===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                    FORM 10-Q

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
          ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
                        Commission file number 1-11803





                          AMERICAN PAD & PAPER COMPANY
             (Exact name of registrant as specified in its charter)


         Delaware                                           04-3164298
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                        Identification No.)


17304 Preston Road, Suite 700, Dallas, TX                  75252-5613
(Address of principal executive offices)                   (Zip Code)


Registrant's telephone number, including area code: (972) 733-6200


             Securities registered pursuant to Section 12(b) of the Act:
                                    None


             Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share


         Indicate  by check  mark  whether  each  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 each
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes _X No








     As of April 30,  1999,  there  were  27,727,045  outstanding  shares of
 American Pad & Paper Company common stock.

================================================================================

<PAGE>

                          AMERICAN PAD & PAPER COMPANY

                      QUARTERLY PERIOD ENDED MARCH 31, 1999

                                      INDEX
<TABLE>
<CAPTION>

                                                                                                   Page No.

PART I        FINANCIAL INFORMATION

Item 1   Financial Statements (unaudited)

<S>                                                                                                              <C>
Consolidated Balance Sheets as of
  March 31, 1999 and December 31, 1998............................................................    3

Consolidated Statements of Operations for the three months ended
  March 31, 1999 and 1998.........................................................................    4

Consolidated Statements of Cash Flows for the three months
  ended March 31, 1999 and 1998...................................................................    5

Notes to Consolidated Financial Statements .......................................................    6

Item 2   Management's Discussion and Analysis of Financial Condition and Results of
           Operations ............................................................................   11

Item 3   Quantitative and Qualitative Disclosures About Market Risk...............................   16


PART II  OTHER INFORMATION

Item 1   Legal Proceedings........................................................................   17
Item 2   Changes in Securities and Use of Proceeds................................................   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
Signature Page   .................................................................................   18
</TABLE>


<PAGE>


                          AMERICAN PAD & PAPER COMPANY
                           CONSOLIDATED BALANCE SHEETS
                       (in thousands except share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                              March 31,       December 31,
                                                                1999             1998     
                                                            --------------   --------------
ASSETS
Current assets:
<S> .....................................................  <C>              <C>
  Cash ..................................................   $        1,270   $        1,371
  Accounts receivable ...................................           38,651           60,660
  Inventories ...........................................          120,047          112,169
  Income taxes receivable ...............................            1,700            1,700
  Prepaid expenses and other current assets .............            1,726            1,240
  Deferred income taxes .................................               40               40
                                                            --------------   --------------
    Total current assets ................................          163,434          177,180

Property, plant and equipment ...........................          150,747          152,198
Intangible assets .......................................          183,158          185,805
Other ...................................................            2,580            2,654
                                                            --------------   --------------
  Total assets ..........................................   $      499,919   $      517,837
                                                            ==============   ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
  Current portion of long-term debt .....................   $        1,242   $        1,236
  Accounts payable ......................................           38,385           49,598
  Accrued expenses ......................................           45,022           47,078
  Income taxes payable ..................................              300              300
  Restructuring charges .................................            5,522            5,660
                                                            --------------   --------------
    Total current liabilities ...........................           90,471          103,872
                                                            --------------   --------------

Long-term debt ..........................................          382,383          373,675
Deferred income taxes ...................................           16,701           16,972
Other ...................................................            1,101            1,288
                                                            --------------   --------------
   Total liabilities ....................................          490,656          495,807
                                                            --------------   --------------

Commitments and contingencies
Stockholders' equity:
  Preferred stock, 150,000 shares authorized,
   no shares issued and outstanding .....................             --               --
  Common stock, voting, $.01 par value, 75,000,000
    shares authorized, 27,724,045 and 27,724,045
    shares issues and outstanding, respectively .........              277              277
Additional paid-in capital ..............................          301,287          301,287
Accumulated deficit .....................................         (292,301)        (279,534)
                                                            --------------   --------------

    Total stockholders' equity ..........................            9,263           22,030
                                                            --------------   --------------
    Total liabilities and stockholders' equity ..........   $      499,919   $      517,837
                                                            ==============   ==============


The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


<PAGE>


                          AMERICAN PAD & PAPER COMPANY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands except per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            Three months ended
                                                                                 March 31,
                                                                           1999             1998  
                                                                      --------------   --------------
<S>                                                                  <C>              <C>            
Net sales .........................................................   $      137,631   $      161,595
Cost of sales .....................................................          124,771          142,173
                                                                      --------------   --------------
  Gross profit ....................................................           12,860           19,422

Operating expenses:
  Selling and marketing ...........................................            4,880            4,689
  General and administrative ......................................            7,130            5,432
  Loss on sale of accounts receivable .............................              740              747
  Amortization of intangible assets ...............................            1,286            1,587
  Management fees and services ....................................              375              530
                                                                      --------------   --------------

Income (loss) from operations .....................................           (1,551)           6,437

Other income (expense):
  Interest ........................................................          (10,796)         (10,743)
  Other income, net ...............................................              306               51
                                                                      --------------   --------------

Loss before income taxes ..........................................          (12,041)          (4,255)
Benefit for income taxes ..........................................             --             (2,170)
                                                                      --------------   --------------

Loss before cumulative effect of a change in accounting principle .          (12,041)          (2,085)
Cumulative effect of a change in accounting principle .............              726             --
                                                                      --------------   --------------

Net loss ..........................................................   $      (12,767)  $       (2,085)
                                                                      ==============   ==============

Basic loss per share
  Loss before cumulative effect of a change in accounting principle   $        (0.43)  $        (0.08)
  Cumulative effect of a change in accounting principle ...........            (0.03)            --
                                                                      --------------   --------------
  Net loss ........................................................   $        (0.46)  $        (0.08)
                                                                      ==============   ==============


