BANANA SEGMENT
Net sales for the segment decreased to $520 million from $539 million for the
first quarters of 2012 and 2011, respectively, as a result of pricing.
Significant increases (decreases) in our Banana segment results for the quarter
ended March 31, presented in millions, are as follows:
$ 56     2011 Banana segment operating income
 (19 )   Local pricing before effect of force majeure surcharge in North America
 (12 )   Force majeure surcharge in effect in North America in 2011
  (1 )   Volume
  (2 )   Average European exchange rates1
   3     Sourcing and logistics costs2
  (6 )   Acceleration of losses on ship sublease arrangements
$ 19     2012 Banana segment operating income

1 Average European exchange rates include the effect of hedging, which was a benefit (expense) of $4 million and $(2) million for the first quarter of 2012 and 2011, respectively. See Note 6 to the Condensed Consolidated Financial Statements for further description of our hedging program.

2 Sourcing costs include costs of purchased fruit. Logistics costs are significantly affected by fuel prices, and include the effect of fuel hedges, which was a benefit of $6 million and $5 million for the first quarter of 2012 and 2011, respectively. See Note 6 to the Condensed Consolidated Financial Statements for further description of our hedging program.

In 2011, we implemented a new European shipping configuration to reduce overall delivery costs. The new configuration involves shipment of part of our core volume in container equipment on board the ships of certain third-party container shipping operators. This container capacity is more flexible than leasing entire ships, which is expected to primarily benefit the second half of the year, when volume demand is typically lower. As a result of this change, five chartered cargo ships have been subleased until the end of 2012, two beginning in December 2011 and three in the first quarter of 2012. An equivalent number of ship charters will not be renewed for 2013. These subleases resulted in the acceleration of $6 million of losses on these three sublease arrangements in the first quarter of 2012, net of $2 million of related deferred sale-leaseback gain amortization during the sublease period. We accelerated $4 million of losses on the other two sublease arrangements in the fourth quarter of 2011.

Our banana sales volumes1 in 40-pound box equivalents were as follows:
% (In millions, except percentages) Q1 2012 Q1 2011 Change

North America                        15.8       16.0    (1.3 )%
Europe and the Middle East:
Core Europe2                         10.5       10.4     1.0  %
Mediterranean3 and Middle East        4.3        3.2    34.4  %

The following table shows year-over-year favorable (unfavorable) percentage changes in our banana prices for 2012 compared to 2011:

North America4                  (5.9 )%
Core Europe:2
U.S. Dollar Basis5             (10.3 )%
Local currency                  (6.4 )%
Mediterranean3 and Middle East  (8.3 )%

1 Volume sold represents all banana varieties, including Chiquita to Go, Chiquita minis, organic bananas and plantains.

2 Core Europe includes the 27 member states of the European Union, Switzerland, Norway and Iceland. Banana sales in Core Europe are primarily in euros, as well as other European currencies.

3 Mediterranean markets are mainly European and Mediterranean countries that do not belong to the European Union.

4 North America pricing includes fuel-related and other surcharges.

5 Prices on a U.S. dollar basis exclude the effect of hedging.

To minimize the volatility that changes in fuel prices could have on the operating results of our core shipping operations, we have entered into hedge contracts to lock in prices of future bunker fuel purchases. Through the first quarter of 2012, we had also used hedging instruments (derivatives) to reduce the negative cash flow and earnings effect that any significant decline in the value of the euro would have on the conversion of euro-based revenue into U.S. dollars. While we are not currently hedged for future periods, we will continue to evaluate our position and may enter into additional instruments for up to 18 months in the future. Further discussion of hedging risks and instruments can be found under the caption "Market Risk Management-Financial Instruments" below, and Note 6 to the Condensed Consolidated Financial Statements. The average spot and hedged euro exchange rates were as follows:

                                                                %
(Dollars per euro)                  Q1 2012      Q1 2011     Change
Euro average exchange rate, spot   $    1.31    $    1.36    (3.7 )%
Euro average exchange rate, hedged      1.34         1.35    (0.7 )%

