CHIQUITA BRANDS INTERNATIONAL, INC. 2006 ANNUAL · PDF file2006 ANNUAL REPORT CHIQUITA BRANDS INTERNATIONAL, INC. LETTER FROM CHAIRMAN & CEO 01 DEAR STAKEHOLDERS, 2006 was a

healthy convenient fresh chiquita

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PUBLICLY ISSUED SECURITIES

Common Stock, par value $0.01 per shareWarrants to Subscribe for Common Stock71/2% Senior Notes due 201487/8% Senior Notes due 2015

EXCHANGE LISTING

New York Stock ExchangeTrading Symbols:CQB (for the common stock)CQB WS (for the warrants)

SHAREHOLDERS OF RECORD

As of April 6, 2007, there were 1,352holders of record of Common Stock.

ANNUAL MEETING

May 24, 200710 a.m., Eastern Daylight TimeHilton Cincinnati Netherland Plaza35 West Fifth StreetCincinnati, Ohio 45202

TRANSFER AGENT, REGISTRAR AND WARRANT AGENT COMMON STOCK AND WARRANTS

Chiquita Brands International, Inc.c/o Wells Fargo Shareowner Services161 North Concord ExchangeSouth St. Paul, Minnesota 55075-1139(800) 468-9716(651) 450-4064

TRUSTEE – SENIOR NOTES (71/2% AND 87/8%)

LaSalle Bank National Association135 South LaSalle StreetChicago, Illinois 60603(312) 904-2226

COMMON STOCK PERFORMANCE GRAPH

A new class of Chiquita Common Stock was issuedpursuant to Chiquita’s Plan of Reorganization, whichbecame effective on March 19, 2002. The performancegraph to the right compares Chiquita’s cumulativeshareholder returns over the period March 20, 2002through December 31, 2006, assuming $100 had beeninvested at March 20, 2002 in each of ChiquitaCommon Stock, the Standard & Poor’s 500 StockIndex and the Standard & Poor’s Midcap FoodProducts Index. The calculation of total shareholderreturn is based on the change in the price of the stockover the relevant period and assumes the reinvestmentof all dividends.

INVESTOR INQUIRIES

For other questions concerning your investment in Chiquita, contact Investor Relations at (513) 784-6366.

CORPORATE GOVERNANCE, CERTIFICATIONS ANDCODE OF CONDUCT INFORMATION

Chiquita has a Code of Conduct, which applies to all employees, including our senior management and,to the extent applicable to their roles, our directors.We also comply with New York Stock Exchange(NYSE) governance requirements. All of our directorsother than the chairman are independent. Our chiefexecutive officer and chief financial officer sign certifications under Sections 302 and 906 of theSarbanes-Oxley Act relating to the financial statementsand other information included in Chiquita’s 10-K and 10-Q filings with the Securities and ExchangeCommission (SEC), including most recently our annualreport on Form 10-K filed on March 8, 2007. Our chiefexecutive officer certifies annually, most recently in2006, to the NYSE that, to his knowledge, Chiquita wasin compliance with NYSE governance requirements.

The Investors/Governance section ofwww.chiquita.com provides access to:

Governance Standards and Policies of the Board of DirectorsCharter of the Audit CommitteeCharter of the Compensation & Organization Development CommitteeCharter of the Nominating & Governance CommitteeCode of ConductSEC certifications under Sections 302 and 906 of the Sarbanes-Oxley Act that are exhibits to our Forms 10-K and 10-Q.

INVESTOR INFORMATION

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03.20.02 12.31.02 12.31.03 12.31.04 12.31.05 12.31.06

Chiquita S&P 500 S&P Midcap

(In millions, except per share amounts) 2006 2005* 2004

INCOME STATEMENT DATA

Net sales $ 4,499 $ 3,904 $ 3,071Operating income (loss) (28) 188 113Net income (loss) (96) 131 55Diluted per share net income (loss) (2.28) 2.92 1.33Shares used to calculate diluted EPS 42.1 45.1 41.7

CASH FLOW DATA

Cash flow from operations $ 15 $ 223 $ 94Capital expenditures 61 43 43

Dec 31, 2006 Dec 31, 2005 Dec 31, 2004

BALANCE SHEET DATA

Cash and cash equivalents $ 65 $ 89 $ 143Total assets 2,739 2,833 1,780Shareholders’ equity 871 994 839

* The company’s Consolidated Income Statement includes the operations of Fresh Express from the June 28, 2005, acquisition date to the end of the year.

Chiquita Brands International, Inc. (NYSE: CQB) is a leading international marketer and distributor of high-quality fresh andvalue-added food products – from energy-rich bananas and other fruits to nutritious blends of convenient green salads.The company’s products and services are designed to win the hearts and smiles of the world’s consumers by helping themenjoy healthy fresh foods. The company markets its products under the Chiquita® and Fresh Express® premium brands andother related trademarks. Chiquita employs approximately 25,000 people operating in more than 70 countries worldwide.Additional information is available at www.chiquita.com and www.freshexpress.com.

F INANCIAL H IGHL IGHTS

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TOTAL DEBT( i n m i l l i ons )

12.31.05 12.31.06

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2 0 0 6 A N N U A L R E P O R T C H I Q U I TA B R A N D S I N T E R N AT I O N A L , I N C .

LETTER FROM CHAIRMAN & CEO

01

D E A R S TA K E H O L D E R S ,

2006 was a difficult, transitional year for Chiquita.

We achieved a number of operational and strategic

targets and made progress towards achieving our

vision of becoming an innovative global leader in

branded, healthy, fresh foods. However, we also

faced many challenges during the year. We faced

these head-on and have recently begun to recover,

but these factors had a significant impact on our

overall financial performance.

W E D E L I V E R E D T H E FO L LO W I N G R E S U LT S I N 2 0 0 6 :

Net sales grew by 15 percent to a new record

of $4.5 billion. The increase in annual sales

reflects the positive full-year impact of the

acquisition of Fresh Express in mid-year 2005.

We incurred an operating loss of $28 million,

compared to operating income of $188 million

in 2005 and a net loss of $96 million, or

($2.28) per diluted share, compared to net

income of $131 million the prior year.

Operating cash flow was $15 million, compared

to $223 million in 2005, reflecting the decline

in operating income.

A D D R E S S I N G I N D U S T RY W I D E C H A L L E N G E S T H R O U G H O U T 2 0 0 6

We were not satisfied with our results in 2006,

a year in which we faced what many investors

called a “perfect storm.” We confronted significant

headwinds from higher tariffs and increased com-

petition in the E.U. banana market, U.S. consumer

concerns about the safety of fresh spinach, higher

industry costs and other competitive pressures.

However, we firmly believe our 2006 results are

not indicative of the underlying strengths of

Chiquita’s business or our long-term potential.

We are encouraged by a promisingfuture, as we reach to achieve ourvision as an innovative global leader in branded, healthy, fresh foods.

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02

At the beginning of 2006, the European

Commission imposed a tariff rate of ¤176 per

metric ton of bananas imported from Latin

America, up from ¤75 per metric ton, and

eliminated the volume quota that previously

applied to Latin American banana imports. This

unilateral regulatory change resulted in a net

increase of $75 million in higher tariff costs to

Chiquita and contributed to a decline of

$110 million in banana pricing in core European

markets. As expected, several Latin American

governments have strongly objected to the

current E.U. banana regime as illegal. In March

2007, Ecuador’s request for an arbitration

panel under expedited Article 21.5 World Trade

Organization procedures was approved, and

a ruling is expected late in 2007. While such a

challenge does not guarantee success, we

believe the Latin Americans have strong legal

arguments and, this challenge has the potential

to lead Europe to negotiate a lower tariff rate or

other constructive changes to the current regime.

In September, the fresh-cut industry was affected

by an E. coli outbreak that has had a negative

impact on U.S. consumer confidence. The U.S.

Food and Drug Administration’s investigation of

this outbreak did not link any confirmed cases of

illness to the company’s products. In fact, Fresh

Express has a stellar food-safety record for the

19 years during which we have produced retail

value-added salads. Nevertheless, we estimate

that operating results were $21 million lower in

our Fresh Cut segment due to reduced sales and

decreased margins as consumption of packaged

salads declined. Although we have been rebounding

faster than others in the category, we believe the

impact on consumer confidence is likely to con-

tinue to negatively affect our Fresh Cut segment

results through at least the third quarter 2007.

Our costs for fuel, fruit, ship charters, paper and

resin increased by $54 million in 2006, reflecting

increases affecting the entire industry. In addition,

we recorded a one-time, noncash charge of $43

million related to goodwill impairment at Atlanta

AG, our German fresh produce distributor, and a

$25 million reserve for settlement of a previously

disclosed investigation by the U.S. Department

of Justice. Lastly, to enhance financial flexibility,

we suspended Chiquita’s quarterly cash dividend

in September.

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At the beginning of 2006, the European Commission imposed a tariff rate of

¤176 per metric ton of bananas imported from Latin America, up from ¤75 per

metric ton, and eliminated the volume quota that previously applied to Latin

American banana imports. This unilateral regulatory change resulted in higher tariff

costs to Chiquita and contributed to a decline in banana pricing in core European

markets. As expected, several Latin American governments have strongly objected

to the current E.U. banana regime as illegal. In March 2007, Ecuador’s request for

an arbitration panel under expedited World Trade Organization procedures was

approved, and a ruling is expected late in 2007.

“Latin Americanbanana-producing countries rejectnew EU tariff”X I N H U A G E N E R A L N E W S S E R V I C E

H E A D L I N E :

sep1406

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We are committed to bringing healthy, safe products to consumers, and food safety

has always been our No. 1 priority. As an example of our leadership, we formed an

independent scientific advisory panel in May 2006 to further explore how food-safety

practices might be enhanced. In fact, we committed $2 million to fund nine innovative

research projects recommended by this panel in an effort to better understand and

mitigate the threat posed by E. coli O157:H7 in lettuce and leafy greens. We plan to

share any research findings as widely as possible to stimulate the development of

advanced safeguards within the fresh-cut industry.

“Fresh Expressleads the pack inproduce safety”U S A TO D AY – J U L I E S C H M I T

oct2306

H E A D L I N E :

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05

Despite these challenges, we sustained our

leadership position in the premium-quality segment

of the European banana market, expanding

sales of Chiquita-brand bananas by 4 percent,

and maintained all of our significant customer

relationships in Europe. Banana pricing in North

America continued to improve, generating an

additional $21 million in 2006 income. Further,

our Fresh Express business expanded its market

leadership position, while strengthening

Chiquita’s reputation for food safety.

We are encouraged by a promising future. Our

vision is to enhance our position as an innovative

global leader in branded, healthy, fresh foods.

We aim to double revenue from our 2005 base and

more than double profitability during the next five

years. To achieve this goal, we are focused on two

key objectives: to pursue profitable growth by

delivering innovative, higher-margin products

and to build a high-performance organization.

D E L I V E R I N G I N N O VAT I V E , H I G H E R - M A R G I N P R O D U CT S

Our company is enhancing its leadership position

in branded, healthy, fresh foods by focusing on

meeting consumer needs with differentiated,

value-added products and making them more

available to consumers.

Fresh Express expanded its market leadership

in retail value-added salads, growing its dollar

share to approximately 48 percent in 2006,

compared to approximately 43 percent in

2005. Fresh Express successfully introduced

12 new higher-margin products during 2006,

including “Sweet Butter” and “5 Lettuce Mix”

salad blends. These two salad blends were

the top two new items across all categories

introduced in U. S. supermarkets in the third

quarter, beating out all new products from

other leading brands such as Pepsi, Frito-Lay,

Kraft and Campbell Soup.

Chiquita minis are also achieving success.

These higher-margin “baby” bananas meet

consumer needs for healthy, portable snacks.

We are currently serving several large retail

customers in North America. Following a

successful market test in Finland, we are

expanding across Europe in 2007.

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06

Chiquita Apple Bites remain the No. 1 brand

of sliced apples in the United States with a

49 percent value share at year-end. We continue

to expand distribution aggressively, both at

retail, where we have increased distribution

to about 38 percent, and through our quick-

service restaurant partners. In March 2007,

Subway began offering co-branded Chiquita

Apple Bites nationally, expecting to reach

more than 14,500 restaurants in 2007.

Chiquita Just Fruit in a Bottle, a line of all-

natural chilled fruit smoothies, has excelled

in its initial European market introduction in

Belgium last June. This product is available at

major grocery retailers, as well as in various

out-of-home channels. After only six months,

Just Fruit in a Bottle is the leading fresh smoothie

in Belgium with 70 percent distribution among

major retailers.

Chiquita to Go, single Chiquita bananas in pro-

prietary packaging that keeps bananas perfectly

ripe for seven days or more, has generated

tremendous enthusiasm. This packaging inno-

vation enables us to reach consumers through

new higher-margin convenience outlets. At

year-end, Chiquita to Go was already in more

than 8,000 outlets, and we will significantly

increase the size of this business in 2007, as

we add new distribution points every month.

These are just some of the new, innovative higher-

margin products Chiquita is introducing, and we

see significant opportunity to expand our offerings

and profitability by meeting consumer demand

for healthy, on-the-go, fresh foods. Throughout

2007, more innovative products like these will

be tested and introduced into the marketplace.

B U I L D I N G A H I G H - P E R FO R M A N C E O R GA N I Z AT I O N

Our second key objective is to continue to build

a high-performance organization. This means

optimizing our efforts to become a consumer-

centric and customer-preferred company. For

example, we are working to make value-selling

a key capability across our organization. We

continue to excel in cold-chain management,

lead with innovation and technology to expand

margins, and apply best-in class people practices

across Chiquita.

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Our products are the perfect fit to address consumers’ needs for health, convenience

and great taste. Chiquita is enhancing its leadership position in branded, healthy,

fresh foods by focusing on meeting consumer needs with value-added products

and making them more available to consumers. To help parents find easy ways to

incorporate fruits into their children’s diets and meet the USDA’s recommended

two cups of fruit a day, we have introduced smaller and pre-packaged snack

options. Chiquita minis and Chiquita Apple Bites are excellent examples of ready-

to-eat choices for parents that are ideal for lunchboxes and snack time.

“Want fast food?Now you can have fast fruit”T U C S O N C I T I Z E N – B R U C E H O R O V I TZ

jan0806

H E A D L I N E :

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To achieve our vision as an innovative global leader in branded, healthy, fresh foods,

we are focused on two key objectives: to pursue profitable growth by delivering

innovative, higher-margin products and to build a high-performance organization.

We believe we made a great deal of progress in both areas during 2006, and we are

prepared to further take advantage of these opportunities in 2007. We are building a

steady stream of innovations, transitioning from a commodity focus to profitable

value-added products with higher margins, while expanding into adjacent product

categories. Chiquita is on the right path to profitable, sustainable growth.

“A recipe for profits”T H E I R I S H T I M E S – BY A L I S O N H E A LY

H E A D L I N E :

aug3106

278879_text 4/12/07 6:35 PM Page 08



09

For example, in September 2006, we announced

that we were exploring strategic alternatives

for the sale and long-term management of our

ocean shipping operations. We believe there is

an opportunity to enhance shareholder value

while maintaining high quality and competitive

long-term operating costs by partnering with

expert shipping service providers that can grow with

Chiquita. Potential opportunities such as these

will allow us to focus our efforts and resources

even more on strengthening customer relationships

and generating capital, which will primarily be

used to reduce debt, as well as to invest in new

growth opportunities.

We are continuously evaluating how to make our

business more efficient and drive synergies. We

exceeded our cost savings and synergy targets

in 2006, achieving $47 million in gross cost

savings across our tropical production and supply

chain, which mitigated some of the cost increases

affecting the entire industry. In addition, we

achieved our target of a $20 million run-rate in

acquisition synergies within 18 months of acquiring

Fresh Express, in half the time we had committed.

We expect to make further progress and have

set a goal to deliver an additional $40 million in

gross cost savings in 2007.

We are focused on becoming a customer-preferred

company by excelling in category management,

product quality, customer service and in-store

execution. In fact, Progressive Grocer magazine

recognized Chiquita and Fresh Express as

“Category All-Stars” in 2006 for exceptional

category management, honoring companies that

have been Category Captains in at least five of the

last 10 years.

A D D I N G L E A D E R S H I P TA L E N T

We have made enhancements to our management

team to support our goal to grow Chiquita into an

innovative global leader in branded, healthy, fresh

foods. James Thompson now serves as our general

counsel and secretary with responsibility for

Chiquita’s global law department. We appointed

Vanessa Vargas-Land to serve as our chief com-

pliance officer, as we continue our commitment

to full regulatory compliance and transparency in

all of our activities. Additionally, we named two

newly created global product leader positions to

better manage our pipeline of innovative products

across all segments and develop a growth platform

for our key products on a global basis.

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10

F E R N A N D O AG U I R R E

Chairman & Chief Executive OfficerApril 12, 2007

We are also integrating the strengths of our

Chiquita and Fresh Express sales teams to better

leverage our value-selling capability and have

already begun producing results. We are pleased

that Mike Holcomb has joined our management

team as vice president of corporate sales and

customer development to lead this effort.

Individually and as a team, we have ensured

that our management is well-prepared to grow

our businesses profitably through innovation and

build a high-performance organization. Consistent

with our deep commitment to innovation, 2007

marks the first year that a portion of our man-

agement team’s incentive compensation will be

based on achieving certain revenue targets for

new higher-margin products.

M O V I N G TO W A R D A S T R O N G F U T U R E

I have confidence that Chiquita is on the right

path to return to profitable, sustainable growth.

We are focused on diversification and innovation

to ensure we capitalize on opportunities to

strengthen our business and brand. Our team is

working together to share new product ideas and

create efficiencies and profitable growth across our

operation. We believe the strategic initiatives we

are executing will revitalize our company in 2007.

I want to thank our employees for their tremendous

dedication to Chiquita in leading this effort. I am

confident we will successfully transform Chiquita

into an innovative global leader in branded,

healthy, fresh foods, and I look forward to updating

you on our progress as we move through the year.

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Chiquita has a clearvision, focused on innovation with higher-margin products that fit perfectly with consumer needs forhealthy, convenient and fresh foods.

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healthy

Fresh Express continued to

successfully introduce new higher-

margin products, 12 in all during

2006, including “Sweet Butter”

and “5 Lettuce Mix” salad blends,

which are high in vitamin A,

vitamin C and iron.

convenient

The pioneer of the retail packaged

salad category and the first to

market ready-to-eat salads

nationwide, Fresh Express provides

consumers with convenient,

everyday gourmet salads.

fresh

Our innovative supply chain delivers

a difference you can taste. To ensure

the freshest products available, we

tenderly rush lettuces from the field

to coolers within four hours of

harvest. Our salads are thoroughly

washed, rinsed and gently dried,

then sealed in patented Keep Crisp™

breathable bags to ensure just-picked

freshness without preservatives.

F R E S H E X P R E S S ®

S A L A D S

Fresh Express is the U.S. marketleader, providing convenient, freshand healthy salads to more than20 million consumers each week.Drawing on up to 25 varieties offine lettuces and greens for nutritious salad creations, FreshExpress offers more than 50 different salad products.

278879_text 4/12/07 3:21 PM Page 13

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healthy

With the same great nutritional

value as regular bananas, these

quick, easy snacks are a favorite

with moms and kids alike.

convenient

The smaller size makes Chiquita

minis attractive to children

and easier to carry in a lunchbox

or a briefcase – when a little

is exactly enough!

fresh

With the same premium quality of

traditional Chiquita bananas,

Chiquita minis are known to be

even a little bit sweeter.

Chiquita minis – baby bananassold in clusters of six or seven

fingers per bag – are a good example of a new product that’s

driving incremental sales and profitability by offering

consumers quick, portable andhealthy snacks.

C H I Q U I TA M I N I S ®

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healthy

With no artificial flavors or colors,

Chiquita Apple Bites are a healthy,

ready-to-eat fruit snack.

convenient

Chiquita has made it easy for

consumers to enjoy scrumptious,

natural fruit anytime, anywhere.

fresh

Our sweet red or tangy green

Chiquita Apple Bites are picked at

the peak of ripeness to ensure the

best flavor and then are carefully

cleaned and packaged in a specially

designed snack-size bag to lock in

the juicy apple crunch.

C H I Q U I TA

A P P L E B I T E S™

Chiquita Apple Bites – crispyapple slices that are perfect to include in a lunchbox or as an after-school snack are the No. 1 brand of sliced apples in U. S. grocery stores, with a 49 percent value share.

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healthy

We have just put whole fruits into a

bottle and added nothing else: no

additives, no preservatives and no

added sugar. Pure fruit, pure pleasure!

convenient

Chiquita Just Fruit in a Bottle

brings the natural goodness of

fresh fruits to European retail

outlets in a single-serve bottle

that consumers can enjoy at

any time or place.

fresh

The intense natural fruit taste and

the rich texture make Chiquita Just

Fruit in a Bottle delicious, while the

fresh fruit ingredients make it a

nutritious, healthy snack.

J U S T F R U I T

I N A B OT T L E™

Chiquita’s Just Fruit in a Bottleoffers European consumers a new

way to enjoy fresh fruits. Thesenondairy smoothies are a

chilled mix of fresh fruits andfreshly squeezed juice in three

flavors: strawberry-banana, banana-pineapple-orange and

mango-passion fruit.

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21C H I Q U I TA TO G O ®

B A N A N A S

Our single Chiquita bananas arepacked in conveniently sized boxes sealed with a proprietarypatch that perfectly regulates air flow, enabling a longer shelflife and distribution through nontraditional and higher-marginretail outlets. At year-end,Chiquita to Go was in more than 8,000 outlets, and we willsignificantly increase the size of this business in 2007.

convenient

Using proprietary packaging

technology that keeps bananas at

their peak of ripeness for more

than seven days, Chiquita to Go

brings healthy, fresh fruit to

consumers every day of the week,

any time of day.

healthy

Chiquita bananas are vitamin-rich,

heart-healthy and perfectly fat-free.

In fact, a single Chiquita banana

supplies 20 percent and 11 percent

of the U.S. Recommended Daily

Allowances of vitamin B6 and

potassium, respectively.

fresh

Selected for their ideal size, color,

shape and ripeness, Chiquita to Go

bananas are perfectly ripe every

day of the week and offer a healthy

alternative snack to consumers.

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Gourmet Café Salads™

The pioneer of the retail packaged salad category, Fresh Express continues

its commitment to quality and innovation through a new line of full-meal

salads in convenient, single-serve packaging.

These are just some of the new, innovative higher-margin products Chiquita isintroducing, and we see significant opportunity to expand our offerings andprofitability by meeting consumer demand for healthy, on-the-go, fresh foods.Throughout 2007, more innovative products like these will be tested and introduced into the marketplace.

Chiquita Fresh & Ready™

Chiquita Fresh & Ready offers bananas that stay fresh for twice as long

as regular bananas. Taking the Chiquita to Go technology from the

convenience store to the produce department at your local grocer,

Chiquita Fresh & Ready provides consumers a convenient, healthy snack

at home. At year-end 2006, Chiquita Fresh & Ready was in test with

several major retailers in three U.S. states.

Chiquita Fruit Bar

Chiquita Fruit Bar offers a wide array of high-quality Chiquita fresh

produce and tasty fruit-based drinks that are made on demand in a fun and

friendly retail atmosphere. A natural extension to meet consumers’ needs

for healthy and convenient food choices, Chiquita Fruit Bar continues

to build our brand equity with European consumers and is currently at four

locations in Germany.