Weighted average shares outstanding:
  Basic ...........................................................           27,724           27,695
                                                                      ==============   ==============





     The  accompanying  notes are an  integral  part of these consolidated financial statements.
</TABLE>


<PAGE>



                                         AMERICAN PAD & PAPER COMPANY
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                (in thousands)
                                                 (Unaudited)
<TABLE>
<CAPTION>

                                                                    Three Months Ended
                                                                         March 31,
                                                              -------------     --------------
                                                                  1999                 1998
                                                              -------------     --------------

Cash flows (uses) from operating activities:
<S> .......................................................  <C>               <C>
  Net loss ................................................   $      (12,767)   $       (2,085)
  Adjustments to reconcile net loss to net cash
   Provided by (used in) operating activities:
    Deferred income tax ...................................             (271)             --
    Depreciation ..........................................            3,627             3,293
    Amortization of goodwill and intangible assets ........            1,286             1,587
    Cumulative effect of change in accounting principle ...              726              --
    Amortization of debt issuance costs ...................              693               849
    Gain on disposal of assets ............................              (67)             --
    Changes in assets and liabilities
       Accounts receivable ................................           28,009            32,997
       Income taxes receivable ............................             --               3,301
       Inventories ........................................           (7,877)           (2,757)
       Prepaid expenses and other .........................             (486)             (383)
       Income tax payable .................................             --              (2,280)
       Accounts payable ...................................          (11,213)          (10,864)
       Accrued expenses ...................................           (2,195)           (5,252)
       Other assets and liabilities .......................             (115)           (2,072)
                                                              --------------    --------------
         Net cash provided (used) by operating activities .             (650)           16,334
                                                              --------------    --------------

Cash uses from investing activities:
  Purchases of property and equipment .....................           (2,149)           (5,980)
  Proceeds from sale of assets ............................               40                19
                                                              --------------    --------------
         Net cash used in investing activities ............           (2,109)           (5,961)
                                                              --------------    --------------

Cash flows from financing activities:
  Net borrowings on credit agreement and long-term debt ...            9,000            27,600
  Repayment of long-term debt .............................             (285)              (90)
  Net repayment from accounts receivable financing facility           (6,000)          (23,000)
  Debt issuance costs .....................................              (57)           (1,393)
  Options and management stock purchase plan ..............             --                  11
                                                              --------------    --------------
     Net cash provided by financing activities ............            2,658             3,128
                                                              --------------    --------------

Net increase (decrease) in cash ...........................             (101)           13,501
Cash, beginning of period .................................            1,371             4,855
                                                              --------------    --------------
Cash, end of period .......................................   $        1,270    $       18,356
                                                              ==============    ==============

  The accompanying  notes are an  integral  part of these consolidated financial statements.
</TABLE>

<PAGE>


                          AMERICAN PAD & PAPER COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 1999



1.  Organization and Basis of Presentation

     Organization and Basis of Presentation

         American Pad & Paper  Company  (the  "Company")  is a holding  company,
which conducts its operations  through American Pad & Paper Company of Delaware,
Inc. ("AP&P Delaware") and its wholly owned subsidiaries.

         The financial statements of the Company include the historical accounts
and  operations  of the Company and AP&P  Delaware.  Included in the  historical
accounts and  operations  of AP&P  Delaware are the accounts and  operations  of
AMPAD, the envelope  operations of Williamhouse and Niagara,  and the continuous
form operations of  Shade/Allied  since their  respective  dates of acquisition.
Additionally,  the  consolidated  financial  statements  include the accounts of
Notepad Funding Corporation  ("Notepad"),  a special purpose corporation used in
the  accounts  receivable  financing  facility.  All  significant   intercompany
balances have been eliminated.

     Business

     The Company is a leading  manufacturer  and marketer of nationally  branded
and private label  paper-based  office  products in North  America.  The Company
operates in one business  segment,  converting paper into office  products,  and
offers a broad  assortment of products  through three  complementary  divisions:
AMPAD (writing  pads,  file folders,  retail  envelopes,  and other  paper-based
office products), Williamhouse (business envelopes and forms), and Creative Card
(seasonal greeting cards). The Company's products are distributed  through large
mass merchant  retailers,  office product  superstores,  warehouse clubs,  major
contract  stationers,   office  products  wholesalers,   paper  merchants,   and
independent dealers.

         Interim Financial Information

         The accompanying  interim financial  statements are unaudited.  Certain
information and disclosures  normally included in financial  statements prepared
in accordance with generally accepted accounting  principles have been condensed
or omitted,  although the Company  believes the disclosures  included herein are
adequate  to make  the  information  presented  not  misleading.  These  interim
financial  statements should be read in conjunction with the Company's financial
statements for the year ended December 31, 1998.

         The accompanying  interim financial statements contain all adjustments,
consisting  only  of  normal  recurring   adjustments,   necessary  for  a  fair
presentation  of the  Company's  financial  position at March 31, 1999,  and the
results of its  operations  and its cash flows for the three  months ended March
31, 1999, and 1998. The results of operations for the interim periods  presented
are not  necessarily  indicative  of results to be expected  for the full fiscal
year.

         American Pad & Paper Company of Delaware, Inc.

         The Company's wholly owned subsidiary,  AP&P Delaware, is the issuer of
13% Senior Subordinated Notes ("Notes"). Terms of the Notes require, among other
matters,  that AP&P Delaware  provide  annual  audited and  quarterly  unaudited
financial  statements  to  the  holders  of the  notes.  There  are no  material
differences  between the  financial  statements of the Company and those of AP&P
Delaware.  The composition of AP&P Delaware's  stockholder's equity at March 31,
1999,  consists of one hundred  shares of $0.01 par value common stock,  paid-in
capital of $202.4 million and an  accumulated  deficit of $193.1 million and, in
total, is equal to the stockholders' equity of the Company.


