• Debt reduction efforts in 2011 reduced interest expense by approximately $7 million in the first half of 2012. As more fully described in Note 5 to the Condensed Consolidated Financial Statements, we further amended the Credit Facility to provide the appropriate level of flexibility to execute our strategy and and absorb the current volatility inherent in our business. The amendment created a Covenant Amendment Period until after the third quarter of 2013, during which interest rates increase, the financial covenants are altered and other restrictions are in place. We expect annual interest expense to increase by approximately $5 million during the Covenant Amendment Period.

• Other Produce results in the second quarter of 2011 included a $32 million reserve for advances to a grower of grapes and other produce. The grower declared bankruptcy in late 2011; however, we continue to negotiate recovery with the bankruptcy trustee and other creditors of the grower.

• Income taxes in the second quarter of 2011 included an $87 million release of U.S. valuation allowances against deferred tax assets and $6 million of income tax expense related to a settlement in Italy.

On August 7, 2012, we announced that we will immediately execute a restructuring plan to strategically transform Chiquita into a high-volume, low-cost operator. The restructuring plan is designed to reduce costs and improve our competitive position by focusing our resources on the banana and salad businesses, reducing investment in non-core products, reducing overhead and manufacturing cost and limiting consumer marketing activities. In connection with this plan, we expect the elimination of approximately 300 positions worldwide, resulting in expense of approximately $15 million in the second half of 2012 primarily related to severance, after which, we expect annual savings of at least $60 million. We expect to begin realizing part of these savings as early as the fourth quarter of 2012. We do not currently foresee that the state, local and other incentives connected to our relocation to Charlotte, North Carolina will be affected. The company's Board of Directors and its chief executive officer also announced the company's plans to transition leadership. We also announced our plans to transition Chiquita's leadership. The Board of Directors has formed a committee to oversee the process of selecting a new chief executive officer. Mr. Aguirre will remain as Chairman and Chief Executive Officer until the hiring of a new CEO.
Our results are subject to significant seasonal variations and interim results are not indicative of the results of operations for the full fiscal year. Generally, our results during the second half of the year are weaker than in the first half of the year due to increased availability of competing fruits and resulting lower banana prices, as well as seasonally lower consumption of salads in the fourth quarter. For a further description of our challenges and risks, see the Overview section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part I - Item 1A - Risk Factors" in our 2011 Annual Report on Form 10-K and discussion below.

Operations
                             Quarter ended June 30,       Percent      Six months ended June 30,     Percent
(In millions)                 2012             2011        Change        2012             2011        Change
Net sales:
Bananas                            $533            $555    (4.0 )%          $1,053          $1,094    (3.8 )%
Salads and Healthy Snacks       252               253      (0.4 )%         489               491      (0.3 )%
Other Produce                    49                63     (22.5 )%          84               109     (23.1 )%
                                   $833            $870    (4.3 )%          $1,627          $1,695    (4.0 )%
Cost of sales:
Bananas                            $460            $433     6.0  %            $909            $869     4.5  %
Salads and Healthy Snacks       214               217      (1.4 )%         422               420       0.6  %
Other Produce                    49                62     (20.9 )%          93               109     (15.2 )%
Corporate costs                   3                 3       7.0  %           6                 5       5.2  %
                                   $726            $716     1.5  %          $1,429          $1,404     1.8  %
Operating income (loss):
Bananas                             $29             $59   (51.1 )%             $48            $116   (58.4 )%
Salads and Healthy Snacks        10                 3     209.4  %          10                 9      11.7  %
Other Produce                    (3 )             (33 )   (89.9 )%          (9 )             (37 )   (74.3 )%
Corporate Costs                 (18 )             (15 )    18.4  %         (32 )             (32 )    (1.4 )%
                                    $18             $14    27.1  %             $17             $56   (69.4 )%

Tables may not total or recalculate due to rounding.

