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Chiquita Outlines Policy on Financial Transparency in Open Letter to Investors

Submitted by: Chiquita Brands International, Inc.

Categories: Corporate Governance

Posted: Jan 06, 2003 – 11:00 PM EST


Company Provides Update on Progress against Goals and Fourth Quarter Developments

Jan. 06 /CSRwire/ - CINCINNATI, OH - Chiquita Brands International, Inc., (NYSE: CQB) today outlined the company's new policy on financial transparency and guidance in a letter to investors from Chairman and Chief Executive Officer Cyrus F. Freidheim, Jr. The letter also summarizes the company's progress in achieving its stated goals and provides information on various fourth quarter 2002 operational items. Full text of the letter is reproduced below:

Dear Investor:
When Chiquita Brands International emerged from its Chapter 11 financial
reorganization on March 19, 2002, our newly elected board began a
top-to-bottom strategic review of the company. On September 24, we presented
the results of that review to analysts and investors in New York, inviting other stakeholders to participate through a global webcast.

In that review, we laid out a three-pronged, long-term strategy to
increase shareholder value:

1. Focus on the core, by improving the company's Fresh and Processed Foods
business units and divesting non-core assets;
2. Drive better performance, by reducing costs significantly and increasing financial flexibility; and
3. Profitably invest cash, by reducing debt, leveraging existing assets
into new businesses and paying dividends and/or buying back stock.

We set specific cost, earnings and debt targets for 2005 and described the
cost-reduction programs the company is undertaking. We committed to develop
milestones for the interim years so that our performance could be tracked.

Since that September presentation, we have had a number of discussions
with investors about financial transparency, earnings guidance and the
appropriate milestones to track our progress.

As most investors recognize, the fresh banana business is subject to
significant volatility due to changes in weather, exchange rates, market
pricing and a variety of other factors outside the company's immediate
control. In addition, quarterly or even annual earnings guidance wrongly
focuses management on short-term priorities. We have seen far too many
examples lately of companies feeling pressured to make accounting judgments
based on meeting quarterly guidance targets.

Nevertheless, we believe that companies should provide greater financial
transparency and give investors the kinds of information they need to evaluate
their investment decisions and track the key levers effecting growth and
profitability. Recognizing this need, we fully intend to provide investors
with more transparent and user-friendly financial information to assist them
in measuring our progress and evaluating their investment in Chiquita. While
we must safeguard certain competitive information, we are committed to
providing investors with the financial and operational information necessary
to develop models of company performance.

We believe that the most important measures of our progress against our
strategic goals are:

1. Focus on the core
* Operating margins
* Volume
* Percent of sales of yellow (ripened) versus green (unripened) bananas
* Divestiture of non-core assets

2. Drive better performance
* Cost reduction
* SG&A as a percentage of sales
* Cash generation through operations and divestitures

3. Profitably invest cash
* Debt reduction
* Successful launch of new businesses

We are targeting year-over-year improvement in each category in 2003.

Beginning with the company's fourth quarter and full-year 2002 financial
release and conference call in February 2003, we will report our progress
against these measures. At each year-end conference call, we will update the
2005 earnings targets, which we established last September. In addition, we
will provide comparative data for important market factors that impact the
company's financial results, including product volume and pricing trends by
major market, logistics costs, the effect of currency exchange rate shifts and
significant changes in pricing of key materials, such as purchased fruit,
paper and fuel.

We thank our shareholders and investors for their input. By providing
expanded information on performance-related trends, we believe that investors
will have a clear picture of Chiquita's business operations and the progress
we are making against our stated goals.

* * *

In this spirit of providing increased transparency, we offer the following
information on a number of factors impacting our financial results.

Cost-Reduction Milestones

As we reported in September, we have initiated a series of global
performance-improvement programs to reduce costs by more than $100 million by
the end of 2005. These programs include improvements in farm productivity and
canning operations as well as reductions in global purchasing and overhead
expenses. We expect to realize in 2003 gross cost-reduction savings of
$40 million to $50 million, offset by one-time costs of $15 million associated
with these savings. Our current target for 2004 is to generate an additional
$50 million of gross savings, offset by associated one-time costs of
$10 million to $15 million.

Debt Reduction

We outlined specific targets for 2005 to strengthen our balance sheet,
including reducing net debt to $400 million. In 2002, net debt was
$597 million on March 31, $521 million on June 30, $516 million on Sept. 30,
and is estimated to be approximately $470 million on Dec. 31.

In addition to operating cash flow, the principal driver of the net debt
reduction was the sale of non-core assets. Against a goal to shed
$100 million to $150 million in non-core assets by year-end 2005, we have
already divested $99 million, including $54 million from the sale of five
non-core ships and $45 million from the sale of the Castellini group of
companies, a non-core wholesale produce distribution business. These cash
inflows were partially offset by an estimated $50 million in capital
expenditures, including the $14 million acquisition of one ship previously
under operating lease to the company.

