision. On May 23, 1997, the trial court reappointed
the PLC with several new members. On June 20, 1997, a second CMO was entered by
the court. Pursuant to this second CMO, a second Consolidated Amended Master
Petition (SCAMP) was filed on June 20, 1997. The SCAMP includes substantially
all the claims and theories asserted in the original Consolidated Master
Petition. No officers of Gaylord Chemical Corporation or the Company are named
as defendants in the SCAMP.

Pursuant to the second CMO, the status of all lawsuits pending before the filing
of the SCAMP, some of which name officers of Gaylord Chemical Corporation or the
Company as defendants, will be determined by the trial court after class
certification is finally resolved. The trial court certified a class on November
10, 1997. The class consists of allegedly injured parties in the city of
Bogalusa, parts of Washington Parish, Louisiana, and parts of Marion, Walthall
and Pike Counties in Mississippi. Defendants' suspensive appeal challenging the
geographic boundaries of the class is currently pending in the Louisiana Court
of Appeal. The trial court entered a stay of all class notice and related issues
until the defendants' suspensive appeal on geographic boundaries is resolved. 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 twelve 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. To date, discovery in the consolidated cases has been coordinated
with the ongoing discovery in the Louisiana class action. Following several
rulings by the Mississippi Trial Court judge, 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 beginning September 8, 1998. On July 24, 1998, the trial
court ordered that the results of this September trial for the initial 20
Mississippi plaintiffs will not be binding, either as to liability or 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 and
compensatory damages. The trial court further ordered that the distribution of
any punitive damages awarded after the initial September trial will be made by
the trial court only after the final resolution (by judgment or settlement) of
the compensatory damages of all plaintiffs.


                                        7

<PAGE>   10


GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES

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

The Company and Gaylord Chemical Corporation maintain insurance and have filed
separate suits seeking declaratory judgement of coverage for the October 23,
1995 accident against their general liability and directors and officers
liability insurance carriers. These cases are currently pending in Louisiana
state court before the same judge who is hearing the liability class action. The
carrier with the first layer of coverage under the general liability policy has
agreed to pay the Company's and Gaylord Chemical Corporation's defense costs
under a reservation of rights. The primary carrier and the nine excess level
insurers moved for summary judgment before the trial court claiming that
coverage for the accident is excluded because of pollution exclusions contained
in these policies. On November 20, 1997, the trial court denied all of the
motions, and the insurers filed supervisory writs with the Court of Appeal
contesting that ruling. On April 30, 1998 the Court of Appeal affirmed denial of
the motions. On June 1, 1998 the Louisiana Supreme Court refused the insurers'
request for supervisory writs challenging the denial of summary judgment.
Discovery in the coverage action is underway, and trial is currently scheduled
to begin October 12, 1998.

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.

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 (together, the New Notes)
and used the proceeds to defease all of its outstanding 12-3/4% Senior
Subordinated Discount Debentures ($404.3 million outstanding principal amount)
due 2005 (the Old Notes). The Old Notes became callable on May 15, 1998 and were
redeemed and retired on that date. In conjunction with the defeasance,
approximately $6.1 million of deferred financing fees were written off, a
redemption premium of approximately $25.8 million was paid, and approximately
$6.8 million of unaccrued net interest was paid. The early retirement of debt
resulted in an extraordinary loss of $23.9 million, net of an income tax benefit
of $14.8 million.

During the third quarter of fiscal 1998, the Company refinanced its existing
Revolving Credit Facility (the Old Facility) establishing a term loan ($125
million outstanding principal amount) due 2004 and a new revolving credit
facility ($175 million) due 2003. The term loan begins semi-annual amortization
payments of $0.7 million in June 1999 which increase to $59.7 million in
December 2003 and June 2004. Proceeds from the term loan were used to retire the
Old Facility, repay $19.5 million of the Trade Receivable Facility, pay fees and
expenses and for general corporate purposes. In conjunction with this
refinancing, approximately $1.9 million of deferred financing fees were written
off. This transaction resulted in an extraordinary loss of $1.2 million, net of
an income tax benefit of $0.7 million.

5.  ADOPTION OF NEW ACCOUNTING STANDARD

Effective October 1, 1997, the Company adopted Statement of Financial

                                        8

<PAGE>   11


GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES

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

Accounting Standards No. 128, "Earnings Per Share" (FAS No. 128).  FAS
No. 128 requires the presentation of both basic earnings per share and
diluted earnings  per share.  Diluted earnings per share will not be
presented in periods where the effect is antidilutive (that is,
results in increased earnings per share or decreased net loss per
share).