EU Banana Import Regulation. From 2006 through 2010, bananas imported into the European Union ("EU") from Latin America, our primary source of fruit, were subject to a tariff of €176 per metric ton, while bananas imported from African, Caribbean, and Pacific sources continue to enter the EU tariff-free (since January 2008 in unlimited quantities). In 2009, the EU and 11 Latin American countries initialed the World Trade Organization ("WTO") Geneva Agreement on Trade in Bananas ("GATB"), under which the EU agreed to reduce tariffs on Latin American bananas annually, ending with a rate of €114 per metric ton by 2019. The GATB resulted in tariff rates per metric ton of €143 and €136 in 2011 and 2012, respectively. The GATB still needs to be formalized in the WTO. The EU also signed a WTO agreement with the United States, under which it agreed not to reinstate WTO-illegal tariff quotas or licenses on banana imports.
In another regulatory development, in March 2011, the EU initialed free trade area ("FTA") agreements with (i) Colombia and Peru and (ii) the Central American countries. Under both FTA agreements, the EU committed to reduce its banana tariff to €75 per metric ton over ten years for specified volumes of banana exports from each of the countries covered by these FTAs, and further proposed that the banana volumes assigned to each country under the Central American FTA be administered through export licenses. The agreements are currently scheduled to be approved by the European Council and ratified by the European Parliament and Latin American legislatures by late 2012. Because the approval procedures and implementation arrangements remain unsettled, including the possibility of export licenses, it is unclear when, or whether, these FTAs will be implemented, and what, if any, effect they will have on our operations.

SALADS AND HEALTHY SNACKS SEGMENT
Net sales for the segment were $238 million for each of the first quarters of 2012 and 2011 as product mix and higher healthy snacking sales offset lower volume of retail value-added salads.
Significant increases (decreases) in our Salads and Healthy Snacks segment results for the quarter ended March 31, presented in millions, are as follows:
$ 6 2011 Salads and Healthy Snacks segment operating income (1 ) Pricing
(7 ) Volume, primarily in retail value-added salads (4 ) Commodity and manufacturing costs
3 Product mix
3 Selling, general and administrative costs (2 ) Exit costs1
2 Other $ - 2012 Salads and Healthy Snacks segment operating income

1 Includes $1 million ($1 million, net of tax), primarily related to inventory write-offs, to exit healthy snacking products that were not sufficiently profitable, and $1 million to restructure our European healthy snacking sales force during the first quarter of 2012. These actions were completed during the first quarter of 2012.

Volume and pricing for Fresh Express-branded retail value-added salads was as follows:
(In millions, except percentages) Q1 2012 Q1 2011 % Change Volume 12.3 12.8 (3.9 )% Pricing1 (0.7 )%

1 Pricing includes fuel-related and other surcharges.

In the first quarter of 2012, the warm weather in the Yuma growing region improved raw product yields and quality and combined with process improvements to significantly reduce quality costs in the first quarter of 2012 compared to the year-ago quarter. In 2012, we also expect to begin construction of a single, more automated and efficient plant in the Chicago area that will consolidate three smaller Fresh Express plants in that area to continue to reduce our manufacturing costs.
OTHER PRODUCE SEGMENT
Net sales for the segment were $35 million and $47 million for the first quarters of 2012 and 2011, respectively. Operating loss for the segment was $6 million and $3 million for the first quarters of 2012 and 2011, respectively. Sales decreased primarily due to the additional discontinuation of non-strategic, low-margin products, which also resulted in $2 million ($1 million, net of tax) of costs in the first quarter of 2012, primarily related to inventory write-offs.
CORPORATE (INCLUDING HEADQUARTERS RELOCATION COSTS) During the fourth quarter of 2011, we committed to relocate our corporate headquarters from Cincinnati, Ohio to Charlotte, North Carolina, affecting approximately 300 positions. At the same time, we committed to consolidate other corporate functions in Charlotte by bringing more than 100 additional positions currently spread across the U.S. to improve execution and accelerate decision-making. The relocation will occur during 2012 and is expected to cost approximately $30 million through 2013 (including net capital expenditures of approximately $5 million after allowances from the landlord), of which $24 million is expected to be recaptured through state, local and other incentives through 2022. In addition, we expect to generate ongoing cost savings of approximately $4 million annually for the next 10 years from the benefits of consolidation of locations, more efficient staffing, lower rent and reduced travel costs. The company recognized approximately $6 million ($4 million net of tax) in expense during 2011 for the relocation primarily related to severance benefits and an additional $4 million ($2 million, net of tax) of severance and other relocation costs were recognized during the first quarter of 2012. The company expects an additional $8 million of other relocation costs to be recognized during the second quarter of 2012. See Note 2 to the Condensed Consolidated Financial Statements for further information about the company's relocation and restructuring activities.
Other corporate expenses were $10 million and $17 million for the first quarters of 2012 and 2011, respectively, reflecting lower legal fees and incentive compensation.