<PAGE>


2.       Restructuring Reserve

         On September 1, 1998, the Company  announced a plan to rationalize  its
manufacturing  operations.  The plan includes  plant  consolidations,  equipment
moves, plant/product changes, warehouse consolidations,  and the addition of new
distribution   centers.   The  rationalization  is  expected  to  result  in  an
approximate  14-18%  reduction  in  manufacturing  space and a net 7%  reduction
(approximately 250 employees, primarily in manufacturing) in the workforce.

     The Company has announced two plant closings as part of the rationalization
plan. The closing of the Kosciusko,  Mississippi plant was announced on November
10, 1998.  The closing of the Dallas,  Texas plant was  announced on January 19,
1999, and the closing of the Holland, New York plant was announced May 10, 1999.
The final  production of the  Kosciusko and Dallas plants  occurred on April 14,
1999, and April 22, 1999, respectively. As of March 31, 1999, 122 employees have
been severed and  severance  and benefit  payments  totaling  $219,000 have been
charged to the restructuring reserve.

<TABLE>
<CAPTION>

                                                                              Accrued
                                                               Amounts     Restructuring
                                                 Charge        Utilized       Costs
                                               -----------   ------------  -----------
                                                        (in thousands)
<S> .........................................<C>            <C>           <C>
Severance and benefits ...................... $      1,848   $       (219) $      1,629
Closing costs to exit facilities ............        2,484           --           2,484
Lease termination costs .....................          468           --             468
Property taxes after ceasing operations .....          941           --             941
                                              ------------   ------------  ------------
Total ....................................... $      5,741   $       (219) $      5,522
                                              ============   ============  ============
</TABLE>

         The Company recorded one-time  implementation costs associated with the
rationalization  plan of $1.3 million in cost of sales during the quarter  ended
March 31, 1999.  These expenses  represent costs to move  equipment,  efficiency
costs, and recruiting costs.  Estimated capital expenditures of $2.8 million and
one-time  implementation  costs of $5.2  million that do not qualify for current
recognition will be recorded primarily in 1999. Such costs include equipment and
inventory transfer costs,  employee retention and relocation,  recruiting costs,
interim  warehouse  costs,  and other training and efficiency  costs.  The major
undertakings of the  rationalization  plan are expected to be completed in 1999.
Upon full  implementation,  the plan is expected to have a significant  positive
effect  on  the  Company's  financial  performance,  resulting  in an  estimated
annualized cost savings of approximately $10.0 million.

3.  Accounts Receivable

<TABLE>
<CAPTION>
                                                               March 31,   December 31,
                                                                 1999          1998
                                                             ------------  ------------
                                                                    (in thousands)
<S> ........................................................<C>           <C>
Accounts receivable - trade ................................ $     36,951  $     59,936
Accounts receivable - other ................................        3,834         2,972
Less allowance for doubtful accounts and reserves for
 customers deductions and cash discounts ...................       (2,134)       (2,248)
                                                             ------------  ------------
                                                             $     38,651  $     60,660
                                                             ============  ============
</TABLE>



<PAGE>



         On May 24,  1996,  the Company  entered into a $60.0  million  accounts
receivable financing facility. At March 31, 1999 and December 31, 1998, accounts
receivable of $50.0  million and $56.0  million,  respectively,  were sold under
this facility. All accounts are sold with recourse.  Therefore, a portion of the
allowance for doubtful  accounts covers  receivables no longer  reflected on the
balance sheet. Under the agreement,  the maximum available under the facility is
subject to change based on the level of eligible  receivables  as defined in the
agreement. The facility matures in October 2001.


3.       Inventories
<TABLE>
<CAPTION>

                                                              March 31,    December 31,
                                                                1999           1998
                                                             ------------  ------------
                                                                   (in thousands)
<S> ........................................................<C>           <C>
Raw materials .............................................. $     32,849  $     29,892
Work in process ............................................        5,786         5,440
Finished goods .............................................       82,587        77,788
                                                             ------------  ------------
                                                                  121,222       113,120
LIFO reserve ...............................................       (1,175)         (951)
                                                             ------------  ------------
                                                             $    120,047  $    112,169
                                                             ============  ============
</TABLE>


4.       Property, Plant, and Equipment
<TABLE>
<CAPTION>

                                                Estimated
                                               Useful lives    March 31,   December 31,
                                                 in years       1999           1998
                                                             ------------  ------------
                                                                  (in thousands)
<S> ..........................................       <S>    <C>           <C>
Land .........................................               $      7,002  $      7,002
Buildings ....................................        40           34,604        34,585
Machinery and equipment ......................      3-12          133,492       132,721
Office furniture and fixtures ................       3-7           12,345        12,351
Construction in progress .....................                      6,429         5,109
                                                             ------------  ------------
                                                                  193,872       191,768
Less accumulated depreciation ................                    (43,125)      (39,570)
                                                             ------------  ------------
                                                             $    150,747  $    152,198
                                                             ============  ============
</TABLE>


5.       Goodwill and Intangible Assets
<TABLE>
<CAPTION>

                                                               March 31,   December 31,
                                                                 1999          1998
                                                             ------------  ------------
                                                                    (in thousands)
<S> ........................................................<C>           <C>
Goodwill ................................................... $    148,460  $    148,460
Intangible assets, primarily tradenames ....................       42,767        43,665
Debt issuance costs ........................................       20,105        20,048
                                                             ------------  ------------

                                                                  211,332       212,173
Less accumulated amortization ..............................      (28,174)      (26,368)
                                                             ------------  ------------
                                                             $    183,158  $    185,805
                                                             ============  ============

</TABLE>


<PAGE>


     The Accounting  Standards  Executive  Committee (AcSEC) issued Statement of
Position  (SOP) 98-5,  which is  effective  for fiscal  years  commencing  after
December 15, 1998.  SOP 98-5,  "Reporting on the Costs of Start-up  Activities",
prescribes  that start-up  costs should be expensed as incurred.  The SOP states
that its  adoption  should be  reported  as a  cumulative  effect of a change in
accounting  principle.  The Company adopted SOP 98-5 effective  January 1, 1999,
and recorded a charge of $0.7  million  (net of tax) in January 1999  reflecting
the write off of previously recorded start-up costs.