Healthy Snacking

To meet the demand from today’s consumers for convenient, healthy and

great-tasting food choices, we are expanding on the success of Chiquita

Apple Bites by introducing ready-to-eat mini carrots, snap peas and grapes

that are ideal for lunchboxes and snack time. These healthy, bite-sized

products are fun for kids and adults alike and provide essential vitamins

and minerals in consumer-friendly, on-the-go packages.

EVEN MORE INNOVATIVE PRODUCTS

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nov17

06“Chiquita cleans up its act”F O R T U N E M AG A Z I N E – J E N N I F E R A LS E V E R

H E A D L I N E :

We manage all of our operations in accordance with our Core Values – Integrity,

Respect, Opportunity and Responsibility – and the Chiquita Code of Conduct,

which guide our daily decisions and define our standards for corporate respon-

sibility. In addition to strict legal compliance, we define corporate responsibility

to include social responsibilities, such as respect for the environment and the

communities where we do business, the health and safety of our workers, labor

rights and food safety. We see a positive link between our Core Values and our

company’s vision, mission and sustainable growth strategy.

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24

CORPORATE RESPONSIB IL ITY

M A I N TA I N I N G 1 0 0 % C E R T I F I C AT I O N O N O W N E D FA R M S I N L AT I N A M E R I C A

We have selected industry standards that are most

relevant to each segment of our business. In most

cases, we have been the industry pioneer seeking

credible third-party certification of our performance.

For example, in the mid-1990s, we committed

to achieve certification on all company banana

farms to the rigorous standards of the Rainforest

Alliance, a leading international conservation

organization. The Rainforest Alliance (www.ra.org)

certifies farms that follow its 10 stringent environ-

mental and social standards for agriculture,

designed to protect the environment, wildlife,

workers and local communities.

During 2006, all of our Latin American banana

divisions earned recertification by the Rainforest

Alliance for the seventh straight year based on

farm-by-farm audits, despite more rigorous

standards. Moreover, 84 percent of acreage of

independent grower farms in Latin America from

which we source bananas also had achieved

Rainforest Alliance certification at year-end.

In addition, 100 percent of our owned banana

farms in Latin America were certified to the Social

Accountability 8000 labor and human rights

standard (www.sa-intl.org) and to the EurepGAP

food-safety standard (www.eurepgap.org).

C O N S E R V I N G B I O D I V E R S I T Y W I T H C O M M U N I T Y S U P P O R T

A highlight of our corporate responsibility efforts

in 2006 occurred when President Oscar Arias

of Costa Rica presented the 2006 Contribution

to the Community Award to Chiquita Brands

International on behalf of the American-Costa

Rican Chamber of Commerce, in recognition of

the company’s Nature & Community Project,

an initiative designed to preserve biodiversity,

promote nature conservation awareness among

the local population and create new sources of

income for people in the community.

Chiquita’s Nature and Community Project –

developed with the support and cooperation of

independent partners, including Swiss retailer

Migros (www.migros.ch), the Rainforest Alliance,

and German Technical Cooperation – GTZ

(www.gtz.de) – contributes to the protection of

the exceptional biodiversity of the region by

encouraging local communities and farmers to

actively participate in the protection of rainforests

and the many species which depend on them.

The project, which started in September 2003,

is based at Chiquita’s Nogal farm in the Sarapiquí

region in northeastern Costa Rica. More than 100

hectares (250 acres) of protected rainforest on

this farm were designated as a private wildlife

refuge by the Costa Rican government in January

2006. To facilitate the migration and survival of

endangered species, this forest will be connected

with other forest areas of the region, including

the Braulio Carrillo national park, 8 kilometers

(5 miles) away. To date, the creation of this biological

corridor has involved the planting of 10,000 trees

of more than 40 native species. Local farmers are

contributing to this effort by providing land for

reforestation.

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CORPORATE RESPONSIB IL ITY

25Environmental education for schoolchildren,

neighbors and Chiquita’s own employees plays

an important role in this work, since the support

of the local population is essential for long-term

environmental conservation. Nearly 3,000

visitors have already participated in workshops

provided at the Nogal project center.

The creation of new economic opportunities, such

as ecotourism and arts and crafts based on envi-

ronmental protection, is another important aspect

of the project. So far, five small businesses have

been established with assistance of the project, and

their sales have contributed to the income of many

families in neighboring communities.

A G R E E M E N T W I T H U . S . D E PA R T M E N T O F J U S T I C E

In April 2003, Chiquita voluntarily informed the

U.S. Department of Justice (DOJ) that in order to

protect the lives and safety of its employees, its

banana-producing subsidiary in Colombia had

been forced to make protection payments to local

right- and left-wing paramilitary groups. Chiquita

approached the DOJ when senior management

became aware that payments to these groups

were prohibited under a U.S. antiterrorism law that

had changed in September 2001.

The payments made by the company were always

motivated by our good faith concern for the safety of

our employees. Since disclosing this information

four years ago, Chiquita has cooperated with the

DOJ investigation, sold its Colombian operations and

enhanced its compliance programs and procedures.

The aim of the company’s enhanced programs is to

foster transparency and to reinforce a strong culture

of ethics and compliance with our obligations under

U.S. law and in the jurisdictions around the world in

which we do business.

In March 2007, Chiquita reached an agreement

with the DOJ relating to the investigation. Under

terms of the agreement, Chiquita will pay a fine of

$25 million over five years and pleaded guilty to

one count of violating a U.S. law in connection with

payments made from 2001 to 2004 by its former

subsidiary to entities affiliated with “Autodefensas

Unidas de Colombia,” which had been designated

as a foreign terrorist organization. In anticipation

of this settlement, the company recorded a reserve

for $25 million in its financial statements for the

quarter and year ended Dec. 31, 2006.

C O R E VA L U E S C O N T I N U E T O G U I D EB U S I N E S S D E C I S I O N S

We are proud of our corporate responsibility

progress. In many parts of our company, such as in

the banana divisions and in the supply chain, our

corporate responsibility programs have generated

benefits in productivity and employee morale. As

a result, corporate responsibility is largely integrated

into the culture and daily life of these operations.

At the same time, we recognize that there is always

more that can be done. We have new businesses

and new employees who do not have a long history

with our corporate responsibility programs. So, it’s

important to help all our employees to understand

our Core Values, our ethical and legal obligations

and the benefits of our programs. We must continue

to integrate compliance and values into our decision-

making, and we need to implement these efforts

more consistently across the company.

While there will be many challenges and opportu-

nities ahead, our Core Values and Code of Conduct

will continue to guide management’s decisions.

For more information, please visit www.chiquita.comunder the “Corporate Responsibility” tab.

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28

50

51

5253

54

55

5681

82

83

S TAT E M E N T O FM A N AG E M E N T R E S P O N S I B I L I T Y

M A N AG M E N T ’ S D I S C U S S I O N A N D A N A LYS I S O F F I N A N C I A L C O N D I T I O N A N D R E S U LT S O F O P E R AT I O N S

R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C AC C O U N T I N G F I R M O N F I N A N C I A L S TAT E M E N T S

R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C AC C O U N T I N G F I R M O N I N T E R N A L C O N T R O L O V E R F I N A N C I A L R E P O R T I N G

C O N S O L I D AT E D S TAT E M E N T O F I N C O M E

C O N S O L I D AT E D B A L A N C E S H E E T

C O N S O L I D AT E D S TAT E M E N T O F S H A R E H O L D E R S ’ E Q U I T Y

C O N S O L I D AT E D S TAT E M E N T O F CA S H F LO W

N OT E S TO C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

S E L E CT E D F I N A N C I A L D ATA

B OA R D O F D I R E CTO R S , O F F I C E R S A N D S E N I O R O P E R AT I N G M A N AG E M E N T

I N V E S TO R I N FO R M AT I O N A N DC O M M O N S TO C KP E R FO R M A N C E G R A P H

F INANCIAL TABLE OF CONTENTS

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The financial statements and related financial information presented in this Annual Report are the responsibility ofChiquita Brands International, Inc. management, which believes that they present fairly the company’s consol-idated financial position and results of operations in accordance with generally accepted accounting principles.

The company’s management is responsible for establishing and maintaining adequate internal controls. Thecompany has a system of internal accounting controls, which includes internal control over financial reportingand is supported by formal financial and administrative policies. This system is designed to provide reasonableassurance that the company’s financial records can be relied on for preparation of its financial statements andthat its assets are safeguarded against loss from unauthorized use or disposition.

The company also has a system of disclosure controls and procedures designed to ensure that material infor-mation relating to the company and its consolidated subsidiaries is made known to the company representativeswho prepare and are responsible for the company’s financial statements and periodic reports filed with theSecurities and Exchange Commission (“SEC”). The effectiveness of these disclosure controls and procedures isreviewed quarterly by management, including the company’s Chief Executive Officer and Chief FinancialOfficer. Management modifies these disclosure controls and procedures as a result of the quarterly reviews oras changes occur in business conditions, operations or reporting requirements.

The company’s worldwide internal audit function, which reports to the Audit Committee, reviews the adequacyand effectiveness of controls and compliance with the company’s policies.

Chiquita has published its Core Values and Code of Conduct which establish the company’s high standards forcorporate responsibility. The company maintains a hotline, administered by an independent company, thatemployees can use confidentially and anonymously to communicate suspected violations of the company’sCore Values or Code of Conduct, including concerns regarding accounting, internal accounting control or auditingmatters. Any reported accounting, internal accounting control or auditing matters are also forwarded directlyto the Chairman of the Audit Committee of the Board of Directors.

The Audit Committee of the Board of Directors consists solely of directors who are considered independentunder applicable New York Stock Exchange rules. One member of the Audit Committee, Roderick M. Hills, hasbeen determined by the Board of Directors to be an “audit committee financial expert” as defined by SEC rules.The Audit Committee reviews the company’s financial statements and periodic reports filed with the SEC, aswell as the company’s internal control over financial reporting including its accounting policies. In performingits reviews, the Committee meets periodically with the independent auditors, management and internal auditors,both together and separately, to discuss these matters.

The Audit Committee engages Ernst & Young, an independent registered accounting firm, to audit the company’sfinancial statements and its internal control over financial reporting and express opinions thereon. The scopeof the audits is set by Ernst & Young, following review and discussion with the Audit Committee. Ernst & Younghas full and free access to all company records and personnel in conducting its audits. Representatives ofErnst & Young meet regularly with the Audit Committee, with and without members of management present,to discuss their audit work and any other matters they believe should be brought to the attention of theCommittee. Ernst & Young has issued an opinion on the company’s financial statements. This report appearson page 50. Ernst & Young has also issued an audit report on management’s assessment of the company’sinternal control over financial reporting. This report appears on page 51.

MANAGEMENT’S ASSESSMENT OF THE COMPANY’S INTERNAL CONTROL OVER FINANCIAL REPORTING

The company’s management assessed the effectiveness of the company’s internal control over financialreporting as of December 31, 2006. Based on management’s assessment, management believes that, as ofDecember 31, 2006, the company’s internal control over financial reporting was effective based on the criteriain Internal Control – Integrated Framework, as set forth by the Committee of Sponsoring Organizations of theTreadway Commission (COSO).

FERNANDO AGUIRRE JEFFREY M . ZALLA BRIAN W. KOCHER

Chief Executive Officer Chief Financial Officer Chief Accounting Officer

27


STATEMENT OF MANAGEMENT RESPONSIB IL ITY

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MANAGEMENT’S D ISCUSSION AND ANALYSIS OF F INANCIAL CONDIT ION AND RESULTS OF OPERATIONS

OVERVIEW

Chiquita Brands International, Inc. (“CBII”) and its subsidiaries (collectively, “Chiquita” or the company) operateas a leading international marketer and distributor of high-quality fresh and value-added produce, which is soldunder the Chiquita® premium brand, the Fresh Express® brand and other related trademarks. The company isone of the largest banana producers in the world and a major supplier of bananas in Europe and NorthAmerica. In June 2005, Chiquita acquired Fresh Express, the U.S. market leader in value-added salads, a fast-growing food category for grocery retailers, foodservice providers and quick-service restaurants. Theacquisition of Fresh Express increased Chiquita’s consolidated annual revenues by about $1 billion. The companybelieves that the acquisition diversified its business, accelerated revenue growth in higher margin value-addedproducts, and provided a more balanced mix of sales between Europe and North America, which makes thecompany less susceptible to risks unique to Europe, such as the European Union (“EU”) banana import regimeand foreign exchange risk. See Note 2 to the Consolidated Financial Statements for further information on thecompany’s 2005 acquisition of Fresh Express.

Significant financial items in 2006 included the following:

Net sales for 2006 were $4.5 billion, compared to $3.9 billion for 2005. The increase resulted from theacquisition of Fresh Express in June 2005.

The operating loss for 2006 was $28 million, compared to $188 million of operating income for 2005. The2006 results included a $43 million goodwill impairment charge related to Atlanta AG and a $25 millioncharge related to a potential settlement of a previously disclosed U.S. Department of Justice investigation.Operating income for 2005 included flood costs of $17 million related to Tropical Storm Gamma and a $6million charge related to the consolidation of fresh-cut fruit facilities in the Midwestern United States.

Operating cash flow was $15 million in 2006, compared to $223 million in 2005. The decline was primarilydue to the significant decline in operating results in 2006.

The company’s debt at both December 31, 2006 and 2005 was $1 billion. The balance at December 31, 2006included $44 million of borrowings on the company’s revolving credit facility to fund working capital needs.

In September 2006, the board of directors suspended the company’s quarterly cash dividend of $0.10 pershare on its outstanding shares of common stock.

Operating results in 2006 were significantly affected by regulatory changes in the European banana market,which resulted in lower local pricing and increased tariff costs, and by higher fuel and other industry costs.Neither the company nor the industry has been able to pass on the increased tariff costs to customers or consumers, although the company has been able to maintain its price premium in the European market.Comparisons to 2005 are also affected by the fact that 2005 was an unusually good year for banana pricing inEurope. Additionally, the company recorded a charge in 2006 in its Banana segment related to the U.S.Department of Justice investigation and a goodwill impairment charge related to Atlanta AG that affectedboth the Banana and Fresh Select segments. The Fresh Cut segment was significantly affected by consumerconcerns regarding the safety of packaged salad products, after discovery of E. coli in certain industry spinachproducts in September 2006 and the resulting investigation by the U.S. Food and Drug Administration (“FDA”).Although the FDA investigation linked no cases of illness to the company’s Fresh Express products, the industryissues related to fresh spinach products will likely continue to have a significant impact on Fresh Cut segmentresults through at least the third quarter of 2007.

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In 2006, the company outlined its vision to become a global leader in branded, healthy, fresh foods, and refinedits strategic objectives to (i) become a consumer-driven, customer-preferred organization, (ii) be an innovative,high-performance organization, and (iii) deliver leading food industry shareholder returns. The company is continuing to focus on becoming a more consumer-centric organization and launching innovative products tomeet consumers’ growing desire for healthy, fresh and convenient food choices. In 2006, the company expandedits distribution of convenient, single “Chiquita-To-Go” bananas into 8,000 non-grocery convenience outlets.“Chiquita Fresh and Ready” was also introduced for testing in late 2006 in traditional grocery stores, as aninnovative way to keep bananas fresher four days longer. During the year, Fresh Express added 12 new offerings,including “5-Lettuce Mix” and “Sweet Butter” blends, to its line of ready-to-eat salad kits and premium value-added salads. Chiquita intends to continue providing value-added products and services in ways it believes better satisfy consumers, increase retailer profitability and boost the in-store presence of Chiquita and FreshExpress branded products.

The major risks facing the business include the EU tariff-only regime and related industry and pricing dynamics, weather and agricultural disruptions, consumer concerns regarding the safety of packaged salads, exchangerates, industry cost increases, risks of governmental investigations and other contingencies, and financing.

In January 2006, the European Commission implemented a new regime for the importation of bananas intothe EU. It eliminated the quota that was previously applicable and imposed a higher tariff on bananasimported from Latin America, while imports from certain African, Caribbean and Pacific (“ACP”) sources areassessed zero tariff on the first 775,000 metric tons imported. The new tariff, which increased to ¤176 from¤75 per metric ton, equates to an increase in cost of approximately ¤1.84 per box for bananas imported by the company into the EU from Latin America, Chiquita’s primary source of bananas. In 2006, the company incurred a net $75 million in higher tariff-related costs, which is the sum of $116 million in incremental tariffcosts minus $41 million in lower costs to purchase banana import licenses, which are no longer required. Inpart due to the elimination of the quota, the volume of bananas imported into the EU increased in 2006,which contributed to a decrease in the company’s average banana prices in core European markets of 11%on a local currency basis compared to 2005. The negative impact of the new regime has been substantialand is expected to continue indefinitely.

In 2006, the company incurred $25 million of higher sourcing, logistics and other costs for replacementfruit due to banana volume shortfalls caused by Hurricane Stan and Tropical Storm Gamma, whichoccurred in the fourth quarter of 2005. These storms, along with Hurricane Katrina in 2005, causedsignificant damage to banana cultivations and port facilities and resulted in increased costs for alternativebanana sourcing, logistics and farm rehabilitation, and write-downs of damaged farms. Additionally, in2007, Fresh Cut segment results for the first quarter are expected to be impacted by up to $4 million from arecord January freeze in Arizona which affected lettuce sourcing.

The company could be adversely affected by actions of regulators or a decline in consumer confidence inthe safety and quality of certain food products or ingredients, even if the company’s practices and proce-dures are not implicated. For example, consumer concerns regarding the safety of packaged salads in theUnited States, after discovery of E. coli in certain industry spinach products in September 2006, adverselyimpacted Fresh Express operations in the third and fourth quarters of 2006, resulting in lower sales andunforeseen costs, even though Fresh Express products were not implicated in these issues. As a result, thecompany may also elect or be required to incur additional costs aimed at restoring consumer confidence inthe safety of its products. The company incurred $9 million of direct costs in 2006, such as abandoned rawproduct inventory and non-cancelable purchase commitments, related to this spinach issue. In addition tothese direct costs, the company believes that 2006 operating income was approximately $12 million lowerthan it otherwise would have been, as a result of reduced sales and decreased margins. The companyexpects this issue will continue to negatively impact Fresh Cut segment results through at least the thirdquarter of 2007.

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In 2006, the euro strengthened against the dollar, causing the company’s sales and profits to increase as aresult of the favorable exchange rate conversion of euro-denominated sales to U.S. dollars. The company’sresults are significantly affected by currency changes in Europe and, should the euro weaken against thedollar, it would adversely affect the company’s results. The company seeks to reduce its exposure toadverse effects of euro exchange rate movements by purchasing euro put option contracts. Currently, thecompany has hedging coverage for approximately 70% of its estimated net euro cash flow in 2007 at averageput option strike rates of $1.28 per euro and approximately 65% of its estimated net euro cash flow in thefirst half of 2008 at average strike rates of $1.27 per euro.

Transportation costs are significant in the company’s business, and the price of bunker fuel used in shippingoperations is an important variable component of transportation costs. The company’s fuel costs haveincreased substantially since 2003, and may increase further in the future. In addition, fuel and transportationcosts are a significant cost component of much of the produce that the company purchases from growersor distributors, and there can be no assurance that the company will be able to pass on such increased coststo its customers. The company enters into hedge contracts which permit it to lock in fuel purchase prices forup to three years on up to 75% of the fuel consumed in its ocean shipping fleet, and thereby minimize thevolatility that fuel prices could have on its operating results. However, these hedging strategies cannot fullyprotect against continually rising fuel rates and entail the risk of loss if market fuel rates decline (see Note 8to the Consolidated Financial Statements). At December 31, 2006, the company had 55% hedging coveragethrough the end of 2009 on fuel consumed in its banana shipments to core markets in North America andEurope; in relation to market forward fuel prices at December 31, 2006, these hedge positions entailedlosses of $3 million in 2007, $5 million in 2008, and $2 million in 2009.

The cost of paper and plastics are also significant to the company because bananas and some other produceitems are packed in cardboard boxes for shipment, and packaged salads are shipped in sealed plastic bags.If the price of paper and/or plastics increases, or results in a higher cost to the company to purchase freshproduce, and the company is not able to effectively pass these price increases along to its customers, thenthe company’s operating income will decrease. Increased costs of paper and plastics have negativelyimpacted the company’s operating income in the past, and there can be no assurance that these costs willnot adversely affect the company’s operating results in the future.

The company has international operations in many foreign countries, including in Central and SouthAmerica, the Philippines and the Ivory Coast. These activities are subject to risks inherent in operating inthose countries, including government regulation, currency restrictions and other restraints, burdensometaxes, risks of expropriation, threats to employees, political instability, terrorist activities, including extortion,and risks of U.S. and foreign governmental action in relation to the company. Should such circumstancesoccur, the company might need to curtail, cease or alter activities in a particular region or country and maybe subject to fines or other penalties. The company’s ability to deal with these issues may be affected byapplicable U.S. or other applicable law. See Note 15 to the Consolidated Financial Statements for a descriptionof (i) a $25 million financial sanction contained in a plea agreement offer made by the company to the U.S.Department of Justice and relating to payments made by the company’s former banana producing subsidiary in Colombia to certain groups in that country which had been designated under United Stateslaw as a foreign terrorist organization, (ii) an investigation by EU competition authorities relating to priorinformation sharing in Europe and (iii) customs proceedings in Italy.

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The company has $1 billion outstanding in total debt, most of which is issued under debt agreements thatrequire continuing compliance with financial covenants. The most restrictive of these covenants are in thecompany’s bank credit facility, which includes a $200 million revolving credit facility and $394 million ofoutstanding term loans (the “CBL Facility”). In 2006, after seeking prospective covenant relief in June, thecompany needed to seek further covenant relief later in the year. In October, the company obtained a temporary waiver, for the period ended September 30, 2006, from compliance with certain financialcovenants in the CBL Facility, with which the company otherwise would not have been in compliance. InNovember, the company obtained a permanent amendment to the CBL Facility to cure the covenant violations that would have otherwise occurred when the temporary waiver expired. In March 2007, thecompany obtained further prospective covenant relief with respect to a proposed financial sanction contained in a plea agreement offer made by the company to the U.S. Department of Justice and otherrelated costs. If the company’s financial performance were to decline compared to lender expectations, thecompany could in the future be required to seek further covenant relief from its lenders, or to restructure orreplace its credit facility, which would further increase the cost of the company’s borrowings, restrict itsaccess to capital, and/or limit its operating flexibility.

As of February 28, 2007, the company had borrowed $84 million under its revolving credit facility, andexpects to make additional draws to fund peak seasonal working capital needs through March or April2007. Another $29 million of capacity was used to issue letters of credit, including a $7 million letter ofcredit issued to preserve the right to appeal certain customs claims in Italy. During 2007, the company maybe required to issue up to an additional $25 million of letters of credit for appeal bonds relating to litigationof additional customs claims in Italy. The company believes that operating cash flow, including the collectionof receivables from high season banana sales, should permit it to significantly reduce the revolving creditbalance during the second quarter and to fully repay it during the third quarter; however, there can be noassurance in this regard. In order to ensure adequate liquidity, in the event that the company experiencesshortfalls in operating performance or unanticipated contingencies which require the use of significantamounts of cash, the company may be limited in its ability to fund discretionary market or brand-supportactivities, innovation spending, capital investments and/or acquisitions that had been planned as part ofthe execution of its long-term growth strategy.

