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GBC Reports 3Q Results, Maintains Market Position for Key Products

Press release from the issuing company

NORTHBROOK, Ill.- Oct. 25, 2001--General Binding Corporation today reported sales of $197.0 million for its third quarter ending September 30, 2001, compared to sales of $228.2 million for the same period last year. Net income, before special charges, was $0.06 per share for the quarter, equal to the $0.06 per share earned in the third quarter of 2000. Interest and other expenses were down $3.4 million compared to last year, favorably impacting earnings for the quarter. Included in results for the quarter are restructuring and operating expense charges totaling $1.3 million ($0.07 per share) related to the shutdown of operations in Poland and workforce reductions in the Company's Document Finishing Group and Asia/Pacific operations. The prior year results include other charges of $1.6 million ($0.02 per share) related to supply chain management and corporate strategy consulting projects. Cash flow as measured by adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and certain special items) was $19.4 million, compared to adjusted EBITDA of $24.7 million for the same period last year. Total debt at the end of the quarter was $376 million, an improvement of $31 million from the $407 million balance at the beginning of the year. Operating income in the Company's primary business groups was negatively impacted by revenue softness in three product categories. Writing boards and equipment sales were down as weak business capital spending adversely affected demand for these products. Additionally, continued weakness in the publishing market resulted in slower sales of commercial laminating films. Other product categories, including recurring supplies and service (which account for nearly 60% of GBC's total revenues), were roughly flat to last year. Operating results for the Company's Europe Group improved by $1.6 million due to lower infrastructure expenses resulting from restructuring activities initiated late last year. Facility Rationalization Earlier this month, the Company announced the closure of a manufacturing facility in Ashland, Mississippi. Production will be transferred from the Ashland facility to Company facilities in Booneville, Mississippi and Nuevo Laredo, Mexico. This initiative will result in restructuring charges of $3-$3.5 million in the fourth quarter of 2001, primarily related to severance and facility write-down expenses. When completed by late-2002, the Company expects to achieve annualized savings of up to $5 million from the rationalization effort. Outlook "We continue to maintain all of our strong, leading market positions across our businesses,'' said Dennis Martin, Chairman of the Board. "Our lower financial results for the quarter are primarily linked to the adverse affect of the economy on sales of certain products, particularly those that are capital-related. This has had the greatest impact in our Office Products Group, which accounted for over two-thirds of GBC's shortfall in sales. As a result, we do not expect much improvement in our business in the near term given the current economic outlook. Despite the weaker sales however, we continue to manage the controllable areas of our business fairly well, and we continue to generate free cash flow and reduce our outstanding debt.'' "Longer term, we remain confident that we can materially enhance the Company's overall profitability by successfully building off of the solid base that the company created last year after completing an initial phase of cost reduction and rationalization programs. We are currently leveraging the knowledge gained from these programs and other best practice disciplines to finalize a comprehensive set of new initiatives in each of our businesses. The goal of this thorough review is to significantly reduce costs and intensify the focus on our profitable businesses by further streamlining and simplifying our product lines, customer bases and business processes. We have initiated several of these programs already this year, including several workforce reduction initiatives and the rationalization of operations in Germany, Poland and Ashland, Mississippi. We expect to announce additional initiatives in upcoming quarters.'' Refinancing The Company is currently negotiating an amendment to its bank revolving credit facility to extend the upcoming January 13, 2002 maturity date for the facility. An amendment may include higher interest rates payable to the lenders commensurate with facilities of similar credit profiles. The Company is currently in compliance with all of the financial covenants in its credit facility. Nine-Month Results For the first nine months of 2001, sales were $606.1 million, compared to $692.6 million for the same period last year. Net income for the period, before special items, was $0.09 per share, compared to net income for the same period last year of $0.13 per share. Special items, before taxes, totaled $8.3 million and $3.7 million, or $0.45 per share and $0.07 per share after taxes, for the nine-month periods of 2001 and 2000, respectively.

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