Source Interlink Announces Agreement to Acquire Empire State News Corp. of Buffalo and Empire News of Jamestown, Inc

Business Wire, July 12, 2004

BONITA SPRINGS, Fla. -- Company to Strengthen Presence in Mainstream Distribution Market

Source Interlink Companies (Nasdaq: SORC), the largest direct-to-retail distribution/fulfillment company and leading provider of magazine information and management services for retailers and publishers, today announced it has agreed to acquire Empire State News Corp. of Buffalo, NY, and Empire News of Jamestown (NY), Inc., privately held magazine wholesaler distributors. The acquisition, expected to close in the company's fiscal third quarter, is subject to due diligence.

Empire provides magazine, book and newspaper distribution to a total of just under 1,000 retail stores in New York, Pennsylvania and Ohio including Wal-Mart, Target, Walgreens, Wegmans, Tops, K-Mart, BJ's Wholesale Club, CVS, Eckerd, and others. Empire recorded revenue of approximately $24 million in 2003.

Under terms of the agreement, Source Interlink will pay approximately $2.9 million in cash plus the assumption of certain assets and liabilities, resulting in goodwill of approximately $4 million to $5 million. The actual purchase price is subject to adjustment for changes in working capital and will be determined at closing. The acquisition is not expected to materially impact earnings in fiscal 2005.

James Gillis, Source Interlink president and chief operating officer, said, "The acquisition of Empire is a strategic initiative to significantly strengthen our national presence in the mainstream market. The retail chains that operate the stores served by Empire represent a total of approximately 29,000 stores and collectively represent more than $850 million in annual magazine retail sales. The majority of Empire's customers are current clients of Source Interlink's In-store Services division where we currently help manage and administer their magazine and front-end programs, but do not distribute magazines. This purchase immediately establishes Source Interlink as an important magazine vendor to many of the most significant retailers in the eastern United States.

"The magazine publishing community has made a clear distinction between distributors for the 'Specialty Market,' which includes bookstores, and distributors for the 'Mainstream Market,' which includes mass merchandisers, and grocery, pharmacy, and convenience stores. Combined with Primary Source, the company's traditional mainstream distributor located in San Diego, CA, the acquisition of Empire provides the ideal balance of a national purchasing network which is consistent with meeting publisher structure as it pertains to the mainstream market. Prior to the recent development of the company's entry into the mainstream market, Primary News, now referred to as Primary Source, was a small division with immaterial results that was included in the Interlink transaction in 2001.

"We expect this acquisition to accelerate our penetration into the mainstream market. Our plan is to implement our efficient direct-to-retail distribution model by utilizing our strategically located distribution centers, our cost-effective overnight delivery network, and our proprietary information network. Source Interlink already holds an approximate 10% market share of U.S magazine business by virtue of its commanding position in the 'Specialty Market' and is now on a level 'playing field' reference mainstream business. We feel we have a total distribution network that can better accommodate magazine distribution for mainstream retailers while improving efficiencies and sales for the publishing community," Gillis said.

Larry Scheur, Empire's president and chief executive officer who will remain with the company following the acquisition, stated, "I recognized recently that it was time for Empire to adjust to the new realities confronting the periodical distribution industry by joining a company that consistently and successfully outpaces the changes brought about since consolidation. As Thomas Jefferson said, 'I like the dreams of the future better than the history of the past.' Clearly, the integration of Empire and Source Interlink significantly expands the horizons for both companies and creates an opportunity that is both exciting and rewarding for the company and for the industries we serve."

About Source Interlink Companies

Source Interlink Companies is a leading provider of fulfillment and marketing services to retail companies who collectively operate approximately 80,000 stores, most major magazine publishers and consumer product manufacturers of confections and general merchandise. Its business consists of three interrelated operating groups: Magazine Fulfillment, In-Store Services and Wood Manufacturing.

--Magazine Fulfillment manages the direct distribution of magazines to more than 5,200 retail outlets in the specialty retail market operated by 18 retail chains plus independent retailers. It assists these retailers with the selection, logistical procurement and fulfillment of approximately 4,000 monthly and 50 weekly magazine titles. The Fulfillment operating group is the largest U.S. importer of foreign magazine titles and a leading exporter of U.S. titles to the international market.