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OPERATIONS

The company reports three business segments: Bananas, Fresh Select, and Fresh Cut. The Banana segmentincludes the sourcing (purchase and production), transportation, marketing and distribution of bananas. TheFresh Select segment includes the sourcing, marketing and distribution of whole fresh fruits and vegetablesother than bananas. The Fresh Cut segment includes value-added salads, foodservice and fresh-cut fruit operations. Remaining operations, which are reported in “Other,” primarily consist of processed fruit ingredientproducts, which are produced in Latin America and sold in other parts of the world, and other consumer packaged goods. The company evaluates the performance of its business segments based on operatingincome. Intercompany transactions between segments are eliminated.

Financial information for each segment follows:

(In thousands) 2006 2005 2004

Net salesBananas $ 1,933,866 $ 1,950,565 $ 1,713,160Fresh Select 1,355,963 1,353,573 1,289,145Fresh Cut 1,139,097 538,667 10,437Other 70,158 61,556 58,714

Total net sales $4,499,084 $ 3,904,361 $ 3,071,456

Segment operating income (loss)Bananas $ (20,591) $ 182,029 $ 122,739Fresh Select (27,341) 10,546 440Fresh Cut 24,823 (3,276) (13,422)Other (4,588) (1,666) 3,190

Total operating income (loss) $ (27,697) $ 187,633 $ 112,947

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BANANA SEGMENT

Net sales

Banana segment net sales for 2006 decreased 1% versus 2005. The decrease resulted from lower bananapricing in Europe, which was mostly offset by higher volume in Europe and improved pricing in North America.

Net sales for 2005 increased 14% versus 2004. The increase resulted primarily from improved banana pricingin both Europe and North America.

Operating income

2006 compared to 2005. The Banana segment operating loss for 2006 was $21 million, compared to operatingincome of $182 million for 2005. Banana segment operating results were adversely affected by:

$110 million from lower European local banana pricing, attributable in part to increased banana volumesthat entered the market, encouraged by regulatory changes that expanded the duty preference for Africanand Caribbean suppliers and eliminated quota limitations for Latin American fruit, as well as reduced consumption driven by unseasonably hot weather in many parts of Europe during the third quarter.

$75 million of net incremental costs associated with higher banana tariffs in the European Union. This consisted of approximately $116 million of incremental tariff costs, reflecting the duty increase to ¤176from ¤75 per metric ton effective January 1, 2006, offset by approximately $41 million of expensesincurred in 2005 to purchase banana import licenses, which are no longer required.

$54 million of industry cost increases for fuel, fruit, paper and ship charters.

$25 million of higher sourcing, logistics and other costs for replacement fruit due to banana volume shortfalls caused by Hurricane Stan and Tropical Storm Gamma, which occurred in the fourth quarter 2005.

$25 million charge for potential settlement of a contingent liability related to the Justice Department investigation related to the company’s former Colombian subsidiary.

$14 million goodwill impairment charge related to Atlanta AG.

$12 million in higher professional fees related to previously-reported legal proceedings, including theJustice Department investigation, the EU competition law investigation, and U.S. anti-trust litigation.

These adverse items were offset in part by:

$23 million of net cost savings in the Banana segment, primarily related to efficiencies in the company’ssupply chain and tropical production operations.

$21 million from higher pricing in North America.

$20 million from lower marketing costs, primarily in Europe.

$17 million impact from 2005 flooding in Honduras as a result of Tropical Storm Gamma, which did notrecur in 2006.

$13 million benefit from the impact of European currency, consisting of a $23 million favorable variancefrom balance sheet translation and a $1 million increase in revenue, partially offset by $9 million ofincreased hedging costs and $2 million of higher European costs due to a stronger euro.

$11 million of costs related to flooding in Costa Rica and Panama in the first half of 2005 that did not repeatin 2006.

$10 million from lower accruals for performance-based compensation due to lower operating results relative to targets.

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The company’s banana sales volumes of 40-pound boxes were as follows:

(In millions, except percentages) 2006 2005 % Change

Core European Markets(1) 53.8 54.0 (0.4%)Trading Markets(2) 12.5 6.9 81.2%North America 56.9 58.4 (2.6%)Asia and the Middle East(3) 20.9 19.2 8.9%

Total 144.1 138.5 4.0%

The volume of fruit sold into trading markets typically reflects excess banana supplies beyond core marketdemands, sold on a spot basis. Beginning in 2007, the company anticipates less volume being available to tradingmarkets on a spot basis as a result of recent marketing agreements to provide a year-round supply of bananasto customers in Turkey, which in the future will be included in the company’s core European markets.

The following table presents the 2006 percentage change compared to 2005 for the company’s bananaprices and banana volume:

Q1 Q2 Q3 Q4 Year

BANANA PRICES

Core European Markets(1)

U.S. Dollars(4) (6%) (14%) (14%) (6%) (10%)Local Currency 2% (13%) (18%) (13%) (11%)

Trading Markets(2)

U.S. Dollars 27% 18% (16%) 6% (4%)North America 0% 9% 8% 4% 5%Asia and the Middle East(3)

U.S. Dollars (7%) (2%) (2%) 18% 4%

BANANA VOLUME

Core European Markets(1) (9%) (1%) 8% 4% (0%)Trading Markets(2) 150% (42%) 219% 83% 81%North America (6%) (8%) 0% 5% (3%)Asia and the Middle East(3) 33% 12% 18% (9%) 9%

(1) The 25 countries of the EU, Norway, Iceland and Switzerland; beginning in 2007, core European markets will also include Bulgaria and Romania(two new EU member states) as well as Turkey

(2) Other European and Mediterranean countries not included in Core Markets(3) The company primarily operates through joint ventures in this region.(4) Prices on a U.S. dollar basis do not include the impact of hedging.

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The average spot and hedged euro exchange rates for 2006 and 2005 were as follows:

(Dollars per euro) 2006 2005 % Change

Euro average exchange rate, spot $ 1.25 $ 1.25 0.0%Euro average exchange rate, hedged 1.21 1.23 (1.6%)

The company has entered into put option contracts to hedge its risks associated with euro exchange ratemovements. Put options require an upfront premium payment. These put options can reduce the negativeearnings and cash flow impact on the company of a significant future decline in the value of the euro, withoutlimiting the benefit the company would receive from a stronger euro. Foreign currency hedging costs chargedto the Consolidated Statement of Income were $17 million in 2006, compared to $8 million in 2005. Thesecosts relate primarily to hedging the company’s net cash flow exposure to fluctuations in the U.S. dollar value ofits euro-denominated sales. The lower 2005 costs primarily resulted from gains recognized in late 2005 on putoption contracts expiring at that time. At December 31, 2006, unrealized losses of $19 million on the company’scurrency option contracts were included in “Accumulated other comprehensive income,” of which $15 million isexpected to be reclassified to net income during the next 12 months.

The company also enters into forward contracts for fuel oil for its shipping operations, to minimize the volatilitythat changes in fuel prices could have on its operating results. Unrealized losses of $10 million on the fuel oil forward contracts were also included in “Accumulated other comprehensive income” at December 31, 2006, ofwhich $3 million is expected to be reclassified to net income during the next 12 months.

2005 compared to 2004. Banana segment operating income for 2005 was $182 million, compared to $123million for 2004. Banana segment operating results were favorably affected by:

$151 million benefit from improved local European pricing.

$15 million from improved pricing in North America, due principally to temporary contract price increases tooffset costs from flooding in Costa Rica and Panama in January 2005, and implementation late in the yearof surcharges to offset rising industry costs, including fuel-related products and transportation.

$9 million before-tax loss on the sale of the company’s former Colombian banana production division in 2004.

$4 million increase from the impact of European currency, consisting of an $8 million increase in revenueand a $22 million decrease in hedging costs, partially offset by a $26 million adverse impact of balancesheet translation.

$4 million charge in 2004 relating to stock options and restricted stock granted to the company’s formerchairman and CEO that vested upon his retirement in May 2004.

These items were offset in part by:

$34 million of cost increases from higher fuel, paper and ship charter costs.

$27 million of higher costs for advertising, marketing and innovation spending, primarily due to consumerbrand support efforts in Europe late in the year.

$24 million of higher license-related banana import costs in Europe.

$17 million impact from flooding in Honduras caused by Tropical Storm Gamma (included in “Cost of sales”in the Consolidated Statement of Income).

$11 million primarily from increased costs related to the January flooding in Costa Rica and Panama, including alternative banana sourcing, logistics and farm rehabilitation costs, and write-downs of damaged farms.

$4 million adverse impact of pricing in Asia.

$3 million of higher administrative expenses, in part due to accruals for performance-based compensationdue to improved year-over-year operating results.

$3 million due to lower volume of second-label fruit in Europe.

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FRESH SELECT SEGMENT

Net sales

Fresh Select net sales were flat at $1.4 billion in 2006 compared to 2005. Net sales for 2005 increased by 5%compared to 2004, primarily due to higher volume from Atlanta AG.

Operating income

2006 compared to 2005. The Fresh Select segment had an operating loss of $27 million in 2006, comparedto operating income of $10 million in 2005. The 2006 operating results included a $29 million charge for goodwillimpairment at Atlanta AG. Aside from the impairment charge, year-over-year improvements in the company’sNorth American Fresh Select operations were more than offset by a decline in profitability at Atlanta AG, andlower pricing and currency-related declines in the company’s Chilean operations. The decline in profitability ofAtlanta AG resulted from intense price competition in its primary market of Germany, as well as $3 million ofcharges late in 2006 related to rationalization of its distribution network, including the closure of one facility.

During the 2006 third quarter, due to the decline in Atlanta AG’s business performance in the period followingthe implementation of the new EU banana import regime as of January 1, 2006, the company accelerated thetesting of Atlanta’s goodwill and fixed assets for impairment. As a result, the company recorded a goodwillimpairment charge in the 2006 third quarter for the full amount, of which $29 million was included in the FreshSelect segment and $14 million in the Banana segment.

2005 compared to 2004. The Fresh Select segment had operating income of $10 million in 2005, comparedto breakeven results for 2004. The improvement resulted primarily from a restructured melon program andother improvements in North America, and operational improvement at Atlanta, partially offset by weather andcurrency-related declines in the company’s Chilean operations.

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FRESH CUT SEGMENT

Net sales

Net sales in 2006 for the company’s Fresh Cut segment were $1.1 billion, up from $539 million in 2005 due to theFresh Express acquisition in mid-2005. Substantially all of the revenue in this segment is from Fresh Express.

Operating income

2006 compared to 2005. The Fresh Cut segment had operating income of $25 million in 2006, compared toan operating loss of $3 million for 2005. Fresh Cut segment results were favorably affected by:

$31 million increase in operating income from Fresh Express, as a result of Chiquita owning Fresh Express fora full year in 2006 versus a half year in 2005, as well as normal operating improvements.

$6 million of mostly non-cash charges in 2005 from the shut-down of Chiquita’s fresh-cut fruit facility inManteno, Illinois following the acquisition of Fresh Express, which had a facility servicing the sameMidwestern area.

These items were offset in part by:

$9 million of direct costs in 2006, including lost raw product inventory and non-cancelable purchase commitments, related to consumer concerns about the safety of packaged salads after discovery of E. coliin certain industry spinach products in September 2006 and the resulting investigation by the U.S. Food andDrug Administration.

In addition to the direct costs resulting from the fresh spinach issue, the company believes that 2006 operatingincome was at least $12 million lower than it otherwise would have been as a result of reduced sales anddecreased margins during the final four months of 2006. Although the FDA investigation linked no cases of illness to the company’s Fresh Express products, consumer concerns are likely to continue to have an impact onFresh Cut segment results through at least the third quarter of 2007.

On a pro forma basis, as if the company had completed the acquisition of Fresh Express on December 31, 2004,there was a $12 million improvement in Fresh Cut segment operating income compared to 2005. The improve-ment in pro forma results was driven by a 10 percent increase in volume and a 2 percent increase in net revenueper case in retail value-added salads, continuing improvements in fresh-cut fruit operations, the achievementof acquisition synergies and other cost savings, and the absence of $6 million of non-cash charges in 2005from the shut-down of the fresh-cut fruit facility noted above. These improvements were partially offset by thespinach impact mentioned above, as well as higher industry costs and increased marketing and innovationspending. The pro forma segment results may not be indicative of what the actual results would have been hadthe acquisition been completed on the date assumed or the results that may be achieved in the future.

The Fresh Cut segment operating income reflects approximately $18 million of depreciation and $5 million ofamortization for Fresh Express in the first half of 2006, which explains the increase in consolidated depreciation and amortization expense from 2005, since the acquisition of Fresh Express was completed in mid-2005.

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2005 compared to 2004. The Fresh Cut segment had an operating loss of $3 million in 2005, compared to anoperating loss of $13 million for 2004. Fresh Cut segment results were favorably affected by:

$14 million in operating income at Fresh Express from the June 28, 2005 acquisition date to the end of theyear. On a pro forma basis as if the company had completed its acquisition of Fresh Express on June 30,2004, this represents a $5 million improvement in operating income compared to the same period in 2004,driven by a 7 percent increase in volume, a 3 percent increase in net revenue per case in retail value-addedsalads on a full-year basis and a reduction in corporate overhead and insurance costs, partially offset byincreases in cost of goods sold and innovation spending.

$2 million of improvements in the operating results of Chiquita’s fresh-cut fruit facility.

This was partially offset by:

$6 million of charges from the shut-down of Chiquita’s fresh-cut fruit facility in Manteno, Illinois. Thesecosts were primarily included in “Cost of sales” in the Consolidated Statement of Income.

On a pro forma basis, as if the company had completed its acquisition of Fresh Express on June 30, 2004, FreshCut segment revenue for the six months ended December 31, 2005 was $515 million, up 6 percent from $484million in the same period in 2004, and operating income for the six months ended December 31, 2005 was $8million before plant shut-down costs, compared to $3 million in the same period in 2004. The pro forma segmentresults for the second half of 2004 do not purport to be indicative of what the actual results would have beenhad the acquisition been completed on the date assumed or the results that may be achieved in the future.

INTEREST AND OTHER INCOME (EXPENSE)

Interest income in 2006 was $9 million, compared to $10 million in 2005. Interest expense in 2006 was $86million, compared to $60 million in 2005. The increase in interest expense was due to the full-year impact ofthe Fresh Express acquisition financing.

Other income (expense) in 2006 included a $6 million gain from the sale of the company’s 10% ownership inChiquita Brands South Pacific, an Australian fresh produce distributor. In 2005, other income (expense) included$3 million of financing fees, primarily related to the write-off of unamortized debt issue costs for a prior creditfacility and $2 million of charges for settlement of an indemnification claim relating to prior periods, partiallyoffset by a $1 million gain on the sale of Seneca preferred stock and a $1 million gain from an insurance settlement. Other income (expense) in 2004 included a loss of $22 million from the premium associated withthe refinancing of the company’s then-outstanding 10.56% Senior Notes, partially offset by a $2 million gainrelated to proceeds received as a result of the demutualization of a company with which Chiquita held pensionannuity contracts.

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INCOME TAXES

The company’s effective tax rate varies from period to period due to the level and mix of income among variousdomestic and foreign jurisdictions in which the company operates. The company currently does not generateU.S. federal taxable income. The company’s taxable earnings are substantially from foreign operations beingtaxed in jurisdictions at a net effective rate lower than the U.S. statutory rate. No U.S. taxes have been accruedon foreign earnings because such earnings have been or are expected to be permanently invested in foreignoperating assets.

Income taxes were a $2 million benefit for 2006, compared to expense of $3 million in 2005 and expense of $5 million in 2004. Income taxes for 2006 include benefits of $10 million primarily from the resolution of tax contingencies in various jurisdictions and a reduction in valuation allowance. In addition, the company recordeda tax benefit of $5 million as a result of a change in German tax law. Income taxes for 2005 included benefits of$8 million primarily from the resolution of tax contingencies and reduction in the valuation allowance of a foreign subsidiary due to the execution of tax planning initiatives. Income taxes in 2004 included a benefit of$5.7 million from the release to income, upon the sale of the Colombian banana production division, of adeferred tax liability related to growing crops in Colombia.

See Note 13 to the Consolidated Financial Statements for further information about the company’s income taxes.

STRATEGIC ALTERNATIVE FOR SHIPPING AND LOGISTICS

In September 2006, the company announced that it is exploring strategic alternatives with respect to the saleand long-term management of its overseas shipping assets and shipping-related logistics activities. Great WhiteFleet, Ltd. (“GWF”), a wholly-owned subsidiary of Chiquita, manages the company’s global ocean transportationand logistics operations. GWF operates 12 owned refrigerated cargo vessels and charters additional vessels foruse primarily for the long-haul transportation of Chiquita’s fresh fruit products from Latin America to NorthAmerica and Europe. The owned vessels, consisting of eight reefer ships and four container ships, are included inthe Banana segment. The company will consider various structures, including the sale and leaseback of the company’s owned ocean-going shipping fleet, the sale and/or outsourcing of related ocean-shipping assets andcontainer operations, and entry into a long-term strategic partnership to meet all of Chiquita’s international cargo transportation needs. Proceeds from a sale would be used primarily to repay debt, including $101 millionof shipping-related debt outstanding at December 31, 2006 and up to $80 million of term loans outstandingunder the CBL Facility.

SALE OF INVESTMENT

In December 2006, the company sold its 10% ownership in Chiquita Brands South Pacific, an Australian freshproduce distributor. The company received $9 million in cash and realized a $6 million gain on the sale of theshares, which was included in “Other income (expense), net” in the Consolidated Statement of Income.

SENECA STOCK

In April 2005, the company sold approximately 968,000 shares of Seneca Foods Corporation preferred stock,which had been received as part of the May 2003 sale of the company’s Chiquita Processed Foods division toSeneca. The company received proceeds of approximately $14 million from the sale of the preferred stock andrecorded a $1 million gain on the transaction in the 2005 second quarter in “Other income (expense), net” inthe Consolidated Statement of Income.

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SALE OF COLOMBIAN DIVISION

In June 2004, the company sold its former banana-producing and port operations in Colombia to Invesmar Ltd.(“Invesmar”), the holding company of C.I. Banacol S.A., a Colombian-based producer and exporter of bananasand other fruit products. In exchange for these operations, the company received $28.5 million in cash; $15 million face amount of notes and deferred payments; and the assumption by the buyer of approximately $7 million of pension liabilities.

In connection with the sale, Chiquita entered into eight-year agreements to purchase bananas and pineapplesfrom affiliates of the buyer. Under the banana purchase agreement, Chiquita purchases approximately 11 million boxes of Colombian bananas per year at above-market prices. This resulted in a liability of $33 million atthe sale date ($26 million at December 31, 2006), which represents the estimated net present value of theabove-market premium to be paid for the purchase of bananas over the term of the contract. Substantially allof this liability is included in “Other liabilities” in the Consolidated Balance Sheet. Under the pineapple purchase agreement, Chiquita purchases approximately 2.5 million boxes of Costa Rican golden pineapples per year at below-market prices. This resulted in a receivable of $25 million at the sale date ($20 million atDecember 31, 2006), which represents the estimated net present value of the discount to be received for thepurchase of pineapples over the term of the contract. Substantially all of this receivable is included in“Investments and other assets, net” in the Consolidated Balance Sheet. Together, the two long-term fruit purchaseagreements commit Chiquita to approximately $80 million in annual purchases.

Also in connection with the sale, Chiquita agreed that, in the event that it becomes unable to perform its obligations under the banana purchase agreement due to a conflict with U.S. law, Chiquita will indemnifyInvesmar primarily for the lost premium on the banana purchases.

The net book value of the assets and liabilities transferred in the transaction was $36 million. The company recognized a before-tax loss of $9 million and an after-tax loss of $4 million on the transaction, which takes intoaccount the net $8 million loss from the two long-term fruit purchase agreements.

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LIQUIDITY AND CAPITAL RESOURCES

The company’s cash balance was $65 million at December 31, 2006, compared to $89 million at December 31, 2005.

Operating cash flow was $15 million in 2006, $223 million in 2005 and $94 million in 2004. The decrease inoperating cash flow for 2006 was primarily due to a significant decline in operating results. The operating cashflow increase in 2005 was primarily due to significantly improved operating results and was partially used tofund a portion of the Fresh Express acquisition.

Capital expenditures were $61 million for 2006 and $43 million for both 2005 and 2004. The increase in 2006was partially due to the full year impact of the acquisition of Fresh Express, which occurred in June 2005. The2005 capital expenditures included $12 million related to Fresh Express subsequent to the acquisition. In 2004,capital expenditures included $10 million for implementation of a global business transaction processing system.

The following table summarizes the company’s contractual obligations for future cash payments at December31, 2006, which are primarily associated with debt service payments, operating leases, pension and severanceobligations and long-term purchase contracts:

Less than 1-3 3-5 More than(In thousands) Total 1 year years years 5 years

Long-term debtParent company $ 475,000 $ — $ — $ — $ 475,000Subsidiaries 498,475 22,588 43,565 218,875 213,447

Notes and loans payable 55,042 55,042 — — —Interest on debt 500,000 80,000 150,000 145,000 125,000Operating leases 250,938 87,590 68,795 36,248 58,305Pension and severance obligations 92,950 12,159 20,385 18,017 42,389Purchase commitments 1,696,478 632,655 491,404 393,102 179,317

$3,568,883 $ 890,034 $ 774,149 $ 811,242 $ 1,093,458

Estimating future cash payments for interest on debt requires significant assumptions. The figures in the tablereflect a LIBOR rate of 5.375% and an interest rate of LIBOR plus a margin of 3.00% on the term loans underthe CBL Facility for all future periods. No debt principal repayments were assumed, other than normal matu-rities. The table does not include interest on any borrowings under the revolving credit facility to fund workingcapital needs.

The company’s purchase commitments consist primarily of long-term contracts to purchase bananas, lettuceand other produce from third-party producers. The terms of these contracts, which set the price for the com-mitted produce to be purchased, range primarily from one to ten years. However, many of these contracts aresubject to price renegotiations every one to two years. Therefore, the company is only committed to purchasebananas, lettuce and other produce at the contract price until the renegotiation date. The purchase obligationsincluded in the table are based on the current contract price and the estimated production volume the companyis committed to purchase until the renegotiation date. The banana and lettuce purchase commitments reflectedin the table above represent normal and customary operating commitments in the industry. Most of the 2007banana volume to be purchased is reflected above, as the company has secured and committed to its sourcesfor the upcoming year. Substantially all of the contracts provide for minimum penalty payments, which are lessthan the amounts included in the table, to be paid if the company were to purchase less than the committedvolume of bananas or lettuce.

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Total debt at both December 31, 2006 and 2005 was $1 billion. The following table provides detail of the company’s debt balances:

December 31,(In thousands) 2006 2005

PARENT COMPANY

71/2% Senior Notes, due 2014 $ 250,000 $ 250,00087/8% Senior Notes, due 2015 225,000 225,000

SUBSIDIARIES

CBL credit facilityTerm Loan B 24,341 24,588Term Loan C 369,375 373,125Revolver 44,000 —

Shipping 100,581 111,413Other 15,220 12,982

Total debt $ 1,028,517 $ 997,108

The company and Chiquita Brands L.L.C. (“CBL”), the main operating subsidiary of the company, are parties toan amended and restated credit agreement with a syndicate of bank lenders for a senior secured credit facility(the “CBL Facility”), which consists of a $200 million revolving credit facility (the “Revolving Credit Facility”), a$125 million term loan (“Term Loan B”), and a $375 million term loan (“Term Loan C”). Total fees of approxi-mately $18 million were paid to obtain the CBL Facility in June 2005. The company made $100 million of discretionary principal payments on Term Loan B in the second half of 2005. The letter of credit sublimit underthe Revolving Credit Facility is $100 million.

