Typically, we balance our facility utilization and end-user demand by building inventory in big years for use in short years. As it happens, short crops in Fiscal (F') 2002 and F' 2003 left us with little inventory entering F' 2004. This meant that the unprecedented drop to 337,000 tons processed in F' 2004, from the 392,000 tons we processed in F' 2003, called for agile and unorthodox measures.

When we realized the likely size of the F' 2004 crop, we quickly shuttered our processing operations in Selah and curtailed operations at Prosser and Milton-Freewater. We allocated as much of the fruit as practical to our Ingredient operations. And, after much anguished debate, we elected to supplement our juice production by importing concentrate. We simply couldn't concede hard-won shelf space to competitors: shelf space that would have been very expensive to reclaim, if possible, when crop size returned to normal.

Diverting fruit to the Ingredient Division allowed us to meet crucial customer commitments but only through extraordinary efforts. An awkward mix of juicers and peelers required re-engineering production processes designed for different grades and varieties of fruit. It meant handholding customers concerned about substituting varieties in their products. And it meant scrambling to compete with frozen fruit processors enjoying excellent harvests in Michigan.

This year everyone went the extra mile and I applaud them. Their resourcefulness, and the unprecedented steps taken, allowed Tree Top to bring profits to the bottom line. In fact, total proceeds of $29.8 million roughly matched last year's results on 14% less tonnage. Profits per ton for apples and pears rose to $7.65 from last year's $1.41 and $0.56, respectively. Commercial market value (CMV) for peeler fruit averaged $128.42, about even with the prior year while CMV for juice fruit dipped slightly to $63.17. Average pear CMV was up slightly from last year at $29.94.

We are relieved to have F' 2004 behind us and a larger crop on the horizon. We will be able to operate our plants more efficiently and once again aggressively pursue market share in the frozen category,blue-chip concentrate arena, and sauce markets.

Other challenges remain. Chilean and Chinese competition in the commodity segment of the dried ingredients market is formidable. The low-carb craze is trimming the sales of our cereal and baked goods customers and consumers increasingly prefer fruits like blueberry, raspberry and strawberry to apple. We lost our bid to continue as the primary vendor of California's Women Infants and Children (WIC) program, which will erode both the revenue levels and the profitability of our packaged goods business. Our important grocery channel is still roiled by its efforts to find synergies in scale.