updated: 5/10/2006 6:03:36 AM

Harmony Foods Gets Acquired; Could Mean Jobs For Fishers Plant

InsideINdianaBusiness.com Report

A Fishers-based food products company is being acquired and it could mean an increase in jobs.

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Inside INdiana Business has learned that a large portion of Harmony Foods is being acquired by Diamond Foods, a publicly traded company based in San Francisco, for $18 million in cash.

Included in the deal is Harmony’s Fishers’ processing and packaging plant that produces trail mixes, candies and snacks. It employs about 120 workers and Inside INdiana Business reports that the number could increase as Diamond moves workers from a plant that it is closing in Illinois.

Source: Inside INdiana Business

Press Release

SAN FRANCISCO, May 9 -- Diamond Foods, Inc. (Nasdaq: DMND) announced today that it has acquired certain assets of Harmony Foods Corporation ("Harmony") for $18 million in cash and the assumption of certain defined liabilities. Among the assets Diamond acquired is Harmony's strategically located processing and packaging plant in Fishers, Indiana.

This plant has capacity to produce products such as trail mixes, specialty dried fruits, nuts and seeds, sweet snacks and organic snacks, which are available in multiple packaging options including resealable single and multiple serve bags, deli cups and self-serve produce bins. Diamond also acquired the Harmony and Homa brands, as well as $4.5 million of working capital and other assets, and assumed certain defined liabilities. Diamond believes the acquisition will offer a number of benefits, including:

-- The acquisition of Harmony's leased 187,000 square foot facility with capacity to handle significant expansion of Diamond's products. The Harmony facility is strategically located in the Midwest, providing improved, two day or less shipping time to key customers. Furthermore, Diamond will relocate production activities from its Lemont, Illinois facility to the Harmony facility which is expected to result in significant cost savings.

-- Expanding Diamond's merchandising footprint in both the snack and produce aisles, as well as enabling year round presence in the produce aisle.

-- Enabling expansion into complementary products in categories such as sweet and sweet/salty products as well as natural and organic products.

"This acquisition represents an ideal strategic fit for Diamond," said Michael J. Mendes, president and chief executive officer. "Harmony adds production capability and product line expansion which will significantly increase our scale in the snack category. Harmony's branded packaged snack product sales are tracking towards about $10 million for this fiscal year. Much of Harmony's remaining projected sales for this year of approximately $20 million represent low volume SKU's, co-packing arrangements, or non-branded products which have limited permanent distribution at retail.

Our opportunity is to improve the quality of the sales of Harmony products and to increase the volume of strategic, branded, higher margin products under the Emerald brand umbrella, while at the same time rationalizing excess SKU's and gaining more permanent distribution for Harmony products. These efforts, along with our on-going activities for our Emerald snack products, should drive fiscal 2007 snack sales in excess of $80 million."

Diamond also announced that it is closing its Lemont, Illinois facility, which primarily packages in-shell nuts and processes and packs certain other culinary and snack products, and will conduct these activities in the Harmony facility. As a result of closing the Lemont facility, Diamond expects to eliminate 20 positions and incur approximately $1 million of restructuring and related costs -- such as severance, retention payments, and equipment moving costs -- over the next six months. The closing of the Lemont facility and the transfer of its activities to the Harmony facility are expected to result in annualized cost savings to Diamond of at least $2 million.

Third Quarter and Fiscal 2006 Outlook

Diamond is providing the following preliminary results for its fiscal third quarter ended April 30, 2006, and guidance for its full fiscal year 2006. The information related to the third quarter is preliminary and subject to final review.

Furthermore, Diamond expects the acquisition to be $0.05 to $0.07 per share dilutive on a GAAP basis for the fourth quarter (excluding the impact of the inventory step-up charge) and $0.02 to $0.04 per share dilutive on a non-GAAP basis (excluding restructuring and other charges and inventory step up charge) for the fourth quarter.

Without the dilutive effect of the Harmony acquisition, Diamond expects its non-GAAP earnings per share for the year would be $0.59 to $0.65 per share. Most of the non-GAAP earnings per share shortfall to previous guidance is due to lower than previously expected snack and U.S. ingredient sales.

"We are pleased with the progress of our Emerald product line given its expected fiscal year 2006 growth rate of 55% to 70%," said Mendes. "Less than two years after the launch, Emerald sales are expected to exceed $33 million for the year and we continue to believe over the long-term we will achieve at least a 10% market share of the snack nut category. While we strive to accelerate our penetration of new retail channels, we are very pleased with the quality of our current distribution and consumer response to our product quality and innovation."

The following are highlights for new Emerald business activity in the third quarter:

-- Publix, an 850 store grocery chain, has accepted seven new items;

-- Target has accepted three new items for its 1,200 regular stores and five new items for its 187 SuperTarget stores. Target now has a total of five items in its regular stores and nine items in its SuperTarget stores;

-- Nash Finch, a distributor for 1100 stores, has accepted eight new items for a total of ten Emerald items in two distribution centers and eight items in six distribution centers;

-- Albertsons' Intermountain Division has accepted the new Smoked Almond product as well as 3 trail mix products. Albertsons' Intermountain Division now has a total of thirteen Emerald items.

Long-term targets

Diamond also reaffirmed its long-term financial targets as follows:

-- Over the next five years, net sales are expected to grow at an average rate of 8% to 10% per year, and earnings per share are expected to grow at an average rate in excess of 15% per year.

-- Within five years, Diamond's gross margin is expected to be at least 20% of net sales and operating margin is expected to be at least 10% of net sales.

Conference Call

Diamond will host a conference call and webcast tomorrow, May 10, 2006 at 4:00 p.m. Eastern Time to discuss the acquisition of Harmony and the updated guidance. The dial-in number for the conference call is 800-366-7640 for domestic participants and 303-262-2050 for international participants.

A taped replay of the conference call will be available beginning approximately one hour after the call's conclusion, will remain available through May 17, 2006 at midnight Pacific Time, and can be accessed by dialing 800-405-2236 for domestic callers and 303-590-3000 for international callers, both using passcode 11060298#. To access the live webcast of the call, go to the Diamond Foods website at http://www.diamondfoods.com/. An archived webcast will also be available at http://www.diamondfoods.com/.

About Diamond

Diamond is a leading branded food company specializing in processing, marketing and distributing culinary and snack nuts under the Diamond of California and Emerald brands. Diamond's products include walnuts, pine nuts, pecans, peanuts, macadamia nuts, hazelnuts, cashews, Brazil nuts and almonds.

Source: Diamond Foods, Inc.

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