At December 31, 2006, $44 million of borrowings were outstanding under the Revolving Credit Facility and $31million of credit availability was used to support issued letters of credit (including a $7 million letter of creditissued to preserve the right to appeal certain customs claims in Italy), leaving $125 million of credit available.The company borrowed an additional $40 million under the Revolving Credit Facility in January and February2007, and expects to borrow more to fund peak seasonal working capital needs through March or April 2007.Additionally, as more fully described in Note 15 to the Consolidated Financial Statements, the company may berequired to issue letters of credit of up to approximately $50 million in connection with its appeal of certainclaims of Italian customs authorities, although the company does not expect to issue letters of credit in 2007 inexcess of $25 million for this matter. The company believes that operating cash flow, including the collection ofreceivables from high season banana sales, should permit it to significantly reduce the revolving credit balanceduring the second quarter and to fully repay it during the third quarter; however, there can be no assurance inthis regard. The company also believes that its cash level, cash flow generated by operating subsidiaries andborrowing capacity will provide sufficient cash reserves and liquidity to fund the company’s working capitalneeds, capital expenditures and debt service requirements. However, in the event that the company experi-ences shortfalls in operating performance compared to lender expectations or unanticipated contingencieswhich require the use of significant amounts of cash, the company may be required to seek further covenantrelief or to restructure or replace its credit facility and may be limited in its ability to fund discretionary marketor brand-support activities, innovation spending, capital investments and/or acquisitions that had beenplanned as part of the execution of its long-term growth strategy.

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In October 2006, even after obtaining covenant relief in June, the company was required to obtain a temporarywaiver, for the period ended September 30, 2006, from compliance with certain financial covenants in the CBL Facility, with which the company otherwise would not have been in compliance. In November 2006, thecompany obtained a permanent amendment to the CBL Facility to cure the covenant violations that wouldhave otherwise occurred when the temporary waiver expired. The amendment revised certain covenant calcu-lations relating to financial ratios for leverage and fixed charge coverage, established new levels for compliancewith those covenants to provide additional financial flexibility, and established new interest rates. Total fees ofapproximately $2 million were paid to amend the CBL Facility. In March 2007, the company obtained furtherprospective covenant relief with respect to a proposed financial sanction contained in a plea agreement offermade by the company to the U.S. Department of Justice and other related costs.

The term loans bear interest at LIBOR plus a margin of 2.00% to 3.00%, depending on the company’s consoli-dated leverage ratio. At December 31, 2006 and 2005, the interest rate on the term loans was LIBOR plus3.00% and LIBOR plus 2.00%, respectively. The Revolving Credit Facility bears interest at LIBOR plus a marginof 1.25% to 3.00%. At December 31, 2006, the interest rate on the Revolving Credit Facility was LIBOR plus3.00%. Substantially all U.S. assets of CBL and its subsidiaries are pledged to secure the CBL Facility. TheRevolving Credit Facility and Term Loan B are principally secured by the U.S. assets of CBL and its subsidiariesother than Fresh Express and its subsidiaries. The Term Loan C is principally secured by the assets of FreshExpress and its subsidiaries. The CBL Facility is also secured by liens on CBL’s trademarks as well as pledges ofequity and guarantees by various subsidiaries worldwide. The CBL Facility is guaranteed by CBII and secured bya pledge of CBL’s equity.

Under the amended CBL Facility, CBL may distribute cash to CBII for routine CBII operating expenses, interestpayments on CBII’s 71/2% and 87/8% Senior Notes and payment of certain other specified CBII liabilities. UntilChiquita meets certain financial ratios and elects to become subject to a reduced maximum CBL leverage ratio,(i) CBL’s distributions to CBII for other purposes, such as dividend payments to Chiquita shareholders andrepurchases of CBII’s common stock, warrants and senior notes, are prohibited, and (ii) the ability of CBL andits subsidiaries to incur debt, dispose of assets, carry out mergers and acquisitions, and make capital expendituresis further limited than under the original CBL Facility.

In June 2005, the company issued $225 million of 87/8% Senior Notes due 2015, for net proceeds of $219 million. The proceeds were used to finance a portion of the acquisition of Fresh Express. The 87/8% Senior Notesare callable on or after June 1, 2010, in whole or from time to time in part, at 104.438% of face value decliningto face value in 2013. Before June 1, 2010, the company may redeem some or all of the 87/8% Senior Notes at aspecified treasury make-whole rate. In addition, before June 1, 2008, the company may redeem up to 35% ofthe notes at a redemption price of 108.75% of their principal amount using proceeds from sales of certainkinds of company stock.

In September 2004, the company issued $250 million of 71/2% Senior Notes due 2014, for net proceeds of$246 million. The proceeds from this offering, together with available cash, were used to repurchase andredeem the company’s then-outstanding 10.56% Senior Notes due 2009. As a result of the premiums associatedwith the repurchase of the 10.56% Senior Notes, the company recognized a $22 million loss in the 2004 thirdquarter, which is included in “Other income (expense), net” on the Consolidated Statement of Income. The71/2% Senior Notes are callable on or after November 1, 2009, in whole or from time to time in part, at 103.75%of face value declining to face value in 2012. Before November 1, 2009, the company may redeem some or allof the 71/2% Senior Notes at a specified treasury make-whole rate. In addition, before November 1, 2007, thecompany may redeem up to 35% of the notes at a redemption price of 107.5% of their principal amount usingproceeds from sales of certain kinds of company stock. The company is recognizing annual interest savings ofapproximately $7 million from having replaced the 10.56% Senior Notes with the 71/2% Senior Notes.

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The indentures for the 71/2% and 87/8% Senior Notes contain covenants that limit the ability of the companyand its subsidiaries to incur debt and issue preferred stock, dispose of assets, make investments, pay dividendsor make distributions in respect of the company’s capital stock, create liens, merge or consolidate, issue or sellstock of subsidiaries, enter into transactions with certain stockholders or affiliates, and guarantee companydebt. These covenants are generally less restrictive than the covenants under the CBL Facility.

In April 2005, GWF entered into a seven-year secured revolving credit facility for $80 million. The full proceedsfrom this facility were drawn, of which approximately $30 million was used to exercise buyout options underthen-existing capital leases for four vessels, and approximately $50 million was used to finance a portion of theacquisition of Fresh Express. The loan requires GWF to maintain certain financial covenants related to tangiblenet worth and total debt ratios. GWF may elect to draw parts of or the entire amount of credit available in eitherU.S. dollars or euro. Euro denominated loans hedge against the potential balance sheet translation impact ofthe company’s euro net asset exposure.

The company had approximately $500 million of variable-rate debt at December 31, 2006. A 1% change ininterest rates would result in a change to interest expense of approximately $5 million annually.

See Note 9 to the Consolidated Financial Statements for additional information regarding the company’s debt.

The company paid a quarterly cash dividend of $0.10 per share on the company’s outstanding shares of stockin the first three quarters of 2006. In the third quarter, the company announced the suspension of its dividend,beginning with the payment that would have been paid in October 2006. Quarterly cash dividends were paid ineach of the four quarters of 2005. The payment of dividends is currently prohibited under the CBL Facility; seeNote 9 to the Consolidated Financial Statements. If and when permitted in the future, dividends must beapproved by the board of directors.

A subsidiary of the company has a ¤25 million uncommitted credit line and a ¤17 million committed credit linefor bank guarantees to be used primarily to guarantee the company’s payments for licenses and duties inEuropean Union countries. At December 31, 2006, the bank counterparties had provided ¤15 million of guaranteesunder these lines.

OFF-BALANCE SHEET ARRANGEMENTS

Other than operating leases entered in the normal course of business, the company does not have any off-balancesheet arrangements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The company’s significant accounting policies are summarized in Note 1 to the Consolidated FinancialStatements. The additional discussion below addresses major judgments used in:

reviewing the carrying values of intangibles;

reviewing the carrying values of property, plant and equipment;

accounting for pension and tropical severance plans;

accounting for income taxes; and

accounting for contingent liabilities.

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REVIEW OF CARRYING VALUES OF INTANGIBLES

Trademarks

At December 31, 2006, the company’s Chiquita trademark had a carrying value of $388 million. The year-end2006 carrying value was supported by an independent appraisal using the relief-from-royalty method. Therelief-from-royalty valuation method estimates the royalty expense that could be avoided in the operating business as a result of owning the respective asset or technology. The royalty savings are measured, tax-affectedand, thereafter, converted to present value with a discount rate that considers the risk associated with owningthe intangible assets. No impairment was present and no write-down was required. A revenue growth rate of2.6%, reflecting estimates of long-term U.S. inflation, was used in the appraisal. Other assumptions include aroyalty rate of 3.5%, a discount rate of 16.6%, and an income tax rate of 37% applied to the royalty cash flows.The valuation is most sensitive to the royalty rate assumption, which considers market share, market recognitionand profitability of products bearing the trademark, as well as license agreements for the trademark. A one-halfpercentage point change to the royalty rate could impact the appraisal by up to $75 million.

In conjunction with the Fresh Express acquisition in June 2005, the company recorded the Fresh Expresstrademark, which had a carrying value of $62 million at December 31, 2006. The carrying value of the FreshExpress trademark was also supported by an independent appraisal using the relief-from-royalty method. Noimpairment was present at December 31, 2006, and no write-down was required.

Goodwill

The company’s $542 million of goodwill at December 31, 2006 consists almost entirely of the goodwill resultingfrom the Fresh Express acquisition in June 2005. Through the work of an independent appraiser, the companyestimated the fair value of Fresh Express based on expected future cash flows generated by Fresh Express discounted at 9.4%. Based on this calculation, there was no indication of impairment at December 31, 2006,and as such, no write-down of the goodwill carrying value was required. A change to the discount rate of one-halfpercentage point would affect the calculated fair value of Fresh Express by approximately $80 million. Also, a$1 million change per year in the expected future cash flows would affect the calculated fair value of FreshExpress by approximately $9 million.

During the 2006 third quarter, due to a decline in Atlanta AG’s business performance in the period followingthe implementation of the new EU banana import regime as of January 1, 2006, the company accelerated itstesting of the Atlanta AG goodwill and fixed assets for impairment. As a result of this analysis, the companyrecorded a goodwill impairment charge in the 2006 third quarter for the entire goodwill balance of $43 million.

The goodwill impairment review is highly judgmental and involves the use of significant estimates and assump-tions, which have a significant impact on the amount of any impairment charge recorded. Estimates of fair value are primarily determined using discounted cash flow methods and are dependent upon assumptions offuture sales trends, market conditions and cash flow over several years. Actual cash flow in the future may differsignificantly from those assumed. Other significant assumptions include growth rates and the discount rateapplicable to future cash flow.

Other Intangible Assets

At December 31, 2006, the company had a carrying value of $155 million of intangible assets subject toamortization, consisting of $102 million in customer relationships and $53 million in patented technologyrelated to Fresh Express. The carrying value of these assets will be tested for impairment if and when impairmentindicators are noted.

REVIEW OF CARRYING VALUES OF PROPERTY, PLANT AND EQUIPMENT

The company also reviews the carrying value of its property, plant and equipment when impairment indicatorsare noted, as prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets,” by comparing estimates of undiscounted future cash flows,before interest charges, included in the company’s operating plans with the carrying values of the relatedassets. These reviews at December 31, 2006 and 2005 did not reveal any instances in which an impairmentcharge was required.

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ACCOUNTING FOR PENSION AND TROPICAL SEVERANCE PLANS

Significant assumptions used in the actuarial calculation of the company’s defined benefit pension and foreignpension and severance plans include the discount rate, long-term rate of compensation increase, and the long-term rate of return on plan assets. The weighted average discount rate assumptions were 5.75% and5.5% at December 31, 2006 and 2005, respectively, for domestic pension plans, which represents the rate onhigh quality, fixed income investments in the U.S., such as Moody’s Aa rated corporate bonds. The discount rateassumptions for the foreign pension and severance plans were 7.0% and 8.0% at December 31, 2006 and2005, respectively, which represents the 10-year U.S. Treasury rate adjusted to reflect higher inflation in thesecountries. The long-term rate of compensation increase for domestic plans was 5.0% in 2006 and 2005. Thelong-term rate of compensation increase assumed for foreign pension and severance plans was 4.5% in 2006and 2005. The long-term rate of return on plan assets was assumed to be 8.0% for domestic plans for each ofthe last two years. The long-term rate of return on plan assets for foreign plans was assumed to be 2.5% for2006 and 3.25% for 2005. Actual rates of return can differ from the assumed rates, as annual returns underthis long-term rate assumption are inherently subject to year-to-year variability.

A one percentage point change to the discount rate, long-term rate of compensation increase, or long-termrate of return on plan assets each affects pension expense by less than $1 million annually.

ACCOUNTING FOR INCOME TAXES

The company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,”which recognizes deferred tax assets and liabilities based on the differences between the financial statementcarrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities are determinedbased on the enacted tax rates expected to apply in the periods in which the deferred tax assets or liabilitiesare expected to be settled or realized.

The company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowanceif it is more likely than not that some portion or all of a deferred tax asset will not be realized. The determinationas to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluationof positive and negative evidence. This evidence includes historical taxable income, projected future taxableincome, the expected timing of the reversal of existing temporary differences and the implementation of taxplanning strategies. Projected future taxable income is based on expected results and assumptions as to thejurisdiction in which the income will be earned. The expected timing of the reversals of existing temporary differences is based on current tax law and the company’s tax methods of accounting.

The company constantly reviews its tax positions and records an accrual for estimated losses when it is probablethat a liability has been incurred and the amount can be reasonably estimated. Significant judgment is requiredin evaluating tax positions and determining the company’s provision for income taxes. During the ordinarycourse of business, there are many transactions and calculations for which the ultimate tax determination isuncertain. The company establishes reserves for tax-related uncertainties based on estimates of whether, andthe extent to which, additional taxes and interest will be due. These reserves are established when, despite thebelief that the tax return positions are fully supportable, the company believes that certain positions are likelyto be challenged and may not be sustained on review by tax authorities. The reserves are adjusted in light ofchanging facts and circumstances, such as the resolution of outstanding tax audits or contingencies in variousjurisdictions and expiration of statue of limitations. The provision for income taxes includes the impact of currenttax provisions and changes to the reserves that are considered appropriate, as well as the related net interestand penalties.

Effective January 1, 2007, the company adopted FASB Interpretation No. (“FIN”) 48, “Accounting forUncertainty in Income Taxes,” which clarifies the accounting for income taxes by prescribing the minimumrecognition threshold a tax position is required to meet before being recognized in the financial statements. FIN48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Interest and penalties are included in “Income taxes” in the ConsolidatedStatement of Income under the company’s current accounting procedures, and the company will continue thispractice under FIN 48. See Note 1 to the Consolidated Financial Statements for a description of the expectedimpact of FIN 48.

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ACCOUNTING FOR CONTINGENT LIABILITIES

On a quarterly basis, the company reviews the status of each claim and legal proceeding and assesses thepotential financial exposure. This is coordinated from information obtained through external and internal counsel.If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonablyestimated, the company accrues a liability for the estimated loss, in accordance with SFAS No. 5, “Accountingfor Contingencies.” To the extent the amount of a probable loss is estimable only by reference to a range ofequally likely outcomes, and no amount within the range appears to be a better estimate than any otheramount, the company accrues the low end of the range. Management draws judgments related to accrualsbased on the best information available to it at the time, which may be based on estimates and assumptions,including those that depend on external factors beyond the company’s control. As additional informationbecomes available, the company reassesses the potential liabilities related to pending claims and litigation, andmay revise estimates. Such revisions could have a significant impact on the company’s results of operationsand financial position.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 1 to the Consolidated Financial Statements for information regarding the company’s adoption of newaccounting pronouncements.

RISKS OF INTERNATIONAL OPERATIONS

The company conducts operations in many foreign countries. Information about the company’s operations bygeographic area is in Note 14 to the Consolidated Financial Statements. The company’s foreign operations aresubject to a variety of risks inherent in doing business abroad.

In 2001, the European Commission (“EC”) amended the quota and licensing regime for the importation ofbananas into the EU. In connection with this amendment, it was agreed that the EU banana tariff rate quotasystem would be followed by a tariff-only system no later than 2006. In order to remain consistent with WorldTrade Organization (“WTO”) principles, any new EU banana tariff was required under a 2001 WTO decision to“result in at least maintaining total market access” for Latin American suppliers.

In January 2006, the EC implemented the new regulation. The new regime eliminated the quota that was previously applicable and imposed a higher tariff on bananas imported from Latin America, while imports fromcertain ACP sources are assessed zero tariff on 775,000 metric tons. The new tariff, which increased to ¤176from ¤75 per metric ton, equates to an increase in cost of approximately ¤1.84 per box for bananas importedby the company into the EU from Latin America, Chiquita’s primary source of bananas. In 2006, the companyincurred incremental tariff costs of approximately $116 million. However, the company no longer incurred costs,which totaled $41 million in 2005, to purchase banana import licenses, which are no longer required.

Average banana prices in the company’s core European markets, which primarily consist of the 25 membercountries of the EU, fell 11% on a local currency basis in 2006 compared to 2005. Neither the company nor theindustry has been able to pass on tariff cost increases to customers or consumers. The overall negative impactof the new regime on the company has been and is expected to remain substantial, despite the company’s ability to maintain its price premium in the European market.

Certain Latin American producing countries have taken steps to challenge this regime as noncompliant withthe EU’s World Trade Organization obligations not to discriminate among supplying countries. In February2007, Ecuador requested arbitration under WTO rules. Other countries are also expected to join these proceedings. Under the applicable arbitration procedures, a decision would not be expected before late fall2007. There can be no assurance that any challenges will result in changes to the EC’s regime.

The company has international operations in many foreign countries, including those in Central and SouthAmerica, the Philippines and the Ivory Coast. The company’s activities are subject to risks inherent in operatingin these countries, including government regulation, currency restrictions and other restraints, burdensometaxes, risks of expropriation, threats to employees, political instability, terrorist activities, including extortion,and risks of U.S. and foreign governmental action in relation to the company. Should such circumstances occur,the company might need to curtail, cease or alter its activities in a particular region or country.

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As previously disclosed, in April 2003 the company’s management and audit committee, in consultation withthe board of directors, voluntarily disclosed to the U.S. Department of Justice (the “Justice Department”) thatits banana-producing subsidiary in Colombia, which was sold in June 2004, had made payments to certaingroups in that country which had been designated under United States law as foreign terrorist organizations.Following the voluntary disclosure, the Justice Department undertook an investigation, including considerationby a grand jury. In March 2004, the Justice Department advised that, as part of its criminal investigation, itwould be evaluating the role and conduct of the company and some of its officers in the matter. In Septemberand October 2005, the company was advised that the investigation was continuing and that the conduct of thecompany and some of its officers and directors was within the scope of the investigation. For the years endedDecember 31, 2006, 2005 and 2004, the company incurred legal fees and other expenses in response to thecontinuing investigation and related issues of $8 million, $2 million and $8 million, respectively.

During the fourth quarter of 2006, the company commenced discussions with the Justice Department aboutthe possibility of reaching a plea agreement. As a result of these discussions, and in accordance with the guidelines set forth in SFAS No. 5, “Accounting for Contingencies,” the company recorded a charge of $25 million in its financial statements for the quarter and year ended December 31, 2006. This amount reflects liability for payment of a proposed financial sanction contained in an offer of settlement made by the companyto the Justice Department. The $25 million would be paid out in five equal annual installments, with interest,beginning on the date judgment is entered. The Justice Department has indicated that it is prepared to acceptboth the amount and the payment terms of the proposed $25 million sanction. In addition to the financial sanction, the company anticipates the potential plea agreement would contain customary provisions that prohibit such future conduct or other violations of law and require the company to implement and/or maintaincertain business processes and compliance programs, the violation of which could result in setting aside theprincipal terms of the plea agreement.

Negotiations are ongoing, and there can be no assurance that a plea agreement will be reached or that the financial impacts of any such agreement, if reached, will not exceed the amounts currently accrued in thefinancial statements. Furthermore, such an agreement would not affect the scope or outcome of any continuinginvestigation involving any individuals.

In the event an acceptable plea agreement between the company and the Justice Department is not reached,the company believes the Justice Department is likely to file charges, against which the company wouldaggressively defend itself. The Justice Department has a broad range of civil and criminal sanctions underpotentially applicable laws which it may seek to impose against corporations and individuals, including but notlimited to injunctive relief, disgorgement of profits, fines, penalties and modifications to business practices andcompliance programs. The company is unable to predict all of the financial or other potential impacts that couldresult from an indictment or conviction of the company or any individual, or from any related litigation, includingthe materiality of such events. Considering the sanctions that may be pursued by the Justice Department andthe company’s defenses against potential claims, the company estimates that the range of financial outcomesupon final adjudication of a criminal proceeding could be between $0 and $150 million.

See “Item 1A – Risk Factors” and “Item 3 – Legal Proceedings” in the Annual Report on Form 10-K for a furtherdescription of legal proceedings and other risks.

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MARKET RISK MANAGEMENT – FINANCIAL INSTRUMENTS

Chiquita’s products are distributed in approximately 80 countries. Its international sales are made primarily inU.S. dollars and major European currencies. The company reduces currency exchange risk from sales originatingin currencies other than the U.S. dollar by exchanging local currencies for dollars promptly upon receipt. Thecompany further reduces its exposure to exchange rate fluctuations by purchasing foreign currency hedginginstruments (principally euro put option contracts) to hedge sales denominated in foreign currencies.Currently, the company has such hedging coverage for approximately 70% of its estimated net euro cash flowin 2007 at average put option strike rates of $1.28 per euro and approximately 65% of its estimated net eurocash flow in the first half of 2008 at average strike rates of $1.27 per euro. The company also has ¤270 millionnotional amount of sold call options with a strike rate of $1.40 per euro outstanding for the first nine months of 2007. The potential loss on the put and call options from a hypothetical 10% increase in euro currency rates would have been approximately $20 million at December 31, 2006 and $15 million at December 31, 2005. However, the company expects that any loss on these contracts would tend to be more than offset by an increase in the dollar realization of the underlying sales denominated in foreign currencies. The loss on purchased put options is limited to the amount of the put option premium paid.

Chiquita’s interest rate risk arises from its fixed and variable rate debt (see Note 9 to the ConsolidatedFinancial Statements). Of the $1 billion total debt at December 31, 2006, approximately 50% was fixed-ratedebt, which was primarily comprised of the company’s $250 million of 71/2% Senior Notes and $225 million of87/8% Senior Notes. The adverse change in fair value of the company’s fixed-rate debt from a hypotheticaldecline in interest rates of 0.5% would have been approximately $14 million at December 31, 2006 and 2005.The company had approximately $500 million of variable-rate debt at December 31, 2006, and as a result, a1% change in interest rates would result in a change to interest expense of approximately $5 million annually.

The company’s transportation costs are exposed to the risk of rising fuel prices. To reduce this risk, the companyenters into fuel oil forward contracts that would offset potential increases in market fuel prices. At December31, 2006, the company had hedging coverage for approximately 55% of its expected fuel purchases through2009. The potential loss on these forward contracts from a hypothetical 10% decrease in fuel oil prices wouldhave been approximately $16 million at December 31, 2006 and $6 million at December 31, 2005. However,the company expects that any decline in the fair value of these contracts would be offset by a decrease in thecost of underlying fuel purchases.