                                        9

<PAGE>   12




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

RESULTS OF OPERATIONS
---------------------
THIRD QUARTER OF FISCAL 1998 COMPARED WITH THIRD QUARTER OF FISCAL
1997

Net sales for the third quarter of fiscal 1998 were $212.1 million, an increase
of approximately 12 percent compared with net sales of $189.4 million for the
third quarter of fiscal 1997. The operating loss for the current quarter was
$0.3 million compared with $11.2 million for the year-ago quarter. The net loss
for the current quarter totaled $13.9 million, or $0.26 per common share, and
included a $1.2 million ($0.02 per common share) extraordinary loss on the early
retirement of debt, compared with a net loss of $27.6 million, or $0.53 per
common share (including a $7.7 million extraordinary loss or $0.15 per common
share on the early retirement of debt), for the year-ago quarter.

Sales in the third quarter of fiscal 1998 were favorably affected by higher
average selling prices for the Company's products which increased net sales by
approximately $19 million compared with the third quarter of fiscal 1997.
Average selling prices for the Company's domestic linerboard, export linerboard
and corrugated products increased approximately 26 percent, 24 percent and 14
percent, respectively, in the third quarter of fiscal 1998 compared with the
prior-year quarter. Average selling prices for the Company's unbleached kraft
paper decreased approximately 7 percent while multiwall bag selling prices
increased approximately 8 percent in the current quarter compared with the
prior-year quarter. Net sales in the third quarter of fiscal 1998 were also
favorably affected by higher volume, primarily corrugated shipments, which
increased net sales by approximately $4 million compared to the prior-year
quarter.

Corrugated shipments totaled approximately 3.7 billion square feet in the third
quarter of fiscal 1998 compared with approximately 3.5 billion square feet in
the third quarter of fiscal 1997. This increase is primarily the result of the
start-up of a new sheet feeder plant during the first quarter of fiscal 1998.
Multiwall bag shipments of 13.9 thousand tons in the current quarter were
unchanged from the third quarter of fiscal 1997.

Quarter-over-quarter, total mill production decreased to 4,285 tons per day
(TPD, calculated on the basis of the number of days in the period) from 4,329
TPD. The decrease in production was primarily the result of electric power
curtailments by the local utility at the Bogalusa Mill. Containerboard
production in the third quarter of fiscal 1998 was 3,538 TPD compared with
production of 3,589 TPD in the prior-year quarter. Unbleached kraft paper
production in the current quarter increased to 747 TPD from 740 TPD in the
prior-year quarter.

Gross margin for the third quarter of fiscal 1998 increased to $23.3 million
from $9.4 million in the prior-year quarter primarily due to higher selling
prices for the Company's products. Higher average net selling prices increased
gross margin by approximately $19 million. Although fiber costs declined during
the quarter from abnormally high levels, the residual effects of earlier higher
wood chip costs due to wet weather in the southern U.S., higher chemical costs
and higher natural gas prices still reduced the quarter's performance by $3


                                       10

<PAGE>   13



million compared to last year's third quarter.

Selling and administrative costs were $23.6 million for the current quarter
compared with selling and administrative costs of $20.6 million in the
prior-year quarter. This increase was primarily related to making the Company's
computer systems ready for the year 2000 and the start-up of a new sheet feeder
facility.

Net interest expense of $19.9 million in the third quarter of fiscal 1998
decreased from the prior-year quarter by $0.7 million primarily as a result of
lower average interest rates. Lower average borrowing rates reduced interest
expense by approximately $3.7 million while higher average debt levels increased
interest expense by approximately $3.0 million compared to the prior-year
quarter. The lower average borrowing rates were the result of the refinancing of
the Company's 12-3/4% Senior Subordinated Discount Debentures due 2005 in the
second quarter of fiscal 1998 and the refinancing of the Company's 11-1/2%
Senior Notes due 2001 in the third quarter of fiscal 1997.

In the third quarter of fiscal 1998, the Company recorded a tax benefit of $7.9
million which corresponds to an effective tax rate of approximately 38 percent.
In the third quarter of fiscal 1997, the Company recorded a tax benefit of $12.9
million which corresponds to an effective rate of approximately 39 percent.