INTEREST
Interest expense was $11 million and $14 million for the first quarters of 2012 and 2011, respectively. The decrease in interest expense was related to the refinancing activities that are described in Note 5 to the Condensed Consolidated Financial Statements.
INCOME TAXES
As a result of sustained improvements in the performance of our North American businesses and the benefits of debt reduction over the last several years, we have been generating annual U.S. taxable income beginning with tax year 2009, and expect this trend to continue, even if seasonal losses may be incurred in interim periods. As of June 30, 2011, our forecast included second quarter results as well as increased visibility to North American banana pricing and stabilized sourcing costs. As a result of these considerations, we recognized an $87 million income tax benefit in the second quarter of 2011 for the reversal of valuation allowances against 100% of the U.S. federal deferred tax assets and a portion of the state deferred tax assets, primarily net operating loss carry forwards ("NOLs"), which are more likely than not to be realized in the future. Through the second quarter of 2011, valuation allowances on available U.S. NOLs significantly affected our effective tax rate; if a deferred tax asset with a full valuation allowance, such as an NOL, was realized, the corresponding valuation allowance was also released, resulting in no net effect to income taxes reported in the Condensed Consolidated Statements of Income. The reversal of the valuation allowance against U.S. federal deferred tax assets, described above, resulted in changing our interim tax reporting from the discrete method (used in the first quarter of 2011) to the effective tax rate method. Under the effective tax rate method, we are required to adjust our effective tax rate for each quarter to be consistent with the estimated annual effective tax rate. Jurisdictions with a projected loss where no tax benefit can be recognized are excluded from the calculation of the estimate annual effective tax rate. This could result in a higher or lower effective tax rate in the interim period based upon the mix and timing of actual earnings versus annual projections. Our overall effective tax rate may vary significantly from period to period due to the level and mix of income among domestic and foreign jurisdictions. Many of these foreign jurisdictions have tax rates that are lower than the U.S. statutory rate, and we continue to maintain full valuation allowances on deferred tax assets in some of these jurisdictions. Other items that do not otherwise affect the our earnings can also affect our overall effective tax rate, such as the effect of changing exchange rates on intercompany balances that can change the mix of income among domestic and foreign jurisdictions. We do not expect the cash we pay for taxes to change materially from historic levels for several years due to the availability of U.S. NOLs, but we do expect an increase of future reported income tax expense due to the release of the valuation allowance booked against those NOLs. Our effective tax rate reflects a combination of the application of normal U.S. statutory rates and historical levels of foreign taxes.
Income taxes were a net expense of $1 million and $5 million in the quarters ended March 31, 2012 and 2011, respectively. The difference in the overall effective tax rate from the U.S. statutory rate is due to the mix of earnings and losses in various jurisdictions, as well as discrete tax items, including a $2 million out of period adjustment relating to 2011. We do not believe the error was material to any prior or current year financial statements. Financial Condition - Liquidity and Capital Resources At March 31, 2012, we had a cash balance of $41 million and no borrowings were outstanding under our revolving credit facility other than having used $21 million to support letters of credit, leaving an available balance of $129 million.
Cash provided by (used in) operations was $13 million and $(26) million for the quarters ended March 31, 2012 and 2011, respectively. In the first quarter of 2012, normal seasonal working capital demands resulted in investment in working capital, but not to the extent required in the first quarter of 2011. In January 2012, as a result of a favorable decision from a court in Salerno, Italy, we also received €20 million ($26 million) related to a refund claim we had made with respect to certain consumption taxes paid between 1980 and 1990, and the cash received will be deferred in "Other liabilities" pending final result of the appeal process. See Note 13 to the Condensed Consolidated Financial Statements for further information.
Cash flow used in investing activities includes capital expenditures of $12 million for each of the quarters ended March 31, 2012 and 2011. Cash flow used in financing activities related to the quarterly principal payment on our term loan. From time to time, we borrow under the revolving credit facility to fund seasonal working capital needs, which are highest in the first and second quarters. In January 2012, we borrowed $30 million under the revolving credit facility and repaid the balance in February 2012. In April 2012, we borrowed $20 million under the revolving credit facility. Management has had a long-term goal to improve the ratio of debt to EBITDA (earnings before interest, taxes, depreciation and amortization) to 3 to 1. As a result of the debt reduction as described in Note 5 to the Condensed Consolidated Financial Statements, management will begin to also invest in growth, which could include innovation, capital expenditures and/or acquisitions, if accretive to our core businesses and available in a manner that would be expected to maintain an acceptable debt to EBITDA ratio. These debt reduction activities have also reduced our interest expense.