See Note 8 to the Consolidated Financial Statements for additional discussion of the company’s hedging activities.

*******

This Annual Report contains certain statements that are “forward-looking statements” within the meaning of the Private Securities Litigation ReformAct of 1995. These statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of Chiquita,including: the impact of the 2006 conversion to a tariff-only banana import regime in the European Union; unusual weather conditions; industry andcompetitive conditions; financing; product recalls and other events affecting the industry and consumer confidence in the company’s products; the customary risks experienced by global food companies, such as the impact of product and commodity prices, food safety, currency exchange ratefluctuations, government regulations, labor relations, taxes, crop risks, political instability and terrorism; and the outcome of pending governmentalinvestigations and claims involving the company.

The forward-looking statements speak as of the date made and are not guarantees of future performance. Actual results or developments may differmaterially from the expectations expressed or implied in the forward-looking statements, and the company undertakes no obligation to update anysuch statements.

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REPORT OF INDEPENDENT REGISTERED PUBL IC ACCOUNTING F IRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CHIQUITA BRANDS INTERNATIONAL, INC.

We have audited the accompanying consolidated balance sheets of Chiquita Brands International, Inc. as ofDecember 31, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity, andcash flow for each of the three years in the period ended December 31, 2006. These financial statements arethe responsibility of the company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidatedfinancial position of Chiquita Brands International, Inc. at December 31, 2006 and 2005, and the consolidatedresults of its operations and its cash flow for each of the three years in the period ended December 31, 2006, inconformity with U.S. generally accepted accounting principles.

As described in Note 1 to the Consolidated Financial Statements, in 2006, the company adopted the provisionsof Statement of Financial Accounting Standards No. 123 (revised), “Share-Based Payment,” and Statement ofFinancial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R).”

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of Chiquita Brands International, Inc.’s internal control over financial reportingas of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2007expressed an unqualified opinion thereon.

ERNST & YOUNG

Cincinnati, OhioMarch 7, 2007

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REPORT OF INDEPENDENT REGISTERED PUBL IC ACCOUNTING F IRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CHIQUITA BRANDS INTERNATIONAL, INC.

We have audited management’s assessment, included in the Annual Report on Form 10-K as of December 31,2006 of Chiquita Brands International, Inc. (the company), Item 9A – Controls and Procedures – Management’sreport on internal control over financial reporting, that the company maintained effective internal control overfinancial reporting as of December 31, 2006, based on criteria established in Internal Control – IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The company’s management is responsible for maintaining effective internal control over financialreporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibilityis to express an opinion on management’s assessment and an opinion on the effectiveness of the company’sinternal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether effective internal control over financial reporting was maintained in all material respects. Ouraudit included obtaining an understanding of internal control over financial reporting, evaluating manage-ment’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our auditprovides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles. A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reason-able assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts and expenditures of the companyare being made only in accordance with authorizations of management and directors of the company; and (3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstate-ments. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controlsmay become inadequate because of changes in conditions, or that the degree of compliance with the policiesor procedures may deteriorate.

In our opinion, management’s assessment that Chiquita Brands International, Inc. maintained effective internalcontrol over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on theCOSO criteria. Also, in our opinion, the company maintained, in all material respects, effective internal controlover financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated balance sheets as of December 31, 2006 and 2005, and the related consoli-dated statements of income, shareholders’ equity, and cash flow for each of the three years in the period endedDecember 31, 2006 of Chiquita Brands International, Inc. and our report dated March 7, 2007 expressed anunqualified opinion thereon.

ERNST & YOUNG

Cincinnati, OhioMarch 7, 2007

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CONSOLIDATED STATEMENT OF INCOME

(In thousands, except per share amounts) 2006 2005 2004

Net sales $4,499,084 $ 3,904,361 $ 3,071,456Operating expenses

Cost of sales 3,960,903 3,268,128 2,616,900Selling, general and administrative 416,480 384,184 304,106Depreciation 77,812 59,763 41,583Amortization 9,730 5,253 —Equity in earnings of investees (5,937) (600) (11,173)Goodwill impairment charge 42,793 — —Charge for contingent liabilities 25,000 — —Loss on sale of Colombian division — — 9,289Gain on sale of Armuelles division — — (2,196)

4,526,781 3,716,728 2,958,509

Operating income (loss) (27,697) 187,633 112,947Interest income 9,006 10,255 6,167Interest expense (85,663) (60,294) (38,884)Other income (expense), net 6,320 (3,054) (19,428)

Income (loss) before income taxes (98,034) 134,540 60,802Income taxes 2,100 (3,100) (5,400)

Net income (loss) $ (95,934) $ 131,440 $ 55,402

Net income (loss) per common share – basic $ (2.28) $ 3.16 $ 1.36

Net income (loss) per common share – diluted $ (2.28) $ 2.92 $ 1.33

Dividends declared per common share $ 0.20 $ 0.40 $ 0.10

See Notes to Consolidated Financial Statements.

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CONSOLIDATED BALANCE SHEET

December 31,(In thousands, except share amounts) 2006 2005

ASSETS

Current assetsCash and equivalents $ 64,915 $ 89,020Trade receivables, less allowances of$13,599 and $12,746, respectively 432,327 417,758Other receivables, net 94,146 96,330Inventories 240,967 240,496Prepaid expenses 38,488 25,083Other current assets 5,650 31,388

Total current assets 876,493 900,075Property, plant and equipment, net 573,316 592,083Investments and other assets, net 142,986 148,755Trademarks 449,085 449,085Goodwill 541,898 577,543Other intangible assets, net 154,766 165,558

Total assets $2,738,544 $2,833,099

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilitiesNotes and loans payable $ 55,042 $ 10,600Long-term debt of subsidiaries due within one year 22,588 20,609Accounts payable 415,082 426,767Accrued liabilities 136,906 142,881

Total current liabilities 629,618 600,857Long-term debt of parent company 475,000 475,000Long-term debt of subsidiaries 475,887 490,899Accrued pension and other employee benefits 73,541 78,900Net deferred tax liability 112,228 115,404Commitments and contingent liabilities (see Note 15) 25,000 —Other liabilities 76,443 78,538

Total liabilities 1,867,717 1,839,598

Shareholders’ equityCommon stock, $.01 par value (42,156,833 and 41,930,326shares outstanding, respectively) 422 419Capital surplus 686,566 675,710Retained earnings 172,740 277,090Accumulated other comprehensive income 11,099 40,282

Total shareholders’ equity 870,827 993,501

Total liabilities and shareholders’ equity $2,738,544 $2,833,099


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CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Accumulatedother Total

Common Common Capital Retained comprehensive shareholders’(In thousands) shares stock surplus earnings income equity

DECEMBER 31, 2003 40,037 $ 400 $630,868 $ 112,401 $ 13,677 $757,346Net income — — — 55,402 — 55,402Unrealized translation gain — — — — 15,470 15,470Change in minimum

pension liability — — — — (2,855) (2,855)Change in fair value of cost

investments available for sale — — — — (574) (574)Change in fair value of derivatives — — — — (19,910) (19,910)Losses reclassified from

OCI into net income — — — — 24,871 24,871Comprehensive income 72,404

Exercises of stockoptions and warrants 802 8 12,490 — — 12,498

Stock-based compensation 156 2 10,388 — — 10,390Share repurchase and

retirements (517) (5) (8,241) (1,380) — (9,626)Share cancellations (2) — (140) — — (140)Dividends on common stock — — — (4,048) — (4,048)

DECEMBER 31, 2004 40,476 405 645,365 162,375 30,679 838,824Net income — — — 131,440 — 131,440Unrealized translation loss — — — — (19,248) (19,248)Change in minimum

pension liability — — — — (3,318) (3,318)Change in fair value of cost

investments available for sale — — — — (2,320) (2,320)Change in fair value of derivatives — — — — 39,033 39,033Gains reclassified from

OCI into net income — — — — (4,544) (4,544)Comprehensive income 141,043

Exercises of stockoptions and warrants 1,348 13 22,514 — — 22,527

Stock-based compensation 107 1 8,018 — — 8,019Share retirements (1) — (187) — — (187)Dividends on common stock — — — (16,725) — (16,725)

DECEMBER 31, 2005 41,930 419 675,710 277,090 40,282 993,501Net loss — — — (95,934) — (95,934)Unrealized translation gain — — — — 13,392 13,392Change in minimum

pension liability — — — — 1,739 1,739Sale of cost investment — — — — (6,320) (6,320)Change in fair value of cost

investments available for sale — — — — 3,679 3,679Change in fair value of derivatives — — — — (39,505) (39,505)Losses reclassified from

OCI into net income — — — — 656 656Comprehensive loss (122,293)

Adoption of SFAS No. 158(see Note 10) — — — — (2,824) (2,824)

Exercises of stockoptions and warrants 70 1 1,158 — — 1,159

Stock-based compensation 157 2 9,698 — — 9,700Dividends on common stock — — — (8,416) — (8,416)

DECEMBER 31, 2006 42,157 $ 422 $686,566 $ 172,740 $ 11,099 $ 870,827


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CONSOLIDATED STATEMENT OF CASH FLOW

(In thousands) 2006 2005 2004

CASH PROVIDED (USED) BY:

OPERATIONS

Net income (loss) $ (95,934) $ 131,440 $ 55,402Depreciation and amortization 87,542 65,016 41,583Equity in earnings of investees (5,937) (600) (11,173)Goodwill impairment charge 42,793 — —Charge for contingent liabilities 25,000 — —Gain on sale of Chiquita Brands South Pacific investment (6,320) — —Pre-tax loss on sale of tropical divisions — — 7,093Income tax benefits (15,186) (8,012) (5,700)Loss on extinguishment of debt — — 21,737Non-cash charges for Tropical Storm Gamma

and fresh-cut fruit consolidation — 15,460 —Stock-based compensation 10,381 8,712 10,390Changes in current assets and liabilities

Trade receivables (677) 104 (46,236)Other receivables (7,833) (21,118) 7,610Inventories (471) (24,063) (16,256)Prepaid expenses and other current assets (10,898) 7,854 (7,474)Accounts payable and accrued liabilities (12,605) 51,697 42,165

Other 5,406 (3,360) (5,072)

CASH FLOW FROM OPERATIONS 15,261 223,130 94,069

INVESTING

Capital expenditures (61,240) (42,656) (43,442)Acquisition of businesses (6,464) (891,671) (5,527)Proceeds from sale of:

Chiquita Brands South Pacific investment 9,172 — —Colombian division — — 28,500Seneca preferred stock — 14,467 —Other property, plant and equipment 9,080 4,544 10,736

Hurricane Katrina insurance proceeds 5,803 6,950 —Other (216) 1,538 (756)

CASH FLOW FROM INVESTING (43,865) (906,828) (10,489)

FINANCING

Issuances of long-term debt — 781,101 259,394Repayments of long-term debt (23,878) (153,901) (337,908)Costs for CBL revolving credit facility and other fees (3,356) (4,003) (743)Borrowings of notes and loans payable 71,000 783 1,300Repayments of notes and loans payable (27,817) — —Proceeds from exercise of stock options/warrants 1,159 22,527 12,498Dividends on common stock (12,609) (16,580) —Repurchase of common stock — — (9,626)

CASH FLOW FROM FINANCING 4,499 629,927 (75,085)

Increase (decrease) in cash and equivalents (24,105) (53,771) 8,495Balance at beginning of period 89,020 142,791 134,296

Balance at end of period $ 64,915 $ 89,020 $ 142,791


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NOTES TO CONSOLIDATED F INANCIAL STATEMENTS

NOTE 1.Summary of Significant Accounting Policies

Consolidation – The Consolidated Financial Statements include the accounts of Chiquita Brands International, Inc.(“CBII”), controlled majority-owned subsidiaries and any entities that are not controlled but require consolidation inaccordance with FASB Interpretation No. 46, “Consolidation of Variable Interest Entities – an interpretation of ARBNo. 51,” (collectively, “Chiquita” or the company). Intercompany balances and transactions have been eliminated.

Use of Estimates – The financial statements have been prepared in conformity with accounting principles gen-erally accepted in the United States, which require management to make estimates and assumptions thataffect the amounts and disclosures reported in the financial statements and accompanying notes. Significantestimates inherent in the preparation of the accompanying financial statements include allowance for doubtfulaccounts, business combinations, intangible asset valuations, pension and severance plans, income taxes andcontingencies. Actual results could differ from these estimates.

Cash and Equivalents – Cash and equivalents include cash and highly liquid investments with a maturity whenpurchased of three months or less.

Trade Receivables – Trade receivables less allowances reflect the net realizable value of the receivables, andapproximate fair value. The company generally does not require collateral or other security to support tradereceivables subject to credit risk. To reduce credit risk, the company performs credit investigations prior toestablishing customer credit limits and reviews customer credit profiles on an ongoing basis. In Europe, thecompany purchases credit insurance to further mitigate collections risk. An allowance against the trade receivables is established based on the company’s knowledge of customers’ financial condition, historical lossexperience and account past due status compared to invoice payment terms. An allowance is recorded andcharged to expense when an account is deemed to be uncollectible. Recoveries of trade receivables previouslyreserved in the allowance are credited to income.

Inventories – Inventories are valued at the lower of cost or market. Cost for banana growing crops and certainbanana inventories is determined on the “last-in, first-out” (LIFO) basis. Cost for other inventory categories,including other fresh produce and value-added salads, is determined on the “first-in, first-out” (FIFO) or averagecost basis. Banana and other fresh produce inventories represent costs associated with boxed bananas andother fresh produce not yet sold. Growing crop inventories primarily represent the costs associated with growingbanana plants on company-owned farms or growing lettuce on third-party farms where the company bearssubstantially all of the growing risk. Materials and supplies primarily represent growing and packaging suppliesmaintained on company-owned farms. Inventory costs are comprised of the purchase cost of materials and, inaddition, for bananas and other fresh produce grown on company farms, tropical production labor and overhead.

Investments – Investments representing minority interests are accounted for by the equity method whenChiquita has the ability to exercise significant influence over the investees’ operations. Investments that are not publicly traded and that the company does not have the ability to significantly influence are valued atcost. Publicly traded investments that the company does not have the ability to significantly influence areaccounted for as available-for-sale securities at fair value. Unrealized holding gains or losses on available-for-sale securities are excluded from operating results and are recognized in shareholders’ equity (accumulatedother comprehensive income) until realized. The company assesses declines in the fair value of individualinvestments to determine whether such declines are other-than-temporary and the investments are impaired.

Property, Plant and Equipment – Property, plant and equipment are stated at cost, and except for land, aredepreciated on a straight-line basis over their estimated remaining useful lives. The company generally uses 25years to depreciate ships, 30 years for cultivations, 10 to 40 years for buildings and improvements, and 3 to 20years for machinery and equipment. Cultivations represent the costs to plant and care for the banana plantuntil such time that the root system can support commercial quantities of fruit, as well as the costs to build levees, drainage canals, and other farm infrastructure to support the banana plants. When assets are retired orotherwise disposed of, the costs and related accumulated depreciation are removed from the accounts. Thedifference between the net book value of the asset and proceeds from disposition is recognized as a gain orloss. Routine maintenance and repairs are charged to expense as incurred, while costs of betterments andrenewals are capitalized. The company reviews the carrying value of its property, plant and equipment whenimpairment indicators are noted. No impairment charges were required during 2006 or 2005.

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Intangibles – Goodwill and other intangible assets with an indefinite life, such as the company’s trademarks,are reviewed at least annually for impairment. During the 2006 third quarter, due to a decline in Atlanta AG’sbusiness performance in the period following the implementation of the new EU banana import regime as ofJanuary 1, 2006, the company accelerated its testing of the Atlanta AG goodwill and fixed assets for impairment.As a result of this analysis, the company recorded a goodwill impairment charge in the 2006 third quarter for$43 million.

The goodwill impairment review is highly judgmental and involves the use of significant estimates and assump-tions, which have a significant impact on the amount of any impairment charge recorded. Estimates of fair valueare primarily determined using discounted cash flow methods and are dependent upon assumptions of futuresales trends, market conditions and cash flow over several years. Actual cash flow in the future may differ significantly from those assumed. Other significant assumptions include growth rates and the discount rateapplicable to future cash flow. The company utilizes an independent appraiser to assist with the Fresh Expressgoodwill impairment analysis.

The company tests the carrying amounts of its trademarks for impairment by obtaining an independent appraisalusing a “relief-from-royalty” method. Reviews for impairment at December 31, 2006 of the Fresh Express good-will and the Chiquita and Fresh Express trademarks indicated that no impairment charges were necessary.

The company’s intangible assets with a definite life consist of customer relationships and patented technologyrelated to Fresh Express. These assets are subject to the amortization provisions of Statement of FinancialAccounting Standards (“SFAS”) No. 142 and are amortized on a straight-line basis over their estimated remaininglives. The weighted average remaining life of the Fresh Express customer relationships and patented technologyis 18 years and 15 years, respectively.

Revenue Recognition – The company records revenue when persuasive evidence of an arrangement exists,delivery has occurred or services have been rendered, the price to the customer is fixed or determinable, andcollectibility is reasonably assured. For the company, this point occurs when the product is delivered to, and titleto the product passes to, the customer.

Sales Incentives – The company, primarily through its Fresh Cut segment, offers sales incentives and promotionsto its customers (resellers) and to consumers. These incentives primarily include volume and growth rebates,exclusivity and placement fees (fees paid to retailers for product display), consumer coupons and promotionaldiscounts. The company follows the requirements of Emerging Issues Task Force (“EITF”) No. 01-9, “Accounting forConsideration Given by a Vendor to a Customer (including a Reseller of the Vendor’s Products).” Considerationgiven to customers and consumers related to sales incentives is recorded as a reduction of sales. Changes inthe estimated amount of incentives to be paid are treated as changes in estimates and are recognized in theperiod of change.

Shipping and Handling Fees and Costs – Shipping and handling fees billed to customers are included in netsales. Shipping and handling costs are recorded in cost of sales.

Leases – The company leases land and fixed assets for use in operations. The company’s leases are evaluatedat inception or at any subsequent material modification and, depending on the lease terms, are classified aseither capital leases or operating leases, as appropriate under SFAS No. 13, “Accounting for Leases.” For operatingleases that contain built-in pre-determined rent escalations, rent holidays or rent concessions, rent expense isrecognized on a straight-line basis over the life of the lease.

Stock-based Compensation – Effective January 1, 2003, on a prospective basis, the company began usingthe fair value method under SFAS No. 123, “Accounting for Stock-Based Compensation,” to recognize stockoption expense in its results of operations for new stock options granted on or after January 1, 2003. For grantsprior to that date (the “2002 Grants”), the company accounted for stock options using the intrinsic valuemethod prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees.” Expense relating to the 2002 Grants has been included in pro forma disclosures rather than theConsolidated Statement of Income. See “New Accounting Pronouncements” below for information on the company’s adoption of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) didnot have an impact on pre-tax income as it relates to the 2002 Grants, which were fully vested as of the company’s January 1, 2006 adoption date of this standard.

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Since 2004, the company’s share-based awards have primarily consisted of restricted stock awards. Theseawards generally vest over 1 – 4 years. Prior to vesting, grantees are not eligible to vote or receive dividends onthe restricted shares. The fair value of the awards is determined at the grant date and expensed over the periodfrom the grant date to the date the employee is no longer required to provide service to earn the award, whichcould be immediately in the case of retirement-eligible employees.

The table below illustrates the effect of stock compensation expense on all periods as if the company hadalways applied the fair value method:


Stock compensation expense included in net income (loss) (1) $ 10,381 $ 8,712 $ 10,390

Net income (loss) $ (95,934) $ 131,440 $ 55,402Pro forma stock compensation expense (2) — (6,052) (6,657)

Pro forma net income (loss) $ (95,934) $ 125,388 $ 48,745

Basic earnings per common share:Stock compensation expense included in net income (loss) $ 0.25 $ 0.21 $ 0.26

Net income (loss) $ (2.28) $ 3.16 $ 1.36Pro forma stock compensation expense (2) — (0.15) (0.16)

Pro forma net income (loss) $ (2.28) $ 3.01 $ 1.20

Diluted earnings per common share:Stock compensation expense included in net income (loss) $ 0.25 $ 0.19 $ 0.25

Net income (loss) $ (2.28) $ 2.92 $ 1.33Pro forma stock compensation expense (2) — (0.14) (0.16)

Pro forma net income (loss) $ (2.28) $ 2.78 $ 1.17

(1) Represents expense from stock options of $1.2 million, $1.2 million and $4.6 million in 2006, 2005 and 2004, respectively. Also representsexpense from restricted stock awards and LTIP of $9.2 million, $7.5 million and $5.8 million in 2006, 2005 and 2004, respectively. Expense for2004 includes a charge of $3.6 million for awards granted to the company’s former chairman and chief executive officer that vested upon hisretirement as chairman on May 25, 2004.

(2) Represents the additional amount of stock compensation expense that would have been included in net income had the company applied the fairvalue method under SFAS No. 123 for awards issued prior to 2003, when the company first began expensing options.

Contingent Liabilities – On a quarterly basis, the company reviews the status of each claim and legal proceeding and assesses the potential financial exposure. This is coordinated from information obtainedthrough external and internal counsel. If the potential loss from any claim or legal proceeding is consideredprobable and the amount can be reasonably estimated, the company accrues a liability for the estimated loss,in accordance with SFAS No. 5, “Accounting for Contingencies.” To the extent the amount of a probable loss isestimable only by reference to a range of equally likely outcomes, and no amount within the range appears tobe a better estimate than any other amount, the company accrues the low end of the range. Managementdraws judgments related to accruals based on the best information available to it at the time, which may bebased on estimates and assumptions, including those that depend on external factors beyond the company’scontrol. As additional information becomes available, the company reassesses the potential liabilities related topending claims and litigation, and may revise estimates. Such revisions could have a significant impact on thecompany’s results of operations and financial position.

Income Taxes – The company is subject to income taxes in both the United States and numerous foreignjurisdictions. Income tax expense (benefit) is provided for using the asset and liability method. Deferred incometaxes are recognized at currently enacted tax rates for the expected future tax consequences attributable totemporary differences between amounts reported for income tax purposes and financial reporting purposes.Deferred taxes are not provided on the undistributed earnings of subsidiaries operating outside the U.S. thathave been permanently reinvested. The company records an appropriate valuation allowance to reducedeferred tax assets to the amount that is “more likely than not” to be realized. The company establishesreserves for tax-related uncertainties based on the estimates of whether, and the extent to which, additionaltaxes and interest will be due. The impact of reserve provisions and changes to the reserves that are consideredappropriate, as well as the related net interest and penalties, are included in “Income taxes” in the ConsolidatedStatement of Income. See “New Accounting Pronouncements” below for a description of the company’s adoptionof FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes.”

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Earnings Per Share – Basic earnings per share is calculated on the basis of the weighted average number ofcommon shares outstanding during the year. Diluted earnings per share is calculated on the basis of the sum ofthe weighted average number of common shares outstanding during the year and the dilutive effect of theassumed conversion to common stock from the exercise or vesting of options, warrants and other stockawards using the treasury stock method. The assumed conversion to common stock of securities that would,on an individual basis, have an anti-dilutive effect on diluted earnings per share is not included in the dilutedearnings per share computation.

Foreign Exchange and Hedging – Chiquita utilizes the U.S. dollar as its functional currency, except for itsAtlanta AG operations and operations in France and the Ivory Coast, which use the euro as their functional currency.