During the third quarter of fiscal 1998, the Company refinanced its existing
Revolving Credit Facility (the Old Facility) establishing a term loan ($125
million outstanding principal amount) due 2004 and a new revolving credit
facility ($175 million ) due 2003 (together, the New Facility). The term loan
begins semi-annual amortization payments of $0.7 million in June 1999 which
increase to $59.7 million in December 2003 and June 2004. Proceeds from the term
loan were used to retire the Old Facility, repay $19.5 million of the Trade
Receivable Facility, pay fees and expenses and for general corporate purposes.
In conjunction with this refinancing, approximately $1.9 million of deferred
financing fees were written off. This transaction resulted in an extraordinary
loss of $1.2 million, net of an income tax benefit of $0.7 million.

FIRST NINE MONTHS OF FISCAL 1998 COMPARED WITH FIRST NINE MONTHS OF
FISCAL 1997

Net sales for the first nine months of fiscal 1998 were $628.8 million, an
increase of approximately 9 percent compared with net sales of $577.4 million
for the first nine months of fiscal 1997. The operating loss for the current
period was $10.5 million compared with $18.4 million for the year-ago period.
The net loss for the current period totaled $71.4 million, or $1.34 per common
share, and included a $25.1 million ($0.47 per common share) extraordinary loss
on the early retirement of debt, compared with a net loss of $55.8 million, or
$1.06 per common share which included an extraordinary loss of $7.7 million or
$0.15 per common share on the early retirement of debt, for the year-ago period.

Sales in the first nine months of fiscal 1998 were favorably affected by higher
average selling prices for the Company's products which increased net sales by
approximately $34 million compared with the prior-year period. Average selling
prices for the Company's domestic linerboard, export linerboard and corrugated
products increased approximately 21 percent, 15 percent and 7 percent,
respectively, in

                                       11

<PAGE>   14



the first nine months of fiscal 1998 compared with the prior-year period.
Average selling prices for both the Company's unbleached kraft paper and
multiwall bags increased approximately 4 percent in the current period compared
with the prior-year period. Net sales in the first nine months of fiscal 1998
were also favorably affected by higher volume, primarily corrugated shipments,
which increased net sales by approximately $18 million compared to the year-ago
period.

Corrugated shipments totaled approximately 10.5 billion square feet in the first
nine months of fiscal 1998 compared with 10.1 billion square feet in the first
nine months of fiscal 1997 primarily due to the start-up of a new sheet feeder
facility during the first quarter of fiscal 1998. Multiwall bag shipments
increased to 44.9 thousand tons in the current period compared with shipments of
43.0 thousand tons in the first nine months of fiscal 1997.

Period-over-period, total mill production increased to 4,226 TPD from 4,184 TPD.
Containerboard production in the first nine months of fiscal 1998 was 3,488 TPD
compared with production of 3,432 TPD in the prior-year period. Unbleached kraft
paper production in the current period decreased to 738 TPD from 752 TPD in the
prior-year period.

Gross margin for the first nine months of fiscal 1998 increased to $56.4 million
from $43.1 million in the prior-year period. Gross margin was adversely affected
by higher costs for fiber ($21 million) and incremental fixed costs associated
with the start-up of the new sheet feeder facility ($3 million). The increase in
fiber costs is primarily due to higher prices for both wood chips and, to a
lesser extent, old corrugated containers (OCC). The average delivered cost of
wood chips and OCC increased approximately 18 percent and 6 percent,
respectively, in the first nine months of fiscal 1998 compared to the first nine
months of fiscal 1997. The increase in wood chip costs is due to unseasonably
wet weather and increased demand. These unfavorable variances were more than
offset by the effect of higher volume ($5 million) and higher selling prices for
the Company's products. The higher average net selling prices, including the
effect of lower containerboard and unbleached kraft paper costs in the Company's
converting facilities ($1 million) increased gross margin by approximately $35
million.

Selling and administrative costs were $66.9 million for the current period
compared with $61.5 million in the prior-year period. This increase was
primarily related to making the Company's computer systems ready for the year
2000 and the start-up of the new sheet feeder facility.

Net interest expense of $61.6 million in the first nine months of fiscal 1998
increased from the prior-year period by $1.6 million. Higher average debt levels
increased interest expense by approximately $8.1 million, while lower average
borrowing rates reduced interest expense by approximately $6.5 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 in the second quarter
of fiscal 1998, and the refinancing of the Company's 11-1/2% Senior Notes due
2001 in the third quarter of fiscal 1997.