CONSOLIDATED NET SALES, COST OF SALES AND OPERATING INCOME
Net sales declined on a consolidated basis by 4.3% and 4.0% in the quarter and six months ended June 30, 2012, respectively, compared to the same periods in 2011 primarily as a result of lower banana and other produce pricing in all markets, as lower average European exchange rates more than offset local pricing improvements in Europe. We expect year-over-year European pricing comparisons to remain challenging based on 2012 exchange rates that are anticipated to be significantly below 2011 rates; therefore, in June and July 2012 we increased hedging coverage through 2013 to reduce our exposure to further declines in the value of the euro. Further discussion of hedging can be found under the caption Market Risk Management-Financial Instruments below. North American banana pricing in 2011 included a force majeure surcharge from late January 2011 until the end of June 2011 to recover higher sourcing costs that began in the fourth quarter of 2010; the surcharge did not recur in 2012. Increases in value-added salad sales to foodservice customers and sales of healthy snacks offset reductions in retail value-added salad volume, which are a result of 2011 customer conversions to private label products produced by competitors. Additionally, a change in standard contract language for certain other produce sales in Europe resulted in net recognition as an agent, whereas in 2011 we recognized gross sales and gross cost of sales as a principal. Additional detail of the variance is included in the segment discussion below.
Cost of sales increased on a consolidated basis by 1.5% and 1.8% in the quarter and six month ended June 30, 2012, respectively, compared to the same periods in 2011 primarily as a result of increased banana volume, sourcing costs that include fuel costs net of hedging, purchased fruit costs, and materials cost. Additional detail of the variance is included in the segment discussion below. Operating income increased (decreased) on a consolidated basis by 27.1% and
(69.4)% in the quarter and six month ended June 30, 2012, respectively, compared to the same periods in 2011. The second quarter of 2011 includes a $32 million reserve in the Other Produce segment for grower advances to a grower of grapes and other produce in Chile. Aside from the reserve, operating results declined from 2011 primarily as a result of lower banana pricing in all markets. Lower value-added salad volume was more than offset in the second quarter and partially offset in the first half by improved raw product yields and quality combined with process improvements to significantly reduce quality costs in 2012 compared to the same periods in 2011, as well as improved product mix. Additional detail of the variances are included in the segment discussion below.
REPORTABLE SEGMENTS
We report three business segments: Bananas; Salads and Healthy Snacks; and Other Produce. Segment descriptions and results can be found in Note 12 to the Condensed Consolidated Financial Statements. Certain corporate expenses are not allocated to the reportable segments and are included in "Corporate costs," including costs related to the relocation of the company's headquarters described in Note 2 to the Condensed Consolidated Financial Statements. Inter-segment transactions are eliminated.

BANANA SEGMENT
Net sales for the segment were $533 million and $555 million for the second
quarters of 2012 and 2011, respectively, and $1.1 billion for the six months
ended June 30, 2012 and 2011. Significant increases (decreases) in segment net
sales compared to the year-ago period were as follows:
(In millions)                                                          Q2        YTD
Pricing, including the 2011 force majeure surcharge in North America $  (6 )   $ (39 )
Volume                                                                   7        21
Average European exchange rates1                                       (24 )     (28 )
Other                                                                    1         5
Change in Banana segment net sales                                   $ (22 )   $ (41 )

1 Average European exchange rates include the effect of hedging, which was an expense of less than $1 million for the second quarter of 2012 and $1 million for the second quarter of 2011, and a benefit (expense) of $4 million and $(3) million for the six months ended June 30, 2012 and 2011, respectively.

Cost of sales in the Banana segment was $460 million and $433 million for the second quarters of 2012 and 2011, respectively, and $0.9 billion for the six months ended June 30, 2012 and 2011. Significant increases (decreases) in segment cost of sales compared to the year-ago period were as follows:
(In millions) Q2 YTD

Volume                                               $  8     $ 18
Sourcing and logistics costs                           14       14
Acceleration of losses on ship sublease arrangements    -        6
Tariffs                                                (1 )     (3 )
Other                                                   6        5
Change in Banana segment cost of sales               $ 27     $ 40

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 $3 million and $12 million for the second quarters of 2012 and 2011, respectively and a benefit of $9 million and $18 million for the six months ended June 30, 2012 and 2011. 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 that began 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 the 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.
Operating income in the Banana segment was $29 million and $59 million for the second quarters of 2012 and 2011, respectively, and $48 million and $116 million for the six months ended June 30, 2012 and 2011, respectively. Significant increases (decreases) in segment operating income compared to the year-ago period were as follows:

(In millions)                                       Q2        YTD
Change in Banana segment net sales from above     $ (22 )   $ (41 )
Change in Banana segment cost of sales from above   (27 )     (40 )
Marketing investment                                  9         8
Selling, general and administrative expenses          1         2
Other                                                 9         3
Change in Banana segment operating income         $ (30 )   $ (68 )

Our banana sales volumes1 in 40-pound box equivalents were as follows:

                                                                 %
(In millions, except percentages)      Q2 2012     Q2 2011     Change     YTD 2012     YTD 2011    % Change
North America                            16.7        16.6       0.6  %       32.5         32.7       (0.6 )%
Europe and the Middle East:
Core Europe2                             10.1        10.6      (4.7 )%       20.6         21.1       (1.9 )%
Mediterranean3 and Middle East            4.5         3.3      36.4  %        8.8          6.5       35.4  %

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

                                 Q2        YTD
North America4                 (8.3 )%   (7.1 )%
Core Europe:2
U.S. Dollar Basis5             (5.5 )%   (7.7 )%
Local currency                  5.3  %   (0.5 )%
Mediterranean3 and Middle East  0.5  %   (3.9 )%