The company recognizes all derivatives on the balance sheet at fair value and recognizes the resulting gains or losses as adjustments to net income if the derivative does not qualify for hedge accounting or other comprehensive income (“OCI”) if the derivative does qualify for hedge accounting.

The company is exposed to currency exchange risk on foreign sales and price risk on purchases of fuel oil usedin the company’s ships. The company reduces these exposures by purchasing option and forward contracts.These options and forwards qualify for hedge accounting as cash flow hedges. The company formally documents all relationships between hedging instruments and hedged items, as well as its risk managementobjective and strategy for undertaking various hedge transactions. To the extent that these hedges are effectivein offsetting the company’s underlying risk exposure, gains and losses are deferred in accumulated OCI untilthe underlying transaction is recognized in net income. Gains or losses on effective hedges that have been terminated prior to maturity are also deferred in accumulated OCI until the underlying transaction is recognizedin net income. For the ineffective portion of the hedge, gains or losses are reflected in net income in the currentperiod. The earnings impact of the option and forward contracts is recorded in net sales for currency hedges,and in cost of sales for fuel oil hedges. The company does not hold or issue derivative financial instruments forspeculative purposes. See Note 8 for additional description of the company’s hedging activities.

New Accounting Pronouncements – On January 1, 2006, the company adopted SFAS 123(R), which is a revision of SFAS No. 123, using the modified-prospective-transition method. Under that transition method,compensation cost recognized in 2006 included (a) compensation cost for all share-based payments grantedprior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordancewith the original provisions of SFAS No. 123, and (b) compensation cost for all share-based payments grantedon or after January 1, 2006, based on the grant date fair value estimated in accordance with the provisions ofSFAS 123(R). With the adoption of SFAS 123(R), stock-based awards granted on or after January 1, 2006 arebeing recognized as stock-based compensation expense over the period from the grant date to the date theemployee is no longer required to provide service to earn the award, which could be immediately in the case ofretirement-eligible employees.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value,establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair valuemeasurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The company iscurrently assessing the impact of SFAS No. 157 on its financial statements.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension andOther Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement planas an asset or liability in its statement of financial position, recognize through comprehensive income changesin that funded status in the year in which the changes occur, and measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year. On December 31, 2006,the company adopted the provisions of SFAS No. 158. See Note 10 for a further description of the effect ofadopting SFAS No. 158.

In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes,” which clarifies theaccounting for income taxes by prescribing the minimum recognition threshold a tax position is required tomeet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods, disclosure and transition. This interpretationis effective for the company beginning January 1, 2007. The company is required to record any FIN 48 adjustments

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as of January 1, 2007 to beginning retained earnings rather than the Consolidated Statement of Income. Thecompany currently estimates that a cumulative effect adjustment between $19 million and $24 million will becharged to retained earnings on January 1, 2007, to increase reserves for uncertain tax positions. The transitionadjustment reflects the maximum statutory amounts of the tax positions, including interest and penalties, withoutregard to the potential for settlement. The company will continue to include interest and penalties in “Incometaxes” in the Consolidated Statement of Income.

In September 2006, the FASB issued FASB Staff Position (“FSP”) No. AUG AIR-1, “Accounting for Planned MajorMaintenance Activities.” This FSP eliminates the accrue-in-advance method of accounting for planned majormaintenance activities, which the company previously used to account for maintenance of its 12 owned shippingvessels. Upon adoption of this FSP on January 1, 2007, the company will adjust beginning retained earnings forthe cumulative effect of this change in accounting principle. Thereafter, the company will defer expensesincurred for major maintenance activities and amortize them over the five-year maintenance interval. The liabilityat December 31, 2006 related to planned major maintenance activities was approximately $2 million. Adoption ofFSP No. AUG AIR-1 is not expected to have a material impact on the company’s Consolidated Statement of Income.

NOTE 2.Acquisitions and Divestitures

Acquisition of Fresh Express

In June 2005, the company acquired the Fresh Express packaged salad and fresh-cut fruit division ofPerformance Food Group (“PFG”). Fresh Express is the retail market leader of value-added packaged salads in the United States. The acquisition added about $1 billion to Chiquita’s consolidated annual revenues. The company believes that this acquisition diversified its business, accelerated revenue growth in higher marginvalue-added products, and provided a more balanced mix of sales between Europe and North America, whichmakes the company less susceptible to risks unique to Europe, such as recent changes to the European Unionbanana import regime and foreign exchange risk.

The company paid PFG $855 million in consideration and incurred transaction expenses of $8 million. In addition,the company transferred $35 million to PFG ($6 million in 2006) primarily corresponding to the estimatedamount of cash at Fresh Express and outstanding checks (issued by PFG in payment of Fresh Express obligations) in excess of deposits. Additionally, the company incurred approximately $24 million of fees relatedto the financing of the acquisition, which are being amortized over the effective life of the respective loans, theprepayment of which will result in accelerated amortization. The total payments were funded with $775 millionin debt and approximately $145 million in cash.

In conjunction with the purchase price allocation for this transaction, the company recorded the following values for the identifiable tangible and intangible assets and liabilities of Fresh Express (in millions):

Fair value of fixed assets acquired $ 211Intangible assets subject to amortization 170Intangible assets not subject to amortization 62Other assets 122Deferred tax effect of acquisition (112)Fair value of liabilities acquired (95)Goodwill 540

$ 898

The fair value of fixed assets and intangible assets acquired was based on independent appraisals. The otherassets and liabilities, which primarily represented trade receivables, trade payables and accrued liabilities,were based on historical values and were assumed to be stated at fair market values. Goodwill represents the excess purchase price above the fair market value of the identifiable tangible and intangible assets andliabilities acquired.

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Amortization expense of intangible assets totaled $10 million in 2006 and $5 million in 2005 subsequent to the acquisition date of June 28, 2005. The estimated amortization expense in each of the next five yearsassociated with the intangible assets acquired is as follows:

(In thousands) Amount

2007 $ 9,8002008 9,8002009 9,8002010 9,4002011 8,900

With the completion of the acquisition, the company prepared a formal integration plan, the details of whichare now complete. Management’s plans included exiting or consolidating certain activities of Fresh Express andincluded costs such as lease and contract termination, severance and certain other exit costs. As a significantcomponent of the integration plan, the company closed processing facilities in Manteno, Illinois and KansasCity, Missouri as part of a supply chain optimization plan. This plan eliminated redundancies in fresh-cut fruitprocessing capacity in the Midwestern United States, improved plant utilization and reduced costs. As a resultof the closure of the pre-acquisition Chiquita plant at Manteno, the company incurred mostly non-cash chargesof $6 million in the fourth quarter of 2005 and $2 million in the first quarter of 2006. Substantially all of thesecosts were included in “Cost of sales” in the Consolidated Statement of Income. The closure of the pre-acquisitionFresh Express plant at Kansas City and related asset disposals resulted in a $5 million increase to goodwillthrough purchase price accounting.

Starting with the June 28, 2005 acquisition date, the company’s Consolidated Statement of Income includesthe operations of Fresh Express and interest expense on the acquisition financing. Set forth below is summaryconsolidated pro forma information for the company, giving effect to the acquisition of Fresh Express as thoughit had been completed on the first day of each period presented. The summary consolidated pro forma information below is based on the purchase price allocation and does not reflect any adjustments related tointegration synergies or certain expenses previously allocated to Fresh Express by PFG.

2006 2005 (In millions, except per share amounts) (Actual) (Pro Forma)

Net sales $ 4,499.1 $ 4,421.4Net income (loss) (95.9) 121.7Earnings per share – basic $ (2.28) $ 2.93Earnings per share – diluted (2.28) 2.70

Other Acquisitions and Divestitures

Darex

In January 2005, the company acquired Darex S.A., a distributor of bananas in Poland, for approximately $5million in cash, assumption of approximately $5 million of debt and forgiveness of certain receivables.

Chiquita Brands South Pacific

In December 2006, the company sold its 10% ownership in Chiquita Brands South Pacific, an Australian freshproduce distributor. The company received approximately $9 million in cash and realized a $6 million gain on thesale of the shares, which was included in “Other income (expense), net” in the Consolidated Statement of Income.

Seneca Stock

In April 2005, the company sold approximately 968,000 shares of Seneca Foods Corporation preferred stock,which had been received as part of the May 2003 sale of the company’s Chiquita Processed Foods division toSeneca. The company received proceeds of approximately $14 million from the sale of the preferred stock andrecorded a $1 million gain on the transaction in the 2005 second quarter in “Other income (expense), net” inthe Consolidated Statement of Income.

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Colombian Division

In June 2004, the company sold its former banana-producing and port operations in Colombia to Invesmar Ltd.(“Invesmar”), the holding company of C.I. Banacol S.A., a Colombian-based producer and exporter of bananasand other fresh products. In exchange for these operations, the company received $28.5 million in cash; $15million face amount of notes and deferred payments; and the assumption by the buyer of approximately $7 million of pension liabilities.

In connection with the sale, Chiquita entered into eight-year agreements to purchase bananas and pineapplesfrom affiliates of the buyer. Under the banana purchase agreement, Chiquita purchases approximately 11 million boxes of Colombian bananas per year at above-market prices. This resulted in a liability of $33 million atthe sale date ($26 million at December 31, 2006), which represents the estimated net present value of theabove-market premium to be paid for the purchase of bananas over the term of the contract. Substantially allof this liability is included in “Other liabilities” in the Consolidated Balance Sheet. Under the pineapple purchaseagreement, Chiquita purchases approximately 2.5 million boxes of Costa Rican golden pineapples per year atbelow-market prices. This resulted in a receivable of $25 million at the sale date ($20 million at December 31,2006), which represents the estimated net present value of the discount to be received for the purchase ofpineapples over the term of the contract. Substantially all of this receivable is included in “Investments and otherassets, net” in the Consolidated Balance Sheet.

Also in connection with the sale, Chiquita agreed that, in the event that it becomes unable to perform its obligations under the banana purchase agreement due to a conflict with U.S. law, Chiquita will indemnifyInvesmar primarily for the lost premium on the banana purchases.

The net book value of the assets and liabilities transferred in the transaction was $36 million, primarily comprised of $25 million of property, plant and equipment; $19 million of growing crop inventory; $5 million ofmaterials and supplies inventory; $6 million of deferred tax liabilities; and $7 million of pension liabilities. Thecompany recognized a before-tax loss of $9 million and an after-tax loss of $4 million on the transaction, whichtakes into account the net $8 million loss from the two long-term fruit purchase agreements.

NOTE 3.Earnings Per Share

Basic and diluted earnings per common share (“EPS”) are calculated as follows:


Net income (loss) $ (95,934) $ 131,440 $ 55,402Weighted average common shares outstanding

(used to calculate basic EPS) 42,084 41,601 40,694Stock options, warrants and other stock awards — 3,470 1,047

Shares used to calculate diluted EPS 42,084 45,071 41,741

Basic earnings per common share $ (2.28) $ 3.16 $ 1.36Diluted earnings per common share $ (2.28) $ 2.92 $ 1.33

The assumed conversions to common stock of the company’s outstanding warrants, stock options and otherstock awards, are excluded from the diluted EPS computations for periods in which these items, on an individualbasis, have an anti-dilutive effect on diluted EPS. For 2006, the shares used to calculate diluted EPS would havebeen 42.7 million if the company had generated net income in each quarter during the year.

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NOTE 4.Inventories

Inventories consist of the following:


Bananas $ 45,972 $ 41,589Salads 9,296 9,954Other fresh produce 14,147 12,567Processed food products 10,989 8,511Growing crops 101,424 100,658Materials, supplies and other 59,139 67,217

$ 240,967 $ 240,496

The carrying value of inventories valued by the LIFO method was approximately $91 million at December 31,2006 and $89 million at December 31, 2005. At current costs, these inventories would have been approxi-mately $14 million and $11 million higher than the LIFO values at December 31, 2006 and 2005, respectively.

NOTE 5.Property, Plant and Equipment

Property, plant and equipment consist of the following:


Land $ 54,466 $ 54,734Buildings and improvements 192,790 179,231Machinery, equipment and other 357,491 345,525Ships and containers 177,528 171,714Cultivations 52,251 44,827

834,526 796,031Accumulated depreciation (261,210) (203,948)

$ 573,316 $ 592,083

NOTE 6.Leases

Total rental expense consists of the following:

(In thousands) 2006 2005 2004

Gross rentalsShips and containers $ 101,383 $ 90,279 $ 64,707Other 48,325 43,400 30,874

149,708 133,679 95,581Sublease rentals (5,938) (3,390) (804)

$ 143,770 $ 130,289 $ 94,777

No purchase options exist on ships under operating leases.

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Future minimum rental payments required under operating leases having initial or remaining non-cancelablelease terms in excess of one year at December 31, 2006 are as follows:

Ships and(In thousands) containers Other Total

2007 $ 52,826 $ 34,764 $ 87,5902008 8,210 30,115 38,3252009 7,760 22,710 30,4702010 4,725 16,892 21,6172011 2,283 12,348 14,631Later years 230 58,075 58,305

Portions of the minimum rental payments for ships constitute reimbursement for ship operating costs paid by the lessor.

NOTE 7.Equity Method Investments

The company has investments in a number of affiliates which are accounted for using the equity method. Theseaffiliates are primarily engaged in the distribution of fresh produce and are primarily comprised of a number ofcompanies (collectively, the “Chiquita-Unifrutti JV”) that purchase and produce bananas and pineapples in thePhilippines and market and distribute these products in Japan and other parts of Asia. The Chiquita-UnifruttiJV is 50%-owned by Chiquita.

Chiquita’s share of the income of these affiliates was $6 million in 2006, $1 million in 2005 and $11 million in2004, and its investment in these companies totaled $48 million at December 31, 2006 and $41 million atDecember 31, 2005. The company’s share of undistributed earnings from equity method investments totaled$34 million at December 31, 2006 and $29 million at December 31, 2005. The company’s carrying value ofequity method investments was approximately $22 million and $21 million less than the company’s proportionateshare of the investees’ underlying net assets at December 31, 2006 and December 31, 2005, respectively. Theamount associated with the property, plant and equipment of the underlying investees was not significant.

Summarized unaudited financial information of the Chiquita-Unifrutti JV and other equity method investmentsowned by the company at December 31, 2006 follows:

(In thousands) 2006 2005 2004

Revenue $ 658,383 $ 568,117 $ 501,704Gross profit 63,209 54,085 66,115Net income 11,242 1,170 22,006


Current assets $ 106,170 $ 100,577Total assets 222,620 199,846Current liabilities 68,203 62,402Total liabilities 82,338 73,841

Sales by Chiquita to equity method investees were approximately $16 million in 2006, $20 million in 2005 and$15 million in 2004. There were no purchases from equity method investees in 2006, 2005 and 2004.Receivable amounts from equity method investees were not significant at December 31, 2006 and 2005.

NOTE 8.Financial Instruments

The company enters into contracts to hedge its risks associated with euro exchange rate movements, primarilyto reduce the negative earnings and cash flow impact that any significant decline in the value of the euro wouldhave on the conversion of euro-based revenue into U.S. dollars. The company primarily purchases put options tohedge this risk. Purchased put options, which require an upfront premium payment, can reduce the negativeearnings impact on the company of a significant future decline in the value of the euro, without limiting the

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benefit received from a stronger euro. The company also enters into hedge contracts for fuel oil for its shippingoperations, which permit it to lock in fuel purchase prices for up to three years and thereby minimize the volatilitythat changes in fuel prices could have on its operating results.

Foreign currency hedging costs charged to the Consolidated Statement of Income were $17 million in 2006and $8 million in 2005. These costs reduce any favorable impact of the exchange rate on U.S. dollar realizationsof euro-denominated sales. At December 31, 2006, unrealized losses of $19 million on the company’s currencyoption contracts were included in “Accumulated other comprehensive income,” of which $15 million is expectedto be reclassified to net income during the next 12 months. Unrealized losses of $10 million on the fuel forwardcontracts were also included in “Accumulated other comprehensive income” at December 31, 2006, $3 millionof which is expected to be reclassified to net income during the next 12 months.

In late October 2006, the company re-optimized its currency hedge portfolio for the first nine months of 2007.The company invested a net $4.5 million to replace ¤290 million of euro put options expiring in the first ninemonths of 2007 at an average rate of $1.20 per euro, with collars for ¤270 million notional amount, comprisedof put options with an average strike price of $1.28 per euro and call options with an average strike price of$1.40 per euro. Gains or losses on the new collars, as well as the losses incurred on the original set of putoptions, will be deferred in accumulated OCI until the underlying transactions are recognized in net income.

At December 31, 2006, the company’s hedge portfolio was comprised of the following:

Notional Average SettlementHedge Instrument Amount Rate/Price Year

CURRENCY HEDGES

Euro Put Options ¤340 million $ 1.28 / ¤ 2007Euro Call Options ¤270 million $ 1.40 / ¤ 2007Euro Put Options ¤190 million $ 1.27 / ¤ 2008

FUEL HEDGES

3.5% Rotterdam BargeFuel Oil Forward Contracts 140,000 mt $ 289 / mt 2007Fuel Oil Forward Contracts 140,000 mt $ 343 / mt 2008Fuel Oil Forward Contracts 125,000 mt $ 343 / mt 2009

Singapore/New York HarborFuel Oil Forward Contracts 30,000 mt $ 318 / mt 2007Fuel Oil Forward Contracts 30,000 mt $ 376 / mt 2008Fuel Oil Forward Contracts 30,000 mt $ 373 / mt 2009

At December 31, 2006, the fair value of the foreign currency option and fuel oil forward contracts was a net liability of $6 million, substantially all of which is included in “Other liabilities.” The amount included in netincome (loss) for the change in fair value of the fuel oil forward contracts relating to hedge ineffectiveness wasnot material in 2006 and 2004, and was a gain of $3 million in 2005.

The carrying values and estimated fair values of the company’s debt, fuel oil forward contracts and foreign currency option contracts are summarized below:

December 31, 2006 December 31, 2005

Carrying Estimated Carrying Estimated(Assets (liabilities), in thousands) value fair value value fair value

Parent company debt71/2% Senior Notes $ (250,000) $ (230,000) $ (250,000) $ (220,000)87/8% Senior Notes (225,000) (216,000) (225,000) (210,000)

Subsidiary debtTerm Loan B (24,341) (24,000) (24,588) (25,000)Term Loan C (369,375) (374,000) (373,125) (376,000)Other (159,801) (160,000) (124,395) (124,300)

Fuel oil forward contracts (10,040) (10,040) 19,150 19,150Foreign currency option contracts 4,098 4,098 18,603 18,603

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The fair value of the company’s publicly-traded debt is based on quoted market prices. The term loans are tradedbetween institutional investors on the secondary loan market, and the fair values of the term loans are basedon the last available trading price. Fair values for the foreign currency option and fuel oil forward contracts arebased on estimated amounts that the company would pay or receive upon termination of the contracts atDecember 31, 2006 and 2005. Fair value for other debt is estimated based on the current rates offered to thecompany for debt of similar maturities.

The company is exposed to credit risk on its hedging instruments in the event of nonperformance by counter-parties. However, because the company’s hedging activities are transacted only with highly rated institutions,Chiquita does not anticipate nonperformance by any of these counterparties. Additionally, the company hasentered into agreements which limit its credit exposure to the amount of unrealized gains on the option andforward contracts. The company does not require collateral from its counterparties.

Excluding the effect of the company’s foreign currency option contracts, net foreign exchange gains (losses)were $3 million in 2006, $(21) million in 2005 and $8 million in 2004.

NOTE 9.Debt

Long-term debt consists of the following:


PARENT COMPANY

71/2% Senior Notes, due 2014 $ 250,000 $ 250,00087/8% Senior Notes, due 2015 225,000 225,000

Long-term debt of parent company $ 475,000 $ 475,000

SUBSIDIARIES

Loans secured by ships, due in installments from 2007 to 2012– weighted average interest rate of 5.1% (4.5% in 2005) $ 100,581 $ 111,413

Loans secured by substantially all U.S. assets, due in installments from 2007 to 2012– variable interest rate of 8.4% (6.2% in 2005) 393,716 397,713

Other loans 4,178 2,382Less current maturities (22,588) (20,609)

Long-term debt of subsidiaries $ 475,887 $ 490,899

Maturities on subsidiary long-term debt during the next five years are as follows:

(In thousands)

2007 $ 22,5882008 21,3122009 22,2532010 20,2122011 198,663

In June 2005, the company and Chiquita Brands L.L.C. (“CBL”), the main operating subsidiary of the company,entered into an amended and restated credit agreement with a syndicate of bank lenders for a $650 millionsenior secured credit facility (the “CBL Facility”) that replaced the credit agreement entered into by CBL inJanuary 2005. Total fees of approximately $18 million were paid to obtain the CBL Facility. In June 2006, therevolver portion of the CBL Facility was increased by $50 million. In October 2006, even after obtainingcovenant relief in June 2006, the company was required to obtain a temporary waiver, for the period endedSeptember 30, 2006, from compliance with certain financial covenants in the CBL Facility, with which the company otherwise would not have been in compliance. In November 2006, the company obtained a permanentamendment to the CBL Facility to cure the covenant violations that would have otherwise occurred when the

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temporary waiver expired. The amendment revised certain covenant calculations relating to financial ratios forleverage and fixed charge coverage, established new levels for compliance with those covenants to provideadditional financial flexibility, and established new interest rates. Total fees of approximately $2 million werepaid to amend the CBL Facility. In March 2007, the company obtained further prospective covenant relief withrespect to a proposed financial sanction contained in a plea agreement offer made by the company to the U.S.Department of Justice and other related costs (see Note 15). The amended CBL Facility consists of:

A five-year $200 million revolving credit facility (the “Revolving Credit Facility”). At December 31, 2006,$44 million of borrowings were outstanding and $31 million of credit availability was used to support issuedletters of credit, leaving $125 million of credit available under the Revolving Credit Facility. The companyborrowed an additional $40 million under the Revolving Credit Facility in January and February 2007. TheRevolving Credit Facility bears interest at LIBOR plus a margin of 1.25% to 3.00%, and CBL is required topay a fee on the daily unused portion of the Revolving Credit Facility of 0.25% to 0.50% per annum,depending in each case on the company’s consolidated leverage ratio. At December 31, 2006, the interestrate on the Revolving Credit Facility was LIBOR plus 3.00%; and

Two seven-year term loans, one for $125 million (the “Term Loan B”) and one for $375 million (the “TermLoan C”) (collectively, the “Term Loans”), the proceeds of which were used to finance a portion of the acquisition of Fresh Express. At December 31, 2006, $24 million was outstanding under the Term Loan Band $369 million was outstanding under the Term Loan C. The company made $100 million of principal prepayments on the Term Loan B in 2005. The Term Loans cannot be re-borrowed and each requires quarterly payments, which began in September 2005, amounting to 1% per year of the initial principalamount less any prepayments, for the first six years, with the remaining balance to be paid quarterly in theseventh year. The Term Loans bear interest at LIBOR plus a margin of 2.00% to 3.00%, depending on thecompany’s consolidated leverage ratio. At December 31, 2006 and 2005, the interest rate on the TermLoans was LIBOR plus 3.00% and LIBOR plus 2.00%, respectively.

Substantially all U.S. assets of CBL and its subsidiaries are pledged to secure the CBL Facility. The RevolvingCredit Facility and Term Loan B are principally secured by the U.S. assets of CBL and its subsidiaries other thanFresh Express and its subsidiaries. The Term Loan C is principally secured by the assets of Fresh Express and itssubsidiaries. The CBL Facility is also secured by liens on CBL’s trademarks as well as pledges of equity andguarantees by various subsidiaries worldwide. The CBL Facility is guaranteed by CBII and secured by a pledgeof CBL’s equity.