In the first nine months of fiscal 1998, the Company recorded a tax benefit of
$28.8 million which corresponds to an effective tax rate of approximately 38
percent. In the first nine months of fiscal 1997, the Company recorded a tax
benefit of $31.1 million which corresponds


                                       12

<PAGE>   15



to an effective rate of approximately 39 percent.

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 (together, the New Notes)
and used the proceeds to defease all of its outstanding 12-3/4% Senior
Subordinated Discount Debentures ($404.3 million outstanding principal amount)
due 2005 (the Old Notes). The Old Notes became callable on May 15, 1998 and were
redeemed and retired on that date. In conjunction with the defeasance,
approximately $6.1 million of deferred financing fees were written off, a
redemption premium of approximately $25.8 million was paid, and approximately
$6.8 million of unaccrued net interest was paid. The early retirement of debt
resulted in an extraordinary loss of $23.9 million, net of an income tax benefit
of $14.8 million.

During the third quarter of fiscal 1998, the Company refinanced its Old Facility
with the New Facility. The term loan begins semi-annual amortization payments of
$0.7 million in June 1999 which increase to $59.7 million in December 2003 and
June 2004. Proceeds from the term loan were used to retire the Old Facility,
repay $19.5 million of the Trade Receivable Facility, pay fees and expenses and
for general corporate purposes. In conjunction with this refinancing,
approximately $1.9 million of deferred financing fees were written off. This
transaction resulted in an extraordinary loss of $1.2 million, net of an income
tax benefit of $0.7 million.


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 for the first nine months of fiscal 1998 was $67.8
million, compared with net cash used for operations of $72.6 million for the
year-ago period.

Capital expenditures of $31.3 million in the first nine months of fiscal 1998
increased by $8.5 million from $22.8 million in the first nine months of fiscal
1997. In addition to the capital spending, the Company acquired $10.5 million of
equipment financed through a capital lease.

In fiscal 1992, the Company determined it would be unlikely that its Antioch,
California virgin fiber mill (the East Mill), which was closed in fiscal 1991,
could be sold as a mill site or that the East Mill, or some portion thereof,
could be operated economically by the Company. The Company believed, and
continues to believe, that the most likely outcome will be the sale of
individual assets and the subsequent demolition of the remaining structures on
the mill site. In the first nine months of fiscal 1998 the Company incurred
approximately $3.0 million of costs for demolition and maintenance of the East
Mill, such costs are net of proceeds from scrap sales. Removal of the remaining
structures on the mill site will require the Company to incur costs for
demolition and asbestos removal. The


                                       13

<PAGE>   16



Company has deferred incurring substantial expenditures for demolition and
asbestos removal until all uncertainties regarding disposition of the mill
assets have been resolved. At June 30, 1998, balance sheet accruals for
demolition and asbestos removal were approximately $4.3 million, and the net
book value of the East Mill was $5.8 million.

LIQUIDITY

At June 30, 1998, the Company had cash and equivalents of $8.8 million, an
increase of $2.7 million from September 30, 1997. In the second quarter of
fiscal 1998, the Company issued the New Notes and used the proceeds to defease
all of its outstanding Old Notes which were redeemed and retired on May 15,
1998. Total debt increased by $161.0 million to $877.1 million at June 30, 1998
from $716.1 million at September 30, 1997. The increase in borrowings was
primarily due to increased primary working capital ($41 million), semi-annual
interest payments on the Company's public debt securities ($54 million) and
capital expenditures ($31 million). In addition, the Company increased total
debt by $45 million in connection with the defeasance of the Old Notes during
the second quarter of fiscal 1998 as described above. At June 30, 1998, the
Company had $36 million of borrowings outstanding and approximately $198 million
of credit available under the revolving portions of its credit agreements.

In June 1998, the Company entered into the New Facility with a group of lenders.
The New Facility is comprised of a six year, $125 million B Tranche term loan
and a five year $175 million revolving credit facility. The term loan begins
semi-annual amortization payments of $0.7 million in June 1999 which increase to
$59.7 million in December 2003 and June 2004. The proceeds from the term loan
were used to: (i)repay the outstanding balance on the Old Facility, ($95.5
million) which was then terminated; (ii)repay a portion of the Trade Receivable
Facility ($19.5 million); (iii)pay fees and expenses and (iv)for general
corporate purposes.

The New Facility contains normal and customary terms and conditions including
restrictions on: liens, additional indebtedness, guaranties, equity offerings,
capital expenditures, and asset sales. The facility also contains covenants
requiring the Company to meet certain financial criteria each quarter. Further,
the Company is required to pre-pay a portion of the term loan with 50% of excess
cash flow as that term is defined as well as in the case of certain asset sales
and equity offerings.