6.       Accrued Expenses
<TABLE>
<CAPTION>

                                                              March 31,    December 31,
                                                                1999           1998
                                                            ------------   ------------
                                                                   (in thousands)
<S> .......................................................<C>             <C>
Acquisition integration costs ............................. $      5,699   $      6,190
Sales volume discounts ....................................       13,039         18,572
Salaries, wages and benefits ..............................        5,204          4,922
Interest ..................................................        7,992          3,808
Insurance reserves ........................................        5,600          5,550
Other .....................................................        7,488          8,036
                                                            ------------   ------------
                                                            $     45,022   $     47,078
                                                            ============   ============
</TABLE>


7.       Long-Term Debt

<TABLE>
<CAPTION>
                                                              March 31,    December 31,
                                                                1999          1998
                                                            ------------   ------------
                                                                  (in thousands)
<S>                                                        <C>                    <C>          
Revolving credit facility ................................. $    244,000   $    235,150
13% Senior Subordinated Notes due 2005 ....................      130,000        130,000
Industrial revenue bonds ..................................        7,165          7,165
Notes payable .............................................          540            584
Capitalized lease obligations .............................        1,920          2,012
                                                            ------------   ------------
                                                                 383,625        374,911
Less current portion ......................................        1,242          1,236
                                                            ------------   ------------
                                                            $    382,383   $    373,675
                                                            ============   ============
</TABLE>


         On March 5, 1999, the Company  amended its revolving  credit  facility.
The amendment rescheduled the $25 million line reduction from December 31, 1999,
to March 31,  2000.  Other  changes  provided  for an add-back  for  purposes of
calculating cumulative EBITDA of $6.3 million in certain charges absorbed in the
fourth quarter of 1998 and a more favorable  manner in which proceeds from the
sale of assets are applied to scheduled line reductions.  As amended, 50% of the
proceeds  from the sale of  assets  are  credited  against  the  scheduled  line
reduction of March 2000 and 50% to the  scheduled  reduction  of July 2000.  The
amended credit facility also provides for a permanent  reduction in availability
of $50.0  million in July 2000.  This amended  revolving  credit  facility  also
provided  that the interest  rate incurred by the Company will vary each quarter
through July 2001, depending on the Company's  consolidated debt to EBITDA ratio
at the  beginning  of each  quarter,  and  requires  the Company to meet certain
financial  tests  including  minimum EBITDA levels,  minimum  interest  coverage
ratios and maximum  leverage  ratios.  The Company  exceeded EBITDA  performance
targets for the third and fourth quarters of 1998 as well as first quarter 1999,
as measured by the agreement.  The amendment also limits capital expenditures to
$15.0 million per year in 1999 and 2000 and $7.5 million  through July 2001. The
revolving credit facility matures in July 2001.
<PAGE>

8.       Related Party Transactions

     The Company had an  outstanding  note  receivable  of $277,000 at March 31,
1999, from its former President and Chief Operating Officer.  The note is due in
July 2000, and bears interest at 6.00%.  The amounts due under the note are with
full  recourse  and are secured by a pledge of all such  shares of Common  Stock
purchased by the individual.

     On March 31, 1998, the Company's loaned its acting Chief Financial Officer,
who is also a director,  $1.0 million  related to the exercise of stock options.
The current balance,  including  capitalized interest, is $1.1 million. The loan
is due in March 2001 and bears interest at a rate of 5.89%.  The loan is secured
by shares of common stock.


<PAGE>


                          AMERICAN PAD & PAPER COMPANY

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


Overview

     The Company is a leading  manufacturer  and marketer of nationally  branded
and private label  paper-based  office  products in North  America.  The Company
operates in one business  segment,  converting paper into office  products,  and
offers a broad  assortment of products  through three  complementary  divisions:
AMPAD (writing  pads,  file folders,  retail  envelopes,  and other  paper-based
office products), Williamhouse (business envelopes and forms), and Creative Card
(seasonal greeting cards). The Company's products are distributed  through large
mass merchant  retailers,  office product  superstores,  warehouse clubs,  major
contract  stationers,   office  products  wholesalers,   paper  merchants,   and
independent  dealers.  Certain  factors  which  have  affected,  and may  affect
prospectively, the operating results of the Company are discussed below.

         Purchase  Accounting  Effects.  The  Company's  acquisitions  have been
accounted  for using the  purchase  accounting  method.  The  acquisitions  have
currently  affected,  and will  prospectively  affect,  the Company's results of
operations in certain  significant  respects.  The aggregate  acquisition  costs
(including assumption of debt) are allocated to the assets acquired based on the
fair market value of such assets on the date of acquisition.  The allocations of
the purchase price result in an increase in the historical book value of certain
assets such as property,  plant and equipment and intangible  assets,  including
goodwill,  which results in incremental  annual  depreciation  and  amortization
expense each year.