Net debt is expected to increase by about $75 million with the previously
announced acquisition of the German company, Atlanta AG, and acquisition of
another ship. The Atlanta transaction is on schedule and expected to close in
the first quarter 2003. Until that time, Chiquita will continue to account
for Atlanta's results as an equity investment.

We are confident that we can meet our 2005 debt target and plan to achieve
it earlier.

Armuelles, Panama

As we have noted in the past, losses in our Armuelles division cannot be
sustained. For weeks, we have been discussing with government and union
leaders a proposal to sell our farms to an employee-owned cooperative with
long-term contracts to supply fruit to Chiquita at market prices. The
Panamanian government has been very supportive of our efforts in Armuelles and
believes that our proposal is in the best interests of the country, the
region, the workers and Chiquita. We have not yet reached an acceptable
agreement with the union. On Jan. 1, 2003, we ceased funding any additional
cash to our operations in Armuelles. There are adequate funds to operate for
a brief period while we work toward a final agreement. However, if we cannot
negotiate a viable long-term solution before funds run out, we will not be
able to continue operating in Armuelles, which represents approximately
6 percent of Chiquita's Latin America banana supply. We expect to have
sufficient access to cost-competitive, high-quality bananas in the event of a
closure in Armuelles.

Flooding in Costa Rica and Panama

In early December, Costa Rica and the Atlantic coast of Panama experienced
serious flooding. These floods damaged many farms owned by major marketers,
including Chiquita, and independent producers in the region. Currently, we
estimate that the industry as a whole lost production of approximately two to
three million boxes in the fourth quarter. We estimate the fourth quarter
charges and write-downs associated with the flooding will be approximately
$5 million. Additionally, the company purchased fruit from Ecuador to
partially replace the banana volume lost in the flood. The effect on industry
production in 2003 is still being evaluated, but it could be 10 million to
15 million boxes. We are anticipating a net reduction in fruit availability;
however, we believe we will be able to continue meeting all core customer

Banana and Commodity Pricing

Local banana prices in the company's core European market in the fourth
quarter were 10 percent below the same period a year ago, but a stronger euro
partially offset this decline. In North America, banana prices were down for
most of the quarter compared with 2001. Oil and paper prices have risen in
recent months, with an estimated $3 million to $5 million impact on fourth
quarter earnings versus 2001.

Other Developments

In Processed Foods, the 2002 pack was somewhat below expectations, which
will result in lower fourth quarter earnings of $3 million to $5 million.

Atlanta AG has been restructuring its operations to improve profitability
and expects to incur related charges and costs estimated at $10 million to
$15 million, which would be included in Chiquita's fourth quarter 2002

Chiquita's sale in December of its interest in the Castellini group of
companies will result in a fourth quarter gain of approximately $10 million.

In addition, a quarter-to-quarter increase in the euro versus the dollar
will result in a translation gain of approximately $7 million.

Strengthening the Board

We indicated in September that we planned to add new members to our board
of directors with international and branded consumer products experience. In
December, Durk Jager, former chairman, president and CEO of Procter and
Gamble, and Steven Stanbrook, president of S.C. Johnson's Europe, Africa and
Middle East regions, were elected to the board.

Mr. Jager has extensive knowledge of the global branded consumer products
business. In his 30 years with P&G, Dutch-born Mr. Jager has run businesses
in Europe, Asia and North America. He also serves on the board of directors
of Eastman Kodak and the supervisory board of KPN, the largest
telecommunications company in the Netherlands.

Mr. Stanbrook, a native of Britain, has more than 20 years experience with
S.C. Johnson, Sara Lee and CompuServe in senior management roles. He has
managed operations across the globe. His focus has been branded consumer food
and nonfood products.

We are confident that these new directors will add further strength and
independent thinking to our board.

* * *

Despite the challenges of the fourth quarter, we are pleased with the
overall progress of Chiquita. This past year has been a year of transition by
putting in place projects and programs that will enable us to achieve the
financial targets we set in September for 2005. We remain confident that we
are on the right path and that the actions we are taking will position
Chiquita as a leader and will create significant shareholder value.


Cyrus Freidheim
Chairman and CEO
Chiquita Brands International

Chiquita Brands International is a leading international marketer,
producer and distributor of high-quality fresh and processed foods. The
company's Chiquita Fresh division is one of the largest banana producers in
the world and a major supplier of bananas in North America and Europe. Sold
primarily under the premium Chiquita(R) brand, the company also distributes
and markets a variety of other fresh fruits and vegetables. In addition,
Chiquita Processed Foods is the largest processor of private-label canned
vegetables in the United States. Additional information is available
at http://www.chiquita.com .

For more information, please contact:

Michael Mitchell Chiquita Brands International
Phone: 513-784-8959


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