Under the amended CBL Facility, CBL may distribute cash to CBII for routine CBII operating expenses, interestpayments on CBII’s 71/2% and 87/8% Senior Notes and payment of certain other specified CBII liabilities. UntilChiquita meets certain financial ratios and elects to become subject to a reduced maximum CBL leverage ratio,(i) CBL’s distributions to CBII for other purposes, such as dividend payments to Chiquita shareholders andrepurchases of CBII’s common stock, warrants and senior notes, are prohibited, and (ii) the ability of CBL andits subsidiaries to incur debt, dispose of assets, carry out mergers and acquisitions, and make capital expendi-tures is further limited than under the original CBL Facility.

In June 2005, the company issued $225 million of 87/8% Senior Notes due 2015, for net proceeds of $219 million.The proceeds were used to finance a portion of the acquisition of Fresh Express. The 87/8% Senior Notes arecallable on or after June 1, 2010, in whole or from time to time in part, at 104.438% of face value declining toface value in 2013. Before June 1, 2010, the company may redeem some or all of the 87/8% Senior Notes at aspecified treasury make-whole rate. In addition, before June 1, 2008, the company may redeem up to 35% ofthe notes at a redemption price of 108.75% of their principal amount using proceeds from sales of certainkinds of company stock.

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In September 2004, the company issued $250 million of 71/2% Senior Notes due 2014, for net proceeds of$246 million. The proceeds from this offering, together with available cash, were used to repurchase andredeem the company’s then-outstanding 10.56% Senior Notes due 2009. As a result of the premiums associatedwith the repurchase of the 10.56% Senior Notes, the company recognized a $22 million loss in the 2004 thirdquarter, which is included in “Other income (expense), net” on the Consolidated Statement of Income. The71/2% Senior Notes are callable on or after November 1, 2009, in whole or from time to time in part, at 103.75%of face value declining to face value in 2012. Before November 1, 2009, the company may redeem some or allof the 71/2% Senior Notes at a specified treasury make-whole rate. In addition, before November 1, 2007, thecompany may redeem up to 35% of the notes at a redemption price of 107.5% of their principal amount usingproceeds from sales of certain kinds of company stock.

The indentures for the 71/2% and 87/8% Senior Notes contain covenants that limit the ability of the companyand its subsidiaries to incur debt and issue preferred stock, dispose of assets, make investments, pay dividendsor make distributions in respect of the company’s capital stock, create liens, merge or consolidate, issue or sellstock of subsidiaries, enter into transactions with certain stockholders or affiliates, and guarantee companydebt. These covenants are generally less restrictive than the covenants under the CBL Facility.

In April 2005, Great White Fleet Ltd. (“GWF”), the company’s shipping subsidiary, entered into a seven-yearsecured revolving credit facility for $80 million (the “GWF Facility”). The full proceeds from this facility weredrawn, of which approximately $30 million was used to exercise buyout options under then-existing capitalleases for four vessels, and approximately $50 million was used to finance a portion of the acquisition of FreshExpress. The loan requires GWF to maintain certain financial covenants related to tangible net worth and totaldebt ratios.

GWF may elect to draw parts of or the entire amount of credit available in either U.S. dollars or euro, at interestrates of LIBOR plus 1.25% for dollar loans and EURIBOR plus 1.25% for euro loans. The GWF Facility requires 13 consecutive semi-annual principal payments, each representing an approximate $4 million reduction in availability, plus a balloon payment at the end of the seven-year term. Amounts available under the GWFFacility may be borrowed, repaid and re-borrowed prior to the final maturity date, subject to the semi-annualpayments and corresponding reductions in availability.

The company’s loans secured by its shipping assets are comprised of the following: (i) $63 million are eurodenominated with variable rates based on prevailing EURIBOR rates; (ii) $16 million are U.S. dollar denominatedwith average fixed rates of 5.4%; (iii) $15 million are euro denominated with average fixed interest rates of5.5%; and (iv) the remaining $7 million are U.S. dollar denominated with variable rates based on prevailingLIBOR rates. Euro denominated loans hedge against the potential balance sheet translation impact of the company’s euro net asset exposure.

As more fully described in Note 15 to the Consolidated Financial Statements, the company may be required topay, or post bank guarantees for, up to approximately $50 million in connection with its appeal of certain claimsof Italian customs authorities. The company issued a letter of credit in the fourth quarter 2006 to allow a bankguarantee to be posted in the amount of approximately ¤5 million (approximately $7 million), and may in thefuture be required to post bank guarantees of up to the full amounts claimed. In February 2006, the companyincreased the letter of credit sublimit under its Revolving Credit Facility from $50 million to $100 million inanticipation of such a contingency.

A subsidiary of the company has a ¤25 million uncommitted credit line and a ¤17 million committed credit linefor bank guarantees to be used primarily to guarantee the company’s payments for licenses and duties in European Union countries. At December 31, 2006, the bank counterparties had provided ¤15 million of guarantees under these lines.

The company also borrows funds on a short-term basis. The average interest rates for all short-term notes andloans payable outstanding, excluding borrowings under the Revolving Credit Facility, were 5.1% at December31, 2006 and 3.4% at December 31, 2005.

Cash payments relating to interest expense were $86 million in 2006, $60 million in 2005 and $42 million in 2004.

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NOTE 10.Pension and Severance Benefits

The company and its subsidiaries have several defined benefit and defined contribution pension plans coveringdomestic and foreign employees and have severance plans covering Central American employees. Pensionplans covering eligible salaried and hourly employees and Central American severance plans for all employeescall for benefits to be based upon years of service and compensation rates. The company uses a December 31measurement date for all of its plans.

On December 31, 2006, the company adopted the provisions of SFAS No. 158 (see Note 1). The incrementaleffects of adopting the provisions of SFAS No. 158 on the company’s Consolidated Balance Sheet are presented in the following table. The adoption of SFAS No. 158 had no effect on the company’s ConsolidatedStatement of Income.

At December 31, 2006

Prior to Effect of As Reported atAdopting Adopting December 31,

(In thousands) SFAS No. 158 SFAS No. 158 2006

Other intangible assets, net $ 155,589 $ (823) $ 154,766Accrued liabilities 129,234 7,672 136,906Accrued pension and other employee benefits 79,212 (5,671) 73,541Accumulated other comprehensive income 13,923 (2,824) 11,099

Included in accumulated other comprehensive income at December 31, 2006 are the following amounts thathave not yet been recognized in net periodic pension cost: unrecognized prior service costs of $1 million andunrecognized actuarial losses of $11 million. The prior service costs and actuarial losses included in accumulatedother comprehensive income and expected to be included in net periodic pension cost during the year endedDecember 31, 2007 are approximately $300,000 and $800,000, respectively.

Pension and severance expense consists of the following:

Domestic Plans(In thousands) 2006 2005 2004

Defined benefit and severance plans:Service cost $ 401 $ 444 $ 431Interest on projected benefit obligation 1,501 1,509 1,529Expected return on plan assets (1,730) (1,667) (1,622)Recognized actuarial loss 381 234 133

553 520 471Defined contribution plans 9,385 5,933 2,803

Total pension and severance plan expense $ 9,938 $ 6,453 $ 3,274

Foreign Plans(In thousands) 2006 2005 2004

Defined benefit and severance plans:Service cost $ 6,518 $ 4,182 $ 4,341Interest on projected benefit obligation 4,126 4,308 4,562Expected return on plan assets (223) (289) (384)Recognized actuarial (gain) loss 443 (194) 1,567Amortization of prior service cost 874 933 717

11,738 8,940 10,803Curtailment loss — 625 —Settlement gain (905) (1,669) (573)

10,833 7,896 10,230Defined contribution plans 409 403 384

Total pension and severance plan expense $ 11,242 $ 8,299 $ 10,614

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The company’s pension and severance benefit obligations relate primarily to Central American benefits which,in accordance with local government regulations, are generally not funded until benefits are paid. Domesticpension plans are funded in accordance with the requirements of the Employee Retirement Income Security Act.

The increase in expense in 2006 and 2005 for the domestic defined contribution plan was primarily due to theJune 28, 2005 acquisition of Fresh Express.

Primarily as a result of significant flooding to the company’s farms in Panama and Honduras during 2005, thecompany terminated a significant number of employees and recognized a net settlement gain of $1 million in2006 and a net curtailment and settlement gain of $1 million in 2005 related to Central American employeebenefit plans.

Financial information with respect to the company’s domestic and foreign defined benefit pension and severance plans is as follows:

Domestic Plans

Year Ended December 31,(In thousands) 2006 2005

Fair value of plan assets at beginning of year $ 21,972 $ 21,866Actual return on plan assets 2,223 608Employer contributions 1,685 1,424Benefits paid (1,768) (1,926)

Fair value of plan assets at end of year $ 24,112 $ 21,972

Projected benefit obligation at beginning of year $ 27,435 $ 27,155Service and interest cost 1,902 1,953Actuarial (gain) loss (125) 253Benefits paid (1,768) (1,926)

Projected benefit obligation at end of year $ 27,444 $ 27,435

Plan assets less than projected benefit obligation $ (3,332) $ (5,463)

Unrecognized actuarial loss 4,776Adjustment to recognize minimum pension and severance liability (4,392)

Accrued pension and severance plan liability $ (5,079)

Foreign Plans

Year Ended December 31,(In thousands) 2006 2005

Fair value of plan assets at beginning of year $ 8,507 $ 9,676Actual return on plan assets 317 89Employer contributions 9,301 10,393Benefits paid (9,697) (10,845)Foreign exchange 582 (806)

Fair value of plan assets at end of year $ 9,010 $ 8,507

Projected benefit obligation at beginning of year $ 52,374 $ 55,260Service and interest cost 10,644 8,490Actuarial loss 4,426 2,095Benefits paid (9,697) (10,845)Curtailment loss — 21Foreign exchange 2,027 (2,647)

Projected benefit obligation at end of year $ 59,774 $ 52,374

Plan assets less than projected benefit obligation $ (50,764) $ (43,867)

Unrecognized actuarial loss 1,862Unrecognized prior service cost 1,802Adjustment to recognize minimum pension and severance liability (7,232)

Accrued pension and severance plan liability $ (47,435)

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The accumulated benefit obligation was $80 million and $74 million as of December 31, 2006 and December31, 2005, respectively.

The following weighted-average assumptions were used to determine the projected benefit obligations for thecompany’s domestic pension plans and foreign pension and severance plans:

Domestic Plans Foreign Plans

Dec. 31, Dec. 31, Dec. 31, Dec. 31,2006 2005 2006 2005

Discount rate 5.75% 5.50% 7.00% 8.00%Long-term rate of compensation increase 5.00% 5.00% 4.50% 4.50%Long-term rate of return on plan assets 8.00% 8.00% 2.50% 3.25%

The company’s long-term rate of return on plan assets is based on the strategic asset allocation and futureexpected returns on plan assets.

The weighted-average asset allocations of the company’s domestic pension plans and foreign pension andseverance plans by asset category are as follows:


Dec. 31, Dec. 31, Dec. 31, Dec. 31,2006 2005 2006 2005

ASSET CATEGORY

Equity securities 73% 74% — —Fixed income securities 23% 24% 61% 62%Cash and equivalents 4% 2% 39% 38%

The primary investment objective for the domestic plan’s fund is preservation of capital with a reasonableamount of long-term growth and income without undue exposure to risk. This is provided by a balanced strategyusing fixed income, equities and cash equivalents. The target allocation of the overall fund is 75% equities and25% fixed income. The cash position is maintained at a level sufficient to provide for the liquidity needs of thefund. For the funds covering the foreign plans, the asset allocations are primarily mandated by the applicablegovernments, with an investment objective of minimal risk exposure.

The company expects to contribute $2 million to its domestic defined benefit pension plans and $10 million toits foreign pension and severance plans in 2007.

Expected benefit payments for the company’s domestic defined benefit pension plans and foreign pension andseverance plans are as follows (in thousands):


2007 $ 2,234 $ 9,9252008 2,235 8,3982009 2,246 7,5062010 2,284 6,9812011 2,264 6,4882012 – 2016 11,193 31,196

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NOTE 11.Stock-Based Compensation

The company may issue up to an aggregate of 9.4 million shares of common stock as stock options, stockawards (including restricted stock awards), performance awards and stock appreciation rights (“SARs”) underits stock option plan; at December 31, 2006, 3.0 million shares were available for future grants. The awards maybe granted to directors, officers, other key employees and consultants. Stock options provide for the purchaseof shares of common stock at fair market value at the date of grant. The company issues new shares whenoptions are exercised under the stock plan.

Stock Options

Options for approximately 2 million shares were outstanding at December 31, 2006 under this plan. Theseoptions generally vest over four years and are exercisable for a period not in excess of 10 years. In addition tothe options granted under the plan, the table below also includes an inducement stock option grant for325,000 shares made to the company’s chief executive officer in January 2004 in accordance with New YorkStock Exchange rules. Additionally, but not included in the table below, there were 22,000 SARs granted to certainnon-U.S. employees outstanding at December 31, 2006.

A summary of the activity and related information for the company’s stock options follows:

2006 2005 2004

Weighted Weighted Weightedaverage average average

(In thousands, except exercise exercise exerciseper share amounts) Shares price Shares price Shares price

Under option at beginning of year 2,418 $ 17.48 3,783 $ 17.20 4,326 $ 16.47

Options granted — — — — 335 23.17Options exercised (70) 16.48 (1,330) 16.70 (649) 15.57Options forfeited or expired (105) 17.03 (35) 17.09 (229) 16.74

Under option at end of year 2,243 $ 17.53 2,418 $ 17.48 3,783 $ 17.20

Options exercisableat end of year 2,048 $ 17.10 1,454 $ 16.97 1,987 $ 16.67

Options outstanding as of December 31, 2006 had a weighted average remaining contractual life of 6 yearsand had exercise prices ranging from $11.73 to $23.43. The following table provides further information on therange of exercise prices:

Options Outstanding Options Exercisable


(In thousands, except per share amounts) Shares exercise price remaining life Shares exercise price

EXERCISE PRICE

$11.73 – $15.15 210 $ 13.27 6 years 186 $ 13.0416.92 – 16.97 1,684 16.95 5 years 1,684 16.9517.20 – 17.32 14 17.23 7 years 11 17.2323.16 – 23.43 335 23.17 7 years 167 23.17

The estimated weighted average fair value per option share granted was $12.47 for 2004 using a Black-Scholes option pricing model based on market prices and the following assumptions at the date of optiongrant: weighted average risk-free interest rate of 3.0%, dividend yield of 0%, volatility factor for the company’scommon stock price of 60%, and a weighted average expected life of five years for options not forfeited.

At December 31, 2006, there was $1 million of total unrecognized pre-tax compensation cost related to unvestedstock options. This cost is expected to be recognized in 2007.

Restricted Stock

Since 2004, the company’s share-based awards have primarily consisted of restricted stock awards. Theseawards generally vest over 1 – 4 years, and the fair value of the awards at the grant date is expensed over theperiod from the grant date to the date the employee is no longer required to provide service to earn the award.Prior to vesting, grantees are not eligible to vote or receive dividends on the restricted shares.

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A summary of the activity and related information for the company’s restricted stock awards follows:

2006 2005 2004


(In thousands, except grant date grant date grant dateper share amounts) Shares price Shares price Shares price

Unvested shares at beginning of year 654 $ 23.84 457 $ 22.07 53 $ 12.74

Shares granted 1,197 14.92 363 25.14 606 22.31Shares vested (531) 19.20 (142) 22.00 (189) 20.29Shares forfeited (39) 21.70 (24) 20.92 (13) 21.40

Unvested shares at end of year 1,281 $ 17.49 654 $ 23.84 457 $ 22.07

At December 31, 2006, there was $15 million of total unrecognized pre-tax compensation cost related tounvested restricted stock awards. This cost is expected to be recognized over a weighted-average period ofapproximately 3 years.

Long-Term Incentive Program

The company has established a Long-Term Incentive Program (LTIP) for certain executive level employees.Awards are intended to be performance-based compensation as defined in Section 162(m) of the InternalRevenue Code. For the three year period of 2006-2008, the program allows for awards to be issued at the end of 2008 based upon the cumulative earnings per share of the company for that time period. Awards are expensed over the three-year vesting period. Based on cumulative earnings per share estimates for thethree-year period, the company does not currently expect to achieve target levels under the program to allowawards to be issued at the end of 2008. As a result, no expense was recognized in 2006 relating to this program, although the company will continue to evaluate its earnings per share performance for the purposeof determining expense for this program.

NOTE 12.Shareholders’ Equity

The company’s Certificate of Incorporation authorizes 20 million shares of preferred stock and 150 millionshares of common stock. Warrants representing the right to purchase 13.3 million shares of common stockwere issued in 2002. The warrants have an exercise price of $19.23 per share and are exercisable throughMarch 19, 2009.

At December 31, 2006, shares of common stock were reserved for the following purposes:

Issuance upon exercise of stock options and other stock awards (see Note 11) 6.6 millionIssuance upon exercise of warrants 13.3 million

The company’s shareholders’ equity includes accumulated other comprehensive income at December 31,2006 comprised of unrealized losses on derivatives of $29 million, unrealized translation gains of $50 million,a $2 million adjustment to increase the fair value of a cost investment, and unrecognized prior service costsand actuarial losses of $12 million. The accumulated other comprehensive income balance at December 31,2005 included unrealized gains on derivatives of $10 million, unrealized translation gains of $36 million, a $4million adjustment to increase the fair value of cost investments and a minimum pension liability adjustment of$10 million.

In late 2004, Chiquita initiated a quarterly cash dividend of $0.10 per share on the company’s outstandingshares of common stock. In September 2006, the board of directors suspended the dividend. The payment ofdividends is currently prohibited under the CBL Facility; see Note 9 to the Consolidated Financial Statements. Ifand when permitted in the future, dividends must be approved by the board of directors.

The company purchased approximately $10 million of its shares of common stock in 2004 (approximately517,000 shares at an average price of $18.62 per share).

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NOTE 13.Income Taxes

Income taxes consist of the following:

(In thousands) U.S. Federal U.S. State Foreign Total

2006

Current tax expense (benefit) $ (2,548) $ (435) $ 4,537 $ 1,554Deferred tax benefit — (1,661) (1,993) (3,654)

$ (2,548) $ (2,096) $ 2,544 $ (2,100)

2005

Current tax expense (benefit) $ (836) $ 1,932 $ 5,524 $ 6,620Deferred tax benefit — (1,865) (1,655) (3,520)

$ (836) $ 67 $ 3,869 $ 3,100

2004

Current tax expense (benefit) $ (1,057) $ 692 $ 11,299 $ 10,934Deferred tax expense (benefit) — 107 (5,641) (5,534)

$ (1,057) $ 799 $ 5,658 $ 5,400

Income tax expense differs from income taxes computed at the U.S. federal statutory rate for the following reasons:

(In thousands) 2006 2005 2004

Income tax expense (benefit) computed at U.S. federal statutory rate $ (34,312) $ 47,089 $ 21,281State income taxes, net of federal benefit (848) (760) 164Impact of foreign operations (1,607) (84,371) (56,468)Change in valuation allowance 35,298 41,029 42,529Non-deductible charge for contingent liability 8,750 — —Benefit from change in German tax law (5,061) — —Benefit from sale of Colombian division — — (5,700)Tax contingencies (6,252) (4,258) 685Other 1,932 4,371 2,909

Income tax expense (benefit) $ (2,100) $ 3,100 $ 5,400

Income taxes for 2006 include benefits of $10 million primarily from the resolution of tax contingencies in variousjurisdictions and a reduction in valuation allowance. In addition, the company recorded a tax benefit of $5 millionas a result of a change in German tax law. Income taxes for 2005 included benefits of $8 million primarily fromthe resolution of tax contingencies and reduction in the valuation allowance of a foreign subsidiary due to theexecution of tax planning initiatives. Income tax expense in 2004 included a benefit of $5.7 million from therelease to income, upon the sale of the Colombian banana production division, of a deferred tax liability relatedto growing crops in Colombia.

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The components of deferred income taxes included on the balance sheet are as follows:


Deferred tax benefitsNet operating loss carryforwards $ 230,004 $ 215,674Other tax carryforwards 1,269 1,103Employee benefits 31,915 26,351Accrued expenses 12,437 11,498Depreciation and amortization 8,268 10,384Other 12,532 15,563

296,425 280,573

Deferred tax liabilitiesGrowing crops (21,085) (21,419)Trademarks (172,313) (170,988)Other (3,346) (3,245)

(196,744) (195,652)

99,681 84,921Valuation allowance (211,909) (200,325)

Net deferred tax liability $ (112,228) $ (115,404)

U.S. net operating loss carryforwards (“NOLs”) were $328 million as of December 31, 2006 and $313 million asof December 31, 2005. The U.S. NOLs existing at December 31, 2006 will expire between 2024 and 2027.Foreign NOLs were $293 million in 2006 and $279 million in 2005. $165 million of the foreign NOLs existing atDecember 31, 2006 will expire between 2007 and 2017. The remaining $128 million of NOLs existing atDecember 31, 2006 have an indefinite carryforward period.

A valuation allowance has been established against the deferred tax assets described above due to the company’shistory of tax losses in specific tax jurisdictions as well as the fact that the deferred tax assets are subject tochallenge under audit.

The change in the valuation allowance of $12 million reflected in the above table is due to the net effect ofchanges in deferred tax assets in U.S. and foreign jurisdictions. An increase of $35 million was primarily due tothe net effect of the creation of new NOLs and the use of NOLs to offset taxable income in the current year,partially offset by a reduction of $23 million primarily due to a reduction in U.S. NOLs in conjunction with theclosure of a tax audit and foreign NOLs that expired in 2006.

Income before taxes attributable to foreign operations was $16 million in 2006, $230 million in 2005, and $173million in 2004. Undistributed earnings of foreign subsidiaries, approximately $1.2 billion at December 31,2006, have been permanently reinvested in foreign operating assets. Accordingly, no provision for U.S. federaland state income taxes has been provided on these earnings.

Cash payments for income taxes were $15 million in 2006, $10 million in 2005, and $13 million in 2004. Noincome tax expense is associated with any of the items included in other comprehensive income.

In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes.” This interpretation is effectivefor the company beginning January 1, 2007. See Note 1 to the Consolidated Financial Statements for a furtherdescription of FIN 48 and its expected impact on the company’s financial statements.

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NOTE 14.Segment Information

Since the acquisition of Fresh Express in June 2005, the company has reported three business segments:Bananas, Fresh Select, and Fresh Cut. The Banana segment includes the sourcing (purchase and production),transportation, marketing and distribution of bananas. The Fresh Select segment includes the sourcing, marketing and distribution of whole fresh fruits and vegetables other than bananas. The Fresh Cut segmentincludes value-added salads, foodservice and fresh-cut fruit operations. Remaining operations, which arereported in “Other,” primarily consist of processed fruit ingredient products, which are produced in LatinAmerica and sold in other parts of the world, and other consumer packaged goods. The company evaluates theperformance of its business segments based on operating income. Intercompany transactions between segments are eliminated.