     Raw Material. The Company's principal raw material is paper.  Historically,
certain commodity grades utilized by the Company have shown  considerable  price
volatility.  To the  extent  that the  Company  is not able to pass  such  price
changes  on to  its  customers  due  to  strategic  customer  considerations  or
competitive  market  conditions,  this price  volatility  has and is expected to
continue to have an effect on net sales and cost of sales. There is no assurance
that the Company will not be materially  affected by future  fluctuations in the
price of paper.

Recent Developments

     Management Changes. On March 17, 1999, the Company appointed James W. Swent
III as Co-Chairman of the Board with Mr. Gay. Also, John H. Rodgers, Senior Vice
President,  General Counsel and Secretary,  and Jeffery K. Hewson were appointed
to the Board of  Directors  replacing  Jonathan  S.  Lavine and  filling a newly
created  vacant  position.  Mr. Hewson has held  executive  positions  including
President  of the  Beckley  Cardy  Group,  Chief  Executive  Officer  of  United
Stationers,  Inc.,  President  of ACCO World  Corporation  - U.S.  Division  and
Canada, and is a director of ISA International, a publicly held company in Great
Britain.

     On May 10, 1999, the Company  appointed  William L. Morgan,  Executive Vice
President of Operations, as Chief Operating Officer.
 
     Amendments  to Revolving  Credit  Facility.  On March 5, 1999,  the Company
amended its revolving credit facility. The amendment rescheduled the $25 million
line reduction from December 31, 1999, to March 31, 2000. Other changes provided
for an add-back for purposes of calculating cumulative EBITDA of $6.3 million in
certain  charges  absorbed  in the fourth  quarter of 1998 and a more  favorable
manner in which  proceeds from the sale of assets are applied to scheduled  line
reductions. As amended, 50% of the proceeds from the sale of assets are credited
against the  scheduled  line  reduction  of March 2000 and 50% to the  scheduled
reduction  of July  2000.  The  amended  credit  facility  also  provides  for a
permanent  reduction in availability of $50.0 million in July 2000. This amended
revolving  credit  facility also provided that the interest rate incurred by the
Company will vary each quarter  through  July 2001,  depending on the  Company's
consolidated debt to EBITDA ratio at the beginning of each quarter, and requires
the Company to meet certain  financial  tests  including  minimum EBITDA levels,
minimum  interest  coverage  ratios and  maximum  leverage  ratios.  The Company
exceeded EBITDA performance targets for the third and fourth quarters of 1998 as
well as first  quarter 1999, as measured by the  agreement.  The amendment  also
limits capital  expenditures to $15.0 million per year in 1999 and 2000 and $7.5
million through July 2001. The revolving credit facility matures in July 2001.
<PAGE>


Results of Operations

Three months ended March 31, 1999, compared to three months ended March 31, 1998

     Net sales  decreased to $137.6 million in 1999 from $161.6 million in 1998,
a decrease  of $24.0  million or 14.9%.  The  decrease is  comprised  of a $22.0
million  decrease in sales and a $2.0 million  increase in customer  incentives.
The  net  sales  decrease  is  primarily  attributable  to the  loss  of a major
superstore  customer  and a contract  stationer  both in 1998 and the  Company's
efforts to eliminate  unprofitable business in its forms sales. The decrease was
partially offset by increases in the remaining superstore customers. Unfavorable
variances in envelopes  also  contributed to the sales  decrease.  The increased
customer  incentives  are due to  increased  volume of two large  customers  and
additional rebates caused by changing product mix.

         Gross profit  decreased  to $12.9  million or 9.3% of net sales in 1999
from $19.4 million or 12.0% of net sales in 1998. This $6.6 million  decrease in
gross  profit  margin is  primarily  attributable  to lower sales and  increased
customer  incentives  discussed above. In addition,  1999 cost of sales included
$1.3 million of one-time costs associated with the plant rationalization plan.
These  expenses  represent  costs  to  move  equipment,  efficiency  costs,  and
recruiting costs.

         Selling  and  marketing  expenses  of  $4.9  million  incurred  in 1999
increased  $0.2 million from $4.7 million  recorded in 1998.  This  increase was
primarily due to increased marketing research and new product development.

     General and administrative  expenses increased to $7.1 million in 1999 from
$5.4 million in 1998, or $1.7 million.  This increase is primarily  attributable
to increased bad debt expense.

         Losses on sales of accounts  receivable  decreased  to $0.7  million in
1999  from  $0.8  million  in 1998 due  primarily  to a lower  average  level of
accounts  receivable  sold to the third party trust in 1999. The losses on sales
of accounts receivable represent the Company's cost of using a third party trust
to provide off balance sheet financing of trade accounts receivable.

         Goodwill and intangible asset  amortization  expense  decreased to $1.3
million in 1999 from $1.6  million in 1998.  The decrease of $0.3 million is due
primarily to the  amortization  associated  with the $41.0 million write down of
intangible assets in the second quarter of 1998.

     Management  fees and  services  decreased to $0.4 million in 1999 from $0.5
million  for 1998,  representing  a  decrease  of $0.1  million.  The  change in
management fees is due to the renegotiation of the Company's  Advisory Agreement
to reduce the fee from $2.0 million to $1.5 million annually.

         Interest expense  increased to $10.8 million in 1999 from $10.7 million
in 1998, representing an increase of $0.1 million. The increase was caused by an
increase  in the  LIBOR  spread on the  revolving  credit  facility  offset by a
general decline in interest rates.  Average  outstanding  debt levels during the
first quarter of 1999 were unchanged from the first quarter of 1998.

