Financial Report | Page 2

Results of Operations

Total sales of $290 million for F’2006 were $32.0 million or 12.4% higher than prior year sales. Concentrate sales continued at a high level resulting from carry-over of concentrate stocks from F’2005’s record fruit processing volumes. Northwest Naturals continued to provide strong growth, as did low moisture apple products.

Increasing natural gas and oil prices continued to have a negative impact on the Company’s results in F’2006. Not only is the Company affected by higher energy costs in running boilers, dryers, and concentrators, but also with the resulting cost increases in plastic bottles, which are made from oil products. Higher energy related costs had a more than $5 million impact on the Cooperative in F’2006. The Company also incurred additional costs during the implementation of the facility realignment process after closing the Milton-Freewater plant. This realignment of production resources will provide improved operating efficiencies and lower production costs.

Financing the Cooperative

With increased sales and lower fruit receiving volume, the Company’s inventory was reduced by $14 million to $67.1 million during F’2006, a more normal level.

The Cooperative made significant capital investments in F’2006, with additions to property, plant, and equipment of $16.5 million. Significant projects included the completion of the Fresh Slice Facility, and process improvements implemented as part of the facility realignment process.

The Cooperative replaced private placement notes due and payable in F’2006, with new private placement notes. Funds from the new private placement notes also were used to pay the balance of the revolving line of credit outstanding at the end of the last year. The new notes bear interest rates significantly less than that of the notes replaced.

Tree Top increased members’ equity by $797,000 in F’2006 to $58.3 million. This results in members’ equity equal to 26.7% of total assets, providing financial strength and continued financing flexibility for the Cooperative. The key elements of the change in equity were as follows:

	2006	2005
Non-member earnings	$829,000	$2,129,000
Other equity additions	$573,000	$1,603,000
Members' equity retired	$(605,000)	$(532,000)
Total equity change	$797,000	$3,200,000

Non-member earnings included profits or losses earned on sales of products not containing apples or pears. Non-member earnings also included profits earned on apple and pear tons delivered without market rights. Such tonnage decreased from 205,000 tons for F’2005 to 137,000 tons for F’2006.

Equity additions include member purchases of market rights required to maintain minimum member funding levels and market rights acquired by members under the Cooperative’s equity subscription plan. Equity retirements include amounts paid to retiring members under the seven-year retirement provisions of Tree Top’s equity program.

Management believes the overall level of equity is sufficient to support the near-term financial needs of the Cooperative. Additional liquidity and financial flexibility are provided by debt financing utilized by the Cooperative and a line of bank credit that provides the ability to borrow up to $60 million on an unsecured basis. At July 31, 2006, there were no borrowings outstanding under that credit line.

The 2006 Story Continues..