The Credit Facility is maintained by our main operating subsidiary, Chiquita Brands L.L.C. ("CBL"), and contains two financial maintenance covenants each measured for the most recent four fiscal quarter period: a CBL (operating company)leverage ratio (Debt divided by EBITDA, each as defined in the Credit Facility) that is no higher than 3.50x and a fixed charge ratio (the sum of CBL's EBITDA plus Net Rent divided by Fixed Charges, each as defined in the Credit Facility) that is at least 1.15x. These covenants are more fully described in Note 5 to the Condensed Consolidated Financial Statements. In order to achieve our long-term strategic goals, we will need an appropriate level of flexibility in our capital structure, and we continue to proactively monitor and manage this flexibility in light of current and anticipated market and other conditions impacting our business and our results of operations. While we are currently in full compliance with all financial covenants in our debt agreements at March 31, 2012, we recently began working with the agent bank of our Senior Credit Facility in an effort to amend our Credit Facility to provide us the appropriate level of flexibility to execute our strategy, absorb the current volatility inherent in our business and pursue value enhancing transactions that may accelerate the achievement of our goals. There can be no assurance if or when we will enter into such an amendment or the final terms of any such amendment.
A subsidiary has an uncommitted credit line of approximately €5 million ($6 million) for bank guarantees used primarily for payments due under import licenses and duties in European Union countries.
Depending on fuel prices, we can have significant obligations or amounts receivable under our bunker fuel forward arrangements, although we would expect any liability or asset from these arrangements to be offset by the purchase price of fuel. At March 31, 2012, December 31, 2011 and March 31, 2011, our bunker fuel forward contracts were an asset of $29 million, $15 million and $60 million, respectively. The amount ultimately due or receivable will depend upon fuel prices at the dates of settlement. See Market Risk Management - Financial Instruments below and Notes 11 and 12 to the Condensed Consolidated Financial Statements for further information about our hedging activities. We expect operating cash flows will be sufficient to cover any hedging obligations. We face certain contingent liabilities which are described in Note 13 to the Condensed Consolidated Financial Statements; in accordance with generally accepted accounting practices, reserves have not been established for most of the ongoing matters. It is possible that in future periods we could have to pay damages or other amounts with respect to one or more of these matters, the exact amount of which would be at the discretion of the applicable court or regulatory body. In addition, we are required to make payments of €41 million ($55 million) in installments to preserve our right to appeal assessments of Italian customs and tax cases and have made payments of €10 million ($13 million) related to these cases through March 31, 2012. If we ultimately prevail in these cases, the payments we made will be refunded with interest. Because court rulings have varied, we have not been assessed in similar matters in other jurisdictions, but may be required to make additional payments based on future appeals court rulings. We presently expect that we would use existing cash resources to satisfy any such liabilities.
We have not made dividend payments since 2006, and any future dividends would require approval by the board of directors. Under the Credit Facility, CBL may distribute cash to CBII, the parent company, for routine CBII operating expenses, interest payments on CBII's 7½% Senior Notes and its Convertible Notes or on any refinancing of these Senior Notes and Convertible Notes and payment of certain other specified CBII liabilities ("permitted payments"). CBL may distribute cash to CBII for other purposes, including dividends, if we are in compliance with the covenants and not in default under the Credit Facility. The CBII 7½% Senior Notes also have dividend payment limitations with respect to the ability and extent of declaration of dividends. At March 31, 2012, distributions to CBII, other than for permitted payments, were limited to approximately $40 million annually.
Risks of International Operations
We operate in many foreign countries, including China and countries in Central America, Europe, the Middle East and Africa. Our activities are subject to risks inherent in operating in these countries, including government regulation, currency restrictions, fluctuations and other restraints, import and export restrictions, burdensome taxes, risks of expropriation, threats to employees, political and economic instability, terrorist activities, including extortion, and risks of U.S. and foreign governmental action in relation to us. Under certain circumstances, we might need to curtail, cease or alter our activities in a particular region or country. Trade restrictions apply to certain countries and certain parties under various sanctions, laws and regulations; our sales into Iran and Syria must be and are authorized by the U.S. government pursuant to these regulations, which generally or by specific license allow sales of our food products to non-sanctioned parties. In order to avoid transactions with parties subject to trade restrictions, we screen parties to our transactions against relevant trade sanctions lists.
See Note 13 to the Condensed Consolidated Financial Statements for a further description of legal proceedings and other risks including, in particular, (1) the civil litigation and investigations relating to payments made to our former Columbian subsidiary to a Columbian paramilitary group and (2) customs and tax proceedings in Italy.

Critical Accounting Policies and Estimates There have been no material changes to our critical accounting policies and estimates described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2011.
New Accounting Standards
See Note 14 to the Condensed Consolidated Financial Statements for information on relevant new accounting standards.