At June 30, 1998, the Company had primary working capital of $153.5 million
compared to $112.8 million at September 30, 1997 largely due to higher trade
receivables, higher inventories and lower trade payables. The increase in trade
receivables was primarily due to higher average net selling prices for the
Company's products.

Strengthening industry fundamentals, including year-over-year growth in
corrugated product shipments and strong export demand for linerboard, resulted
in a $50 per ton increase in published industry prices for containerboard in
October 1997 (and subsequent increases in converted product prices). Since
October 1997, the published prices of containerboard have declined approximately
$20 per ton.

During the first nine months of fiscal 1998, the Company's average wood chip
prices increased approximately 18 percent compared with the first nine months of
fiscal 1997 as a result of higher demand and


                                       14

<PAGE>   17



unusually wet weather in the timberlands of the southern United States. In
addition, the Company's average delivered price for OCC increased approximately
6 percent in the first nine months of fiscal 1998 compared with the first nine
months of fiscal 1997. However, wood chip prices have declined from their recent
high (January 1998) by 23% and OCC prices have declined from their recent high
(March 1998) by 15%. The fiber markets, however, are difficult to predict, and
there can be no assurance of the future direction of wood chip and OCC prices.

Assuming current selling prices, fiber costs and maintenance levels of capital
spending, the Company believes that cash provided by operations, and amounts
available under its credit agreements will provide adequate liquidity to meet
its debt service obligations and other liquidity requirements over the next 12
to 24 months. However, unless there is product price improvement, the Company
will be required to seek financial covenant modifications to its bank credit
agreement by June, 1999.

PENDING ACCOUNTING STANDARDS
----------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" which
establishes standards for reporting and display of comprehensive income and its
components in financial statements. The statement is effective for fiscal years
beginning after December 15, 1997. The statement will be adopted in fiscal 1999
and will not impact the results of operations, financial position or cash flows
of the Company.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which changes the way public companies
report information about segments of their business. The statement is effective
for fiscal years beginning after December 15, 1997. The Company has not yet
completed its analysis of which operating segments, if any, it will report on.

In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employer's Disclosures about Pensions
and other Postretirement Benefits" which standardizes the disclosure
requirements for pensions and other postretirement benefits. The statement is
effective for fiscal years beginning after December 15, 1997. The statement will
be adopted in fiscal 1999 and will not impact the results of operations,
financial position or cash flows of the Company.

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. This statement is effective for all fiscal years
beginning after June 15, 1999. This statement will be adopted in fiscal 2000 and
will not impact the results of operations, financial position or cash flows of
the Company.

OTHER
-----
The Company has conducted a review of its computer systems to identify those
areas that could be affected by the "Year 2000" issue and is

                                       15

<PAGE>   18



engaged in a comprehensive project to modify its systems to make them ready for
the year 2000. The Company believes that, by modifying existing software, and/or
converting to new software, the Year 2000 issue can be resolved without any
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 $2 million has been incurred as of June
30, 1998. In addition, 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 major customers, suppliers
and financial institutions. At this time, the Company is unable to determine the
impact of these third party compliance efforts, if any, on the Company's results
of operations, financial position or cash flow.


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

         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. 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, potential equipment or information
         technology malfunctions and pending litigation. For additional
         information see the Company's annual report on Form 10-K for the most
         recent fiscal year.


                                       16

<PAGE>   19



                           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.

                  Not applicable.

Item 5.           Other Information.

                  Not applicable.

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

                  Number and Description of Exhibit
                  ---------------------------------
         a)       4.1 (a)   $300 million Credit Agreement among Gaylord
                            Container Corporation with Bankers Trust Company, as
                            Agent, and various lending Institutions, dated as of
                            June 19, 1998

                  27.1 (a)  Financial Data Schedule

         b)       No reports on Form 8-K were filed for the quarter ended June
                  30, 1998.





--------------------------------------------------------------------------------
(a) Filed with this Quarterly Report.


                                       17

<PAGE>   20





                                   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:   August 14, 1998                    /s/ MARVIN A. POMERANTZ
                                           -----------------------
                                           Marvin A. Pomerantz
                                           Chairman and Chief Executive Officer


Date:   August 14, 1998                    /s/ JEFFREY B. PARK
                                           -------------------
                                           Jeffrey B. Park
                                           Vice President-Controller
                                           (Principal Accounting Officer)







                                       18