Financial Report

Introduction

Tree Top’s condensed financial statements are presented in this section of the report. Complete audited financial statements and footnotes are available to any Tree Top member and can be found on the internet at http://enter.treetop.com/web/CtlDocument?destination=annualReport2006. Access to the audited financial statements requires the same member password used to access Tree Top member accounts. If you need a password, or if you would like a printed copy of this report, you may request either from Mr. Dick Childers in Grower Accounting by email at dchilders@treetop.com or by telephone at 509.697.7251 or 800.367.6571.

Tree Top’s fiscal year ends July 31st. Reference to F’ 2006 identifies the fiscal year ended July 31, 2006, which includes its members’ 2005 harvest.

Returns to Members and Results of Operations

Net proceeds for F’2006 of $19.4 million were 33% lower than F’2005 net proceeds. The 454 thousand tons of apples and pears received is down from the F’2005 record year of 535 thousand tons. In addition, the Company continued to be impacted by higher energy costs as in the prior year.

On a per ton basis, net proceeds paid to members for apples were lower than the prior year. The per ton juice apple return of $36.61 was $9.95 lower than the prior year. Peeler grade apple returns were down $24.82 from the prior year to $61.02 in F’2006. The proceeds per ton for pears decreased by $2.80 to $41.00 in F’2006.

The Tree Top returns exceeded general market averages, or commercial market value (CMV), for the fourteenth straight year. The F’2006 profit per ton was $11.05, compared with the prior year amount of $13.62. Total returns per ton for apple in F’2006 were lower than the prior year due mainly to the lower commercial market value of the fruit. A summary of Tree Top returns for juice and peeler grade apples for the last four years follows:

	2006	2005	2004	2003
Juice Apples
CMV	$25.56	$32.94	$63.17	$66.86
Profit per ton	$11.05	$13.62	$7.65	$1.41
Total juice apple return	$36.61	$46.56	$70.82	$68.27
Peeler Apples
CMV	$49.97	$72.22	$128.42	$127.43
Profit per ton	$11.05	$13.62	$7.65	$1.41
Total peeler apple return	$61.02	$85.84	$136.07	$128.84

As has been the practice for many years, profits for F’2006 were paid 100 percent in cash to members who owned market rights to cover their fruit deliveries. Profits on deliveries not covered by market rights were classified as non-member earnings and added to the Cooperative’s retained earnings.

Because of Tree Top’s cooperative structure, qualified distributions of member proceeds are tax-deductible to the Cooperative. Non-member income is subject to taxation at regular corporate rates.