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 but also include 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 use hedging instruments (derivatives) to lock in prices of future bunker fuel purchases for up to three years in the future. We also use hedging instruments 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 for up to 18 months in the future. Exchange rates adversely affected pricing in the second quarter of 2012 by $24 million compared to the second quarter of 2011, and we expect year-over-year European pricing comparisons to remain challenging based on 2012 exchange rates that are anticipated to be significantly below 2011 rates; therefore, in June and July 2012 we increased hedging coverage through 2013 to reduce our exposure to further declines in the value of the euro. 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)                   Q2 2012       Q2 2011     % Change      YTD 2012       YTD 2011     % Change
Euro average exchange rate, spot   $    1.29     $    1.44      (10.4 )%   $     1.30     $     1.40       (7.1 )%
Euro average exchange rate, hedged      1.29          1.43       (9.8 )%         1.31           1.39       (5.8 )%

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 reached 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 June 2012, the EU signed 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 required 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 Salads and Healthy Snacks segment were $252 million and $253
million for the second quarters of 2012 and 2011, respectively, and $489 million
and $491 million for the six months ended June 30, 2012 and 2011, respectively.
Significant increases (decreases) in segment net sales compared to the year-ago
period were as follows:
(In millions)                                           Q2      YTD
Pricing:
Retail value-added salads                             $  1     $  -
Healthy snacks, foodservice and other                    2       (4 )
Volume:
Retail value-added salads                              (14 )    (20 )
Healthy snacks, foodservice and other                   16       20
Mix:
Retail value-added salads                                1        1
Healthy snacks, foodservice and other                   (7 )     (4 )
Other                                                    -        5
Change in Salads and Healthy Snacks segment net sales $ (1 )   $ (2 )

Cost of sales in the Salads and Healthy Snacks segment were $214 million and $217 million for the second quarters of 2012 and 2011, respectively, and $422 million and $420 million for the six months ended June 30, 2012 and 2011, respectively. Significant increases (decreases) in segment cost of sales compared to the year-ago period were as follows:

(In millions)                                               Q2       YTD
Volume:
Retail value-added salads                                 $ (9 )   $ (12 )
Healthy snacks, foodservice and other                       12        21
Mix:
Retail value-added salads                                    1         -
Healthy snacks, foodservice and other                        2         5
Industry input and manufacturing costs:
Retail value-added salads                                    3         9
Healthy snacks, foodservice and other                      (6)      (12)
Quality-related and manufacturing disruption costs         (3)       (5)
Other                                                      (3)       (4)
Change in Salads and Healthy Snacks segment cost of sales $ (3 )   $   2

We were able to reduce commodity, manufacturing and quality costs through harvesting and manufacturing process improvements together with improved first quarter raw product yields and quality. We realized cost savings from our realignment of the overhead structure and innovation functions in the third quarter of 2011, and we reduced our marketing investment in 2012. The first quarter of 2012 included costs of $1 million ($1 million, net of tax), primarily related to inventory write-offs, to exit healthy snacking products that were not sufficiently profitable. The reduction in quality-related and manufacturing disruption costs is expected to continue to favorably affect comparisons to 2011, particularly for the third quarter.

Operating income in the Salads and Healthy Snacks segment was $10 million and $3 million for the second quarters of 2012 and 2011, respectively, and $10 million and $9 million for the six months ended June 30, 2012 and 2011, respectively. 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 and second quarters of 2012 compared to the year-ago periods. The quality improvements also correlate to increased sales velocity of our retail value-added salads in the second quarter of 2012 based on IRI scan data. Significant increases (decreases) in segment operating income compared to the year-ago period were as follows:
(In millions) Q2 YTD

Change in Salads and Healthy Snacks segment net sales from above     $ (1 )   $ (2 )
Change in Salads and Healthy Snacks segment cost of sales from above    3       (2 )
Marketing investment                                                    4        5
Selling, general and administrative costs                               1        3
Exit costs                                                              -       (1 )
Other                                                                   -       (2 )
Change in Salads and Healthy Snacks segment operating income         $  7     $  1

The first quarter of 2012 included $1 million to restructure our European healthy snacking sales force. 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)  Q2 2012     Q2 2011     % Change     YTD 2012     YTD 2011     % Change
Volume                               12.2        13.3        (8.3 )%       24.5         26.1        (6.1 )%
Pricing                                                       0.5  %                                (0.1 )%

Pricing includes fuel-related and other surcharges. Fuel surcharges generally reset quarterly based on the previous quarter's average fuel index prices. The change in pricing represents the net change in sales of individual product pricing changes, without considering changes in product mix.
In June 2012, we entered into a 20-year lease agreement for a salad production and warehousing facility in the Midwest that will replace three existing facilities in the region. The lease agreement contains two 5-year extension periods. The new facility is expected to be more automated and efficient than the three existing plants that it will replace and is expected to further reduce operating costs when it is completed in the second half of 2013. Though the construction costs are being financed by the lessor, we are acting as the construction agent and will be responsible for all construction activity during the construction period because of the specialized nature of the facility. This results in Chiquita owning the facility for accounting purposes and as a result, we have recognized as of June 30, 2012 an asset of $13 million included in "Property, plant and equipment, net" and a corresponding $13 million non-cash . . .