         The income tax provision for the quarter ended March 31, 1999, reflects
an effective income tax benefit rate of 0% as compared with the effective income
tax  provision  rate of 51% for the quarter  ended March 31, 1998.  In the first
quarter of 1999, the Company did not record the tax benefit  associated with its
loss.  The Company  increased  its net deferred tax  valuation  allowance by the
amount of tax benefit provided by the net loss of $3.3 million. The Company will
continue this practice until  near-term  taxable  earnings are realized.  In the
first  quarter of 1998,  the Company  raised its  effective  tax rate due to the
expected effect of nondeductible expenses during 1998.

         Cumulative  effect of a change in accounting  principle for the quarter
ended March 31,  1999,  reflects a charge of $0.7  million,  net of tax, for the
write off of  previously  recorded  start-up  costs.  The  Accounting  Standards
Executive  Committee  (AcSEC) issued  Statement of Position (SOP) 98-5, which is
effective  for fiscal  years  commencing  after  December  15,  1998.  SOP 98-5,
"Reporting on the Costs of Start-up Activities",  prescribes that start-up costs
should be  expensed as  incurred.  The SOP states  that its  adoption  should be
reported as a cumulative effect of a change in accounting principle.
<PAGE>

Known Trends and Seasonality

         The Company  experiences some  seasonality in its business  operations.
During the Company's third and fourth quarters, net sales tend to be higher than
in the  first  and  second  quarters  due to sales of  back-to-school,  seasonal
greeting card and tax filing products.

         The Company's AMPAD division sells primarily to fast growing  customers
such as office  products  superstores,  mass  merchants  and  national  contract
stationers.  Such customers  periodically  adjust the levels of inventory in the
retail  distribution  channels,  either  in  retail  stores  or in  distribution
centers.  The Company has  determined  that lower than expected sales will occur
during the quarters in which such downward  adjustments are made. The Company is
not able to predict the future effect of such adjustments; however, it is likely
that its retail  customers  will continue to adjust  inventory  levels in future
quarters.

         The  Company's  gross  profit is  directly  affected  by,  among  other
factors,  the mix of  products  sold.  Based on the  Company's  current  product
categories, the Company's gross profit will be negatively or positively affected
as the actual product sales mix changes.

Liquidity and Capital Resources

     Net cash used by operating  activities for the three months ended March 31,
1999 was $0.7 million as compared to net cash  provided by operating  activities
for the three months  ended March 31, 1998 of $16.3  million.  This  decrease is
primarily the result of lower sales and an inventory  build up to support normal
seasonality and the rationalization plan.

     Cash used in investing activities for the three months ended March 31, 1999
and 1998 was $2.1 million and $6.0 million, respectively, due to the purchase of
equipment, principally production equipment.

         The  ability  of the  Company  to  meet  its  debt  service  and  other
obligations  and  reduce  its  total  debt  will be  dependent  upon the  future
performance of the Company and its subsidiaries.  In turn, such performance will
be subject to general economic  conditions and to financial,  business and other
factors, including factors beyond the Company's control.

         Although there can be no assurance,  management  believes  that,  based
upon cash on hand at March 31, 1999, estimates of current and future operations,
and other available sources of funds including  availability under the revolving
credit  facility and the  accounts  receivable  financing  facility at March 31,
1999, of $21.3 million,  its finances will be adequate for 1999 to make required
payments of principal  and interest on the Company's  debt, to fund  anticipated
capital expenditures, and to meet working capital needs.

         The  amount  of debt  available  under  the  Company's  current  credit
agreement  decreases by $25.0 million in March 2000 and by an  additional  $50.0
million in July 2000. Based on the Company's  current level of operating results
and the expected  operating  results in 1999 and 2000, the Company  expects that
the  scheduled  reduction  in July 2000 may require the Company to pursue  other
financing alternatives, including but not limited to refinance of its bank debt,
raise new private or public debt, raise additional  public equity,  or to reduce
capital  expenditures,  reduce  operating  costs  or sell  assets.  However,  no
assurance  can be given that the Company will be able to complete the  financing
alternatives  just  described,  or that the other measures will be sufficient to
provide adequate liquidity to meet the Company's obligations.


<PAGE>


Year 2000 Issue

The Year  2000  issue is the  result  of  date-sensitive  devices,  systems  and
computer  programs which were deployed using only two digits,  rather than four,
to represent the  applicable  year. Any such  technologies  may recognize a year
containing  "00" as the year 1900 rather than the year 2000.  If not  corrected,
many computer applications could fail or create erroneous results.

         The  Company  recognizes  the need to ensure  that its  operations  and
relationships  with  vendors,  customers and other parties will not be adversely
impacted by software or other processing errors arising from calculations  using
the year 2000 and  beyond.  Like many  companies,  a  significant  number of the
Company's  computer  applications  and systems require  modification in order to
render  these  systems  Year 2000  compliant.  Failure by the  Company to timely
resolve Year 2000 issues could result, in the worst case, in an inability of the
Company to  manufacture  and distribute its product to customers and process its
daily business for some period of time.  However,  based on the progress made to
date in its Year 2000  remediation  plan,  the Company  believes  the worst case
scenario is  unlikely.  Failure to address Year 2000 issues by one or more third
party service providers on whom the Company relies could also result, in a worst
case scenario,  in some business  interruption.  The amount of lost revenues, if
any, resulting from a worst case scenario such as those examples described above
would depend on the period of time over which the failure goes  uncorrected  and
the breadth of its impact.