Financial information for each segment follows:

Fresh Fresh(In thousands) Bananas Select Cut Other Consolidated

2006

Net sales $ 1,933,866 $ 1,355,963 $ 1,139,097 $ 70,158 $4,499,084Segment operating income (loss)1 (20,591) (27,341) 24,823 (4,588) (27,697)Depreciation and amortization 32,890 6,095 47,692 865 87,542Equity in earnings of investees2 2,369 3,166 — 402 5,937Total assets3 1,225,540 388,331 1,083,549 41,124 2,738,544Investment in equity affiliates2 33,167 13,922 — 648 47,737Expenditures for long-lived assets 30,635 3,832 30,588 2,649 67,704Net operating assets 757,375 200,111 848,107 28,836 1,834,429

2005

Net sales $ 1,950,565 $ 1,353,573 $ 538,667 $ 61,556 $ 3,904,361Segment operating income (loss) 182,029 10,546 (3,276) (1,666) 187,633Depreciation and amortization 34,130 6,272 23,788 826 65,016Equity in earnings of investees2 (656) 2,057 — (801) 600Total assets3 1,305,888 384,204 1,109,868 33,139 2,833,099Investment in equity affiliates2 31,276 9,888 — 245 41,409Expenditures for long-lived assets 28,420 3,547 899,149 3,211 934,327Net operating assets 804,005 199,495 878,837 19,252 1,901,589

2004

Net sales $ 1,713,160 $ 1,289,145 $ 10,437 $ 58,714 $ 3,071,456Segment operating income (loss) 122,739 440 (13,422) 3,190 112,947Depreciation 32,850 7,507 579 647 41,583Equity in earnings of investees2 9,754 1,420 — (1) 11,173Total assets 1,324,579 419,790 9,501 26,168 1,780,038Investment in equity affiliates2 32,302 8,225 — 1,046 41,573Expenditures for long-lived assets 40,135 6,926 379 1,529 48,969Net operating assets 797,626 220,580 7,155 20,139 1,045,500

1 The Fresh Select and Banana segment results include $29 million and $14 million, respectively, of goodwill impairment charges in 2006 from theAtlanta AG business. The Banana segment also includes a $25 million charge for a potential settlement related to the U.S. Department of Justiceinvestigation of the company.

2 See Note 7 for further information related to investments in and income from equity method investments.

3 At December 31, 2006, goodwill of $542 million is primarily related to Fresh Express and included in the Fresh Cut segment. At December 31, 2005,goodwill of $536 million, $28 million and $14 million, respectively, were allocated to the Fresh Cut, Fresh Select and Banana segments.

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The reconciliation of Consolidated Statement of Cash Flow captions to expenditures for long-lived assets follows:

(In thousands) 2006 2005 2004

Per Consolidated Statement of Cash Flow:Capital expenditures $ 61,240 $ 42,656 $ 43,442Acquisition of businesses 6,464 891,671 5,527

Expenditures for long-lived assets $ 67,704 $ 934,327 $ 48,969

The reconciliation of the Consolidated Balance Sheet total assets to net operating assets follows:


Total assets $2,738,544 $2,833,099Less:

Cash (64,915) (89,020)Accounts payable (415,082) (426,767)Accrued liabilities (136,906) (142,881)Accrued pension and other employee benefits (73,541) (78,900)Net deferred tax liability (112,228) (115,404)Commitments and contingent liabilities (25,000) —Other liabilities (76,443) (78,538)

Net operating assets $ 1,834,429 $ 1,901,589

Financial information by geographic area is as follows:

(In thousands) 2006 2005 2004

Net salesUnited States $ 1,864,421 $ 1,261,246 $ 715,846Italy 218,623 253,170 214,301Germany 1,188,003 1,228,326 1,090,381Other international 1,228,037 1,161,619 1,050,928

$4,499,084 $ 3,904,361 $ 3,071,456


Long-lived assetsUnited States $ 1,240,065 $ 1,264,440Central and South America 143,173 138,755Germany 94,523 124,611Other international 258,508 270,118Shipping operations 125,782 135,100

$ 1,862,051 $ 1,933,024

The company’s products are sold throughout the world and its principal production and processing operationsare conducted in Central and South America. Chiquita’s earnings are heavily dependent upon products grownand purchased in Central and South America. These activities, a significant factor in the economies of thecountries where Chiquita produces bananas and related products, are subject to the risks that are inherent inoperating in such foreign countries, including government regulation, currency restrictions and otherrestraints, risk of expropriation, risk of political instability and burdensome taxes. Certain of these operationsare substantially dependent upon leases and other agreements with these governments.

The company is also subject to a variety of government regulations in most countries where it marketsbananas and other fresh products, including health, food safety and customs requirements, import tariffs, currency exchange controls and taxes.

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NOTE 15.Contingencies

As previously disclosed, in April 2003 the company’s management and audit committee, in consultation withthe board of directors, voluntarily disclosed to the U.S. Department of Justice (the “Justice Department”) thatits banana-producing subsidiary in Colombia, which was sold in June 2004, had made payments to certaingroups in that country which had been designated under United States law as foreign terrorist organizations.Following the voluntary disclosure, the Justice Department undertook an investigation, including considerationby a grand jury. In March 2004, the Justice Department advised that, as part of its criminal investigation, itwould be evaluating the role and conduct of the company and some of its officers in the matter. In Septemberand October 2005, the company was advised that the investigation was continuing and that the conduct of thecompany and some of its officers and directors was within the scope of the investigation. For the years endedDecember 31, 2006, 2005 and 2004, the company incurred legal fees and other expenses in response to thecontinuing investigation and related issues of $8 million, $2 million and $8 million, respectively.

During the fourth quarter of 2006, the company commenced discussions with the Justice Department aboutthe possibility of reaching a plea agreement. As a result of these discussions, and in accordance with the guide-lines set forth in SFAS No. 5, “Accounting for Contingencies,” the company recorded a charge of $25 million inits financial statements for the quarter and year ended December 31, 2006. This amount reflects liability forpayment of a proposed financial sanction contained in an offer of settlement made by the company to theJustice Department. The $25 million would be paid out in five equal annual installments, with interest, beginningon the date judgment is entered. The Justice Department has indicated that it is prepared to accept both theamount and the payment terms of the proposed $25 million sanction. In addition to the financial sanction, thecompany anticipates the potential plea agreement would contain customary provisions that prohibit suchfuture conduct or other violations of law and require the company to implement and/or maintain certain businessprocesses and compliance programs, the violation of which could result in setting aside the principal terms ofthe plea agreement.

Negotiations are ongoing, and there can be no assurance that a plea agreement will be reached or that thefinancial impacts of any such agreement, if reached, will not exceed the amounts currently accrued in the finan-cial statements. Furthermore, such an agreement would not affect the scope or outcome of any continuinginvestigation involving any individuals.

In the event an acceptable plea agreement between the company and the Justice Department is not reached,the company believes the Justice Department is likely to file charges, against which the company wouldaggressively defend itself. The Justice Department has a broad range of civil and criminal sanctions underpotentially applicable laws which it may seek to impose against corporations and individuals, including but notlimited to injunctive relief, disgorgement of profits, fines, penalties and modifications to business practices andcompliance programs. The company is unable to predict all of the financial or other potential impacts that couldresult from an indictment or conviction of the company or any individual, or from any related litigation, includingthe materiality of such events. Considering the sanctions that may be pursued by the Justice Department andthe company’s defenses against potential claims, the company estimates that the range of financial outcomesupon final adjudication of a criminal proceeding could be between $0 and $150 million.

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In October 2004 and May 2005, the company’s Italian subsidiary received separate notices from various customsauthorities in Italy stating that this subsidiary is potentially liable for an aggregate of approximately ¤26.9 million of additional duties and taxes on the import of certain bananas into the European Union from 1998 to2000, plus interest currently estimated at approximately ¤15.0 million. The customs authorities claim thatthese amounts are due because the bananas were imported with licenses that were subsequently determinedto have been forged. The company is contesting these claims through appropriate proceedings, principally onthe basis of its good faith belief at the time the import licenses were obtained and used that they were valid.The company’s Italian subsidiary is requesting suspension of payment, pending appeal, of the approximately¤13.8 million formally assessed thus far in these cases, and intends to request suspension of payment, whenappropriate, of additional assessments as they are received. In October 2006, the Italian subsidiary receivednotice in one proceeding in a court of first instance, that the court had determined that Chiquita Italia was jointlyliable for a claim of ¤4.7 million plus interest accrued from November 2004. Chiquita Italia intends to appealthis finding; the applicable appeal would involve a review of the entire factual record of the case as well as allthe legal arguments, including those presented during the appeals process, and the appellate court can rendera decision on the case that disregards or substantially modifies the lower court’s opinion. Pending appeal,Chiquita Italia issued a letter of credit to allow a bank guarantee to be posted in the amount of approximately¤5 million (approximately $7 million), and may in the future be required to post bank guarantees for up to thefull amounts claimed.

In June 2005, Chiquita announced that its management had recently become aware that certain of its employeeshad shared pricing and volume information with competitors in Europe over many years in violation ofEuropean competition laws and company policies, and may have engaged in several instances of other conductwhich did not comply with European competition laws or applicable company policies. The company promptlystopped the conduct and notified the European Commission (“EC”) and other regulatory authorities of thesematters; the company is cooperating with the related investigation subsequently commenced by the EC. Basedon the company’s voluntary notification and cooperation with the investigation, the EC notified Chiquita that itwould be granted immunity from any fines related to the conduct, subject to customary conditions, includingthe company’s continuing cooperation with the investigation and a continued determination of its eligibility for immunity. Accordingly, Chiquita does not expect to be subject to any fines by the EC. However, if at the conclusion of its investigation, which could continue through 2007 or later, the EC were to determine, amongother things, that Chiquita did not continue to cooperate or was not otherwise eligible for immunity, then thecompany could be subject to fines, which, if imposed, could be substantial. The company does not believe thatthe reporting of these matters or the cessation of the conduct has had or should in the future have any materialadverse effect on the regulatory or competitive environment in which it operates.

Other than the $25 million accrual noted above for potential liability related to the Justice Department investigation at December 31, 2006, the Consolidated Balance Sheet does not reflect a liability for these contingencies for any of the periods presented.

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NOTE 16.Quarterly Financial Data (Unaudited)

The following quarterly financial data are unaudited, but in the opinion of management include all necessaryadjustments for a fair presentation of the interim results, which are subject to significant seasonal variations.

2006

(In thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31

Net sales $ 1,153,652 $ 1,228,676 $ 1,032,004 $ 1,084,752Cost of sales (992,695) (1,060,536) (951,945) (955,727)Operating income (loss) 39,259 45,399 (78,508) (33,847)Net income (loss) 19,506 22,868 (96,439) (41,869)Basic earnings (loss) per share 0.46 0.54 (2.29) (0.99)Diluted earnings (loss) per share 0.46 0.54 (2.29) (0.99)Common stock market price

High 20.34 16.82 17.47 16.16Low 16.73 12.99 12.78 12.64

2005

(In thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31

Net sales $ 931,829 $ 1,019,444 $ 954,006 $ 999,082Cost of sales (751,386) (854,259) (810,541) (851,942)Operating income (loss) 93,698 74,624 20,041 (730)Net income (loss) 86,541 63,613 301 (19,015)Basic earnings (loss) per share 2.12 1.52 0.01 (0.45)Diluted earnings (loss) per share 1.94 1.36 0.01 (0.45)Common stock market price

High 27.56 30.15 30.73 27.61Low 20.62 23.83 23.94 19.65

The operating loss in the fourth quarter of 2006 included a charge of $25 million for potential settlement of acontingent liability related to the Justice Department investigation of the company. The operating loss in thethird quarter of 2006 included a goodwill impairment charge of $43 million related to Atlanta AG. Operatinglosses in the 2005 fourth quarter included flood costs of $17 million relating to Tropical Storm Gamma and a$6 million charge related to the consolidation of fresh-cut fruit facilities in the Midwestern United States.

Per share results include the effect, if dilutive, of the assumed conversion of options, warrants and other stockawards into common stock during the period presented. The effects of assumed conversions are determinedindependently for each respective quarter and year and may not be dilutive during every period due to variationsin operating results. Therefore, the sum of quarterly per share results will not necessarily equal the per shareresults for the full year. For the quarters ended December 31, 2006 and 2005, the shares used to calculatediluted EPS would have been 43.0 million and 44.9 million, respectively, if the company had generated netincome. For the quarter ended September 30, 2006, the shares used to calculate diluted EPS would have been42.7 million if the company had generated net income.

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SELECTED F INANCIAL DATA

PredecessorCompany

Nine Months Three MonthsEnded Ended

(In thousands, Year Ended December 31, December 31, March 31,except per share amounts) 2006 2005 2004 2003 2002 2002

FINANCIAL CONDITION

Working capital $ 246,875 $ 299,218 $ 331,217 $ 281,277 $ 243,960 $ 256,844Capital expenditures 61,240 42,656 43,442 51,044 31,925 2,561Total assets 2,738,544 2,833,099 1,780,038 1,706,719 1,642,241 1,779,019Capitalization

Short-term debt 77,630 31,209 34,201 48,070 41,701 64,930Long-term debt 950,887 965,899 315,266 346,490 394,796 467,315Shareholders’ equity 870,827 993,501 838,824 757,346 629,289 612,753

OPERATIONS

Net sales $4,499,084 $ 3,904,361 $ 3,071,456 $ 2,613,548 $ 1,140,024 $ 446,146Operating income (loss) (27,697) 187,633 112,947 140,386 25,501 40,578Income (loss) from

continuing operations before cumulative effect of a change in method of accounting (95,934) 131,440 55,402 95,863 (6,622) (189,694)

Discontinued operations — — — 3,343 19,817 (63,606)Income (loss) before

cumulative effect of a change in method of accounting (95,934) 131,440 55,402 99,206 13,195 (253,300)

Cumulative effect of a change in method of accounting — — — — — (144,523)

Net income (loss) (95,934) 131,440 55,402 99,206 13,195 (397,823)

SHARE DATA

Shares used to calculate diluted earnings (loss) per common share 42,084 45,071 41,741 40,399 39,967 78,273

Diluted earnings (loss) per common share:Continuing operations $ (2.28) $ 2.92 $ 1.33 $ 2.38 $ (0.17) $ (2.42)Discontinued operations — — — 0.08 0.50 (0.81)Before cumulative effect

of a change in method of accounting (2.28) 2.92 1.33 2.46 0.33 (3.23)

Cumulative effect of a change in method of accounting — — — — — (1.85)

Net income (loss) (2.28) 2.92 1.33 2.46 0.33 (5.08)Dividends declared per

common share 0.20 0.40 0.10 — — —Market price per common share:

Reorganized Company:High 20.34 30.73 24.33 22.90 18.60 —Low 12.64 19.65 15.70 8.77 11.10 —End of period 15.97 20.01 22.21 22.53 13.26 —

Predecessor Company:High — — — — — 0.87Low — — — — — 0.63End of period — — — — — 0.71

In the Notes to the Consolidated Financial Statements, see Note 2 for information on acquisitions and divestitures. See Management’s Discussion andAnalysis of Financial Condition and Results of Operations for information related to significant items affecting operating income (loss) for 2006, 2005and 2004.

Reorganized Company

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C H I Q U I TA B R A N D S I N T E R N AT I O N A L , I N C . 2 0 0 6 A N N U A L R E P O R TC H I Q U I TA B R A N D S I N T E R N AT I O N A L , I N C . 2 0 0 6 A N N U A L R E P O R T

BOARD OF D IRECTORS OFF ICERS AND SENIOR OPERATING MANAGEMENT

FERNANDO AGUIRRE 3

Chairman of the Executive CommitteeChairman, President and Chief Executive Officer

MORTEN ARNTZEN 1, 3, 4

Chairman of the Nominating & Governance CommitteePresident and Chief Executive Officer, Overseas Shipholding Group, Inc.(oceangoing vessel operator)

ROBERT W. FISHER 1, 2, 3

Private InvestorFormer President, Dole Food Company

CLARE M. HASLER 2

Executive DirectorRobert Mondavi Institute for Wine and Food Science

RODERICK M. HILLS 1, 3, 4, 5

Chairman of the Audit CommitteeChairman, Hills Enterprises, Ltd.(investment consulting firm)Former Chairman of the Securities and Exchange Commission

DURK I . JAGER 1, 4

Private Investor and ConsultantFormer Chairman, President and Chief ExecutiveOfficer, The Procter & Gamble Company

JAIME SERRA 2, 4

Senior Partner of Serra Associates International(consulting firm in law and economics)Mexico’s former Secretary of Finance and Secretary of Trade and Industry

STEVEN P. STANBROOK 2, 3

Chairman of the Compensation & Organization Development CommitteePresident, Developing Markets Platform,S.C. Johnson & Son, Inc.(manufacturer of consumer products)

1 Member of Audit Committee 2 Member of Compensation & Organization Development Committee3 Member of Executive Committee4 Member of Nominating & Governance Committee5 Mr. Hills, age 76, has not been renominated to the board of directors

for the 2007-2008 term. His current term expires as of May 23, 2007.

FERNANDO AGUIRRE*

Chairman, President and Chief Executive Officer

MICHAEL J. HOLCOMB*

Vice President, Corporate Sales and Customer Development

KEVIN R. HOLLAND*

Senior Vice President, Human Resources

ROBERT F. KISTINGER*

President and Chief Operating Officer, Chiquita Fresh Group

RICHARD M. CONTINELLI

President, Chiquita Fresh Group - North America

MICHEL LOEB

President, Chiquita Fresh Group - Europe

PETER JUNG

President, Atlanta AG

PETER F. SMIT

President, Chiquita Fresh Group - Asia-Pacific and Middle East

MANUEL RODRIGUEZ*

Senior Vice President, Government and InternationalAffairs and Corporate Responsibility Officer

MANJIT SINGH*

Vice President and Chief Information Officer

JAMES E. THOMPSON*

Senior Vice President, General Counsel and Secretary

TANIOS VIVIANI*

President, Fresh Express Group

JEFFREY M. ZALLA*

Senior Vice President and Chief Financial Officer

WAHEED ZAMAN*

Senior Vice President, Supply Chain and Procurement

* Member of Management Committee

278879_Fin.qxp 4/11/07 8:55 AM Page 82

PUBLICLY ISSUED SECURITIES

Common Stock, par value $0.01 per shareWarrants to Subscribe for Common Stock71/2% Senior Notes due 201487/8% Senior Notes due 2015

EXCHANGE LISTING

New York Stock ExchangeTrading Symbols:CQB (for the common stock)CQB WS (for the warrants)

SHAREHOLDERS OF RECORD

As of April 6, 2007, there were 1,352holders of record of Common Stock.

ANNUAL MEETING

May 24, 200710 a.m., Eastern Daylight TimeHilton Cincinnati Netherland Plaza35 West Fifth StreetCincinnati, Ohio 45202

TRANSFER AGENT, REGISTRAR AND WARRANT AGENT COMMON STOCK AND WARRANTS

Chiquita Brands International, Inc.c/o Wells Fargo Shareowner Services161 North Concord ExchangeSouth St. Paul, Minnesota 55075-1139(800) 468-9716(651) 450-4064

TRUSTEE – SENIOR NOTES (71/2% AND 87/8%)

LaSalle Bank National Association135 South LaSalle StreetChicago, Illinois 60603(312) 904-2226

COMMON STOCK PERFORMANCE GRAPH

A new class of Chiquita Common Stock was issuedpursuant to Chiquita’s Plan of Reorganization, whichbecame effective on March 19, 2002. The performancegraph to the right compares Chiquita’s cumulativeshareholder returns over the period March 20, 2002through December 31, 2006, assuming $100 had beeninvested at March 20, 2002 in each of ChiquitaCommon Stock, the Standard & Poor’s 500 StockIndex and the Standard & Poor’s Midcap FoodProducts Index. The calculation of total shareholderreturn is based on the change in the price of the stockover the relevant period and assumes the reinvestmentof all dividends.

INVESTOR INQUIRIES

For other questions concerning your investment in Chiquita, contact Investor Relations at (513) 784-6366.

CORPORATE GOVERNANCE, CERTIFICATIONS ANDCODE OF CONDUCT INFORMATION

Chiquita has a Code of Conduct, which applies to all employees, including our senior management and,to the extent applicable to their roles, our directors.We also comply with New York Stock Exchange(NYSE) governance requirements. All of our directorsother than the chairman are independent. Our chiefexecutive officer and chief financial officer sign certifications under Sections 302 and 906 of theSarbanes-Oxley Act relating to the financial statementsand other information included in Chiquita’s 10-K and 10-Q filings with the Securities and ExchangeCommission (SEC), including most recently our annualreport on Form 10-K filed on March 8, 2007. Our chiefexecutive officer certifies annually, most recently in2006, to the NYSE that, to his knowledge, Chiquita wasin compliance with NYSE governance requirements.

The Investors/Governance section ofwww.chiquita.com provides access to:

Governance Standards and Policies of the Board of DirectorsCharter of the Audit CommitteeCharter of the Compensation & Organization Development CommitteeCharter of the Nominating & Governance CommitteeCode of ConductSEC certifications under Sections 302 and 906 of the Sarbanes-Oxley Act that are exhibits to our Forms 10-K and 10-Q.

INVESTOR INFORMATIONCe

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897 $100

$88

$77

$96

$150

$97

$113

$147

$105

$129

$133

$108

$137

$109

$123

$146

03.20.02 12.31.02 12.31.03 12.31.04 12.31.05 12.31.06

Chiquita S&P 500 S&P Midcap

(In millions, except per share amounts) 2006 2005* 2004

INCOME STATEMENT DATA

Net sales $ 4,499 $ 3,904 $ 3,071Operating income (loss) (28) 188 113Net income (loss) (96) 131 55Diluted per share net income (loss) (2.28) 2.92 1.33Shares used to calculate diluted EPS 42.1 45.1 41.7

CASH FLOW DATA

Cash flow from operations $ 15 $ 223 $ 94Capital expenditures 61 43 43

Dec 31, 2006 Dec 31, 2005 Dec 31, 2004

BALANCE SHEET DATA

Cash and cash equivalents $ 65 $ 89 $ 143Total assets 2,739 2,833 1,780Shareholders’ equity 871 994 839

* The company’s Consolidated Income Statement includes the operations of Fresh Express from the June 28, 2005, acquisition date to the end of the year.

Chiquita Brands International, Inc. (NYSE: CQB) is a leading international marketer and distributor of high-quality fresh andvalue-added food products – from energy-rich bananas and other fruits to nutritious blends of convenient green salads.The company’s products and services are designed to win the hearts and smiles of the world’s consumers by helping themenjoy healthy fresh foods. The company markets its products under the Chiquita® and Fresh Express® premium brands andother related trademarks. Chiquita employs approximately 25,000 people operating in more than 70 countries worldwide.Additional information is available at www.chiquita.com and www.freshexpress.com.

F INANCIAL H IGHL IGHTS

04

OPERATING INCOME (LOSS)( i n m i l l i ons )

05 06

$113

($28)

$188

04

CASH FLOW FROM OPERATIONS( i n m i l l i ons )

05 06

$94

$15

$223

12.31.04

TOTAL DEBT( i n m i l l i ons )

12.31.05 12.31.06

$349

$1,029$997

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278879_Cover 4/12/07 2:48 PM Page 1

Documents

CHIQUITA BRANDS INTERNATIONAL, INC. 2006 ANNUAL · PDF file2006 ANNUAL REPORT CHIQUITA BRANDS INTERNATIONAL, INC. LETTER FROM CHAIRMAN & CEO 01 DEAR STAKEHOLDERS, 2006 was a