         The Company has recently  purchased a new certified Year 2000 compliant
version  of  its   existing   software   to  upgrade   critical   manufacturing,
distribution,   and  financial  applications.   The  upgrade  is  scheduled  for
completion and full installation by December 31, 1999. While the primary purpose
of the software upgrade is to modernize and improve the Company's operations, it
is also  expected  to resolve any Year 2000  issues in these  critical  computer
systems.   Costs  to  acquire  the  software  and  related  hardware  are  being
capitalized in accordance  with SOP 98-1  "Accounting  for the Costs of Computer
Software Developed or Obtained for Internal Use." Costs to implement the upgrade
and other costs  relating to Year 2000  readiness are being expensed as incurred
as required by generally accepted accounting principles. Through March 31, 1999,
capital  expenditures  to  purchase  software  and related  hardware  total $2.0
million and non-capital  expenditures for Year 2000 readiness are  approximately
$0.2  million.  To  complete  Year  2000  readiness,  $0.5  million  of  capital
expenditures  will be incurred to complete the purchase of related  hardware and
approximately  $1.0 to $1.5  million is  expected to be spent  through  1999 for
implementation  of the upgraded  software,  consultant costs and other Year 2000
readiness costs. The Company will fund these expenditures  through its operating
cash flow. At this time, other than the cost of implementing its new information
system,  the Company does not believe that the costs of addressing the Year 2000
issue will be  material.  The Company  has  increased  its  overall  information
systems budget to accommodate the  implementation  of the upgraded  software and
Year 2000  compliance  projects and has not delayed other  critical  information
systems work due to its Year 2000 efforts.

         In addition to the software upgrade, a Company-wide committee of senior
executives  representing  all functional areas has been established to identify,
evaluate  and  initiate  corrective  actions  in  order  to  achieve  Year  2000
readiness.  The  committee  has  completed  the  process of taking the  relevant
inventory,  assessing  risk  and  assigning  priorities  to  various  tasks  and
performing limited internal tests relative to the Company's critical  functions.
The  committee  determined  that the  Company's  primary  hardware and operating
systems,  which were installed in 1997, and the program supporting the Company's
electronic data interchange are already Year 2000 compliant.  With regard to the
Company's  manufacturing and other non-IT readiness for Year 2000, the Committee
has not identified any issues that would have a material,  adverse impact on the
Company's operations'  processes.  The committee has developed contingency plans
for the Company's critical  information system which primarily consist of making
its  existing  information  system  Year 2000  compliant  in the event  that the
software   upgrade  is  not  completed  by  the  scheduled  date.  In  addition,
contingency plans have included the development of manual intervention processes
for critical functions.  The committee's  expectation is that the remedial tasks
relative to the Company's critical functions will be completed by June 30, 1999,
and that full  integrated  testing will be  completed  by October 31,  1999.  In
addition,  the committee has requested and received  documentation  from all key
customers,  suppliers and other business partners that their  organizations will
be ready  for the year  2000.  While the  Company  cannot  warrant  that all the
systems of its business partners will be Year 2000 compliant, based on currently
available information, the Company expects no significant business interruptions
due to non-compliance by any particular entity.
<PAGE>

         There can be no assurance that the Company will be able to complete the
installation  of the  upgraded  software  and all of the  remedial  tasks in the
required time frame, that unanticipated  events will not occur, that the Company
will be able to  identify  all Year 2000  issues  before the  problems  manifest
themselves,  that  third  party  systems  will be Year 2000  compliant  and that
Company's estimate of Year 2000 costs will not require revision if unanticipated
adverse developments occur.  However,  management believes the Company is taking
adequate  action to address Year 2000 issues.  Based on a current  assessment of
risks  relating to its Year 2000  readiness,  the Company  does not believe Year
2000  issues  will  materially  affect  future  financial  results or  operating
performance.

Forward-Looking Statements

         The Company is including  the  following  cautionary  statement in this
Form 10-K to make applicable and take advantage of the safe harbor provisions of
the Private  Securities  Litigation  Reform Act of 1995 for any  forward-looking
statements  made by, or on behalf of, the  Company.  Forward-looking  statements
include  statements  concerning plans,  objectives,  goals,  strategies,  future
events or performance, and underlying assumptions and other statements which are
other than  statements of historical  facts.  From time to time, the Company may
publish or otherwise make available  forward-looking  statements of this nature.
All such  subsequent  forward-looking  statements,  whether  written or oral and
whether made by or on behalf of the  Company,  are also  expressly  qualified by
these   cautionary   statements.   Certain   statements   contained  herein  are
forward-looking  statements  and  accordingly  involve risks and  uncertainties,
which could cause actual  results,  or outcomes to differ  materially from those
expressed in the  forward-looking  statements.  The  forward-looking  statements
contained herein are based on various  assumptions,  many of which are based, in
turn,  upon  further  assumptions.  The  Company's  expectations,   beliefs  and
projections  are expressed in good faith and are believed by the Company to have
a reasonable basis,  including without limitation,  management's  examination of
historical  operating trends,  data contained in the Company's records and other
data  available  from  third  parties,  but  there  can  be  no  assurance  that
management's  expectation,  beliefs or projections will result or be achieved or
accomplished.  In addition to the other factors and matters discussed  elsewhere
herein,  the following  are important  factors that, in the view of the Company,
could cause  actual  results to differ  materially  from those  discussed in the
forward-looking statements:

     1. Changes in economic  conditions,  in  particular  those which affect the
        retail and wholesale office product markets.
     2. Changes in the availability and/or price of paper, in particular if 
        increases in the price of paper are not passed along to the Company's
        customers.
     3. Changes in senior management or control of the Company.
     4. Inability to obtain new customers or retain existing ones.
     5. Significant changes in competitive factors, including product pricing
        conditions affecting the Company.
     6. Governmental/regulatory actions and initiatives, including those
        affecting financings.
     7. Significant changes from expectations in actual capital expenditures and
        operating expenses.
     8. Occurrences affecting the Company's ability to obtain funds from
        operations, debt or equity to finance needed capital expenditures and
        other investments.
     9. Significant changes in rates of interest, inflation or taxes.
    10. Significant  changes in the Company's  relationship  with its employees
        and the potential  adverse effects if labor disputes or grievances were
        to occur.
    11. Changes  in  accounting  principles  and/or  the  application  of such
        principles  to the Company.
    12. Timely  resolution  of Year 2000 issues by the Company and its customers
        and suppliers.
    13. Completion of the Company's restructuring plan.


         The Company  disclaims  any  obligation  to update any  forward-looking
statements to reflect events or other circumstances after date hereof.
<PAGE>

ITEM 3   Quantitative and Qualitative Disclosures About Market Risk

         The Company has market risk  exposure  arising from changes in interest
rates.  The Company's  earnings are affected by changes in  short-term  interest
rates as a result of borrowings  under its revolving  credit facility which bear
interest based on floating rates.  The Company has entered into an interest rate
cap to reduce  the  impact  from a  significant  rise in  interest  rates on its
floating rate debt and may do so in the future.  However,  there were no amounts
received under the agreement as of March 31, 1999 and 1998.

         At March 31,  1999,  the Company had  approximately  $250.6  million of
variable rate debt obligations outstanding with a weighted average interest rate
of 8.92%.  A  hypothetical  10% change in the effective  interest rate for these
borrowings,  assuming debt levels at March 31, 1999, would have changed interest
expense by approximately $0.6 million for the quarter ended March 31, 1999.


<PAGE>



                          AMERICAN PAD & PAPER COMPANY

                            PART II OTHER INFORMATION


ITEM 1            Legal Proceedings

         As reported in the Company's  Form 10-K for the year ended December 31,
1998,  between March 10, 1998 and April 11, 1998, three complaints were filed in
the United States  District  Court for the Northern  District of Texas naming as
defendants the Company, certain of its officers and directors and certain of the
underwriters and other related entities involved in the Company's initial public
offering.  The  plaintiffs  in the first two  complaints  purport to represent a
class of stockholders  who acquired shares of the Company's common stock between
July 2, 1996 and December 17, 1997. The complaints seek unspecified  damages and
other relief under the federal  securities  laws based on  allegations  that the
Company made  omissions and  misleading  disclosures in public reports and press
releases  and to  securities  analysts  during  1996  and  1997  concerning  the
Company's financial  condition,  its future business prospects and the impact of
various acquisitions.  These two lawsuits were consolidated on July 2, 1998. The
third  complaint was dismissed  without  prejudice by the plaintiffs on June 29,
1998.  Motions to  dismiss  have been  filed in the  consolidated  cases and all
briefing  is  complete.  Pending  a  ruling  on  the  motions  to  dismiss,  all
proceedings in the consolidated  action have been stayed. To the extent that the
motions to dismiss are denied in whole or in part, the Company  believes that it
has meritorious  defenses to plaintiff's claims and intends to vigorously defend
the action.

ITEM 2            Changes in Securities and Use of Proceeds

                  None

ITEM 3            Defaults Upon Senior Securities
                  None

ITEM 4            Submission of Matters to a Vote of Security Holders
                  The Company held its Annual Meeting of  Shareholders  on April
                  27, 1999.  The following  matters were  submitted to a vote of
                  shareholders  of the  Company's  common stock with the results
                  indicated below:
<TABLE>
<CAPTION>

                                                                                             Withheld, Against
                        Matter                                                  Approved       or Abstained
         Election of Class III Directors -
<S>                                                                            <C>               <C>      
              James W. Swent III...........................................    23,299,589        4,427,456
              Robert C. Gay................................................    23,290,812        4,436,233
              and Scott R. Watterson.......................................    23,301,237        4,425,808

         Ratification of PricewaterhouseCoopers LLP as independent
              Accountants for the Company..................................    23,443,580        4,283,465

         Approval of the 1999 Key Employees Stock Incentive Plan for
               the Company.................................................    14,022,124       13,704,921

</TABLE>

ITEM 5            Other Information
                  None

ITEM 6            Exhibits and Reports on Form 8-K

(a) Exhibits. The following Exhibits are filed herewith and made a part hereof:

       Exhibit No.                          Description of Exhibit

          27.03                             Financial Data Schedule


    (b) Reports on Form 8-K.

     The  following  reports on Form 8-K were filed during the first  quarter of
     1999 and through the date of the filing of this report:

(1)               Current  Report on Form 8-K filed  April 1, 1999,  relating to
                  the Company's March 22, 1999, press release.  A press release
                  on March 22,  1999,  announcing  that the  Board of  Directors
                  elected  two new  directors,  Jeffery  K.  Hewson  and John H.
                  Rodgers,  and has named James W. Swent III as  Co-Chairman  of
                  the Board, effective March 17, 1999.

(2)               Current  Report on Form 8-K filed April 28, 1999,  relating to
                  the Company's April 19, 1999, press release.  A press release
                  on April 19, 1999,  announcing  reported financial results for
                  the first quarter ended March 31, 1999.

(3)               Current Report on Form 8-K filed May 14, 1999, relating to the
                  Company's May 10, 1999,  press  releases.  A press release on
                  May 10, 1999,  announcing the appointment of William L. Morgan
                  as Chief Operating  Officer (COO). An additional press release
                  on May 10, 1999, announcing the closing of the Holland, 
                  New York plant.



                                   SIGNATURES

     Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,
American Pad & Paper Company has duly caused this report to be signed on May 14,
1999, on their behalf by the undersigned thereunto duly authorized.




/s/ James W. Swent, III                  /s/ David N. Pilotte                  
James W. Swent, III                      David N. Pilotte
Chief Executive Officer and              Vice President and Corporate Controller
Chief Financial Officer                  (Principal Accounting Officer)
(Principal Executive Officer and
Principal Financial Officer)