**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-Q**

 
| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|------------|--------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                             |
| ** ** | ** ** | **For the  quarterly period ended September 30, 2005**                                            |

 

**OR**

 
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                             |
| ** ** | ** ** | **For the  transition period  from                    to                    ** |

 

**Commission File Number:  333-114105**

 

**Merisant Company**

(Exact Name of Registrant as Specified in its Charter)

 
| **Delaware**                                                    | ** ** | **52-2218321**                           |
|-----------------------------------------------------------------|------------|------------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization) |       | (I.R.S. Employer  Identification Number) |
|                                                            |       |                                     |
| **10 South Riverside Plaza, Suite 850  Chicago, Illinois** |       | **60606**                                |
| (Address of Principal Executive Offices)                        |       | (Zip Code)                               |

 

Registrant’s telephone number, including areacode:  **(312) 840-6000**

 

Former name, former address and former fiscal year, ifchanged since last report:

**Not applicable.**

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes  o  No  ý

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  ý

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).Yes  o  No  ý

 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.

 

As of November 14, 2005, the registrant had 100shares of common stock, par value $0.01 per share, outstanding, all of whichwere owned by Merisant Worldwide, Inc.

 

 

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MERISANT COMPANY

 

INDEX TO REPORT

 

FOR THE QUARTER ENDED SEPTEMBER 30, 2005

 
| PART I - FINANCIAL INFORMATION |                                                                                                                                                          |
|-------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                |                                                                                                                                                          |   |
| Item 1.                             | Financial Statements of Merisant  Company                                                                                                                     |   |
|                                |                                                                                                                                                          |   |
|                                | Unaudited Consolidated  Balance Sheets at December 31, 2004 and September 30, 2005                                                                  |   |
|                                |                                                                                                                                                          |   |
|                                | Unaudited Consolidated  Statements of Operations and Comprehensive Income (Loss) for the Three Months  and Nine Months Ended September 30, 2004 and 2005 |   |
|                                |                                                                                                                                                          |   |
|                                | Unaudited Consolidated  Statements of Stockholder’s Deficit for the Nine Months Ended  September 30, 2005                                           |   |
|                                |                                                                                                                                                          |   |
|                                | Unaudited Consolidated Statements  of Cash Flows for the Nine Months Ended September 30, 2004 and 2005                                                   |   |
|                                |                                                                                                                                                          |   |
|                                | Notes to Unaudited  Consolidated Financial Statements                                                                                                         |   |
|                                |                                                                                                                                                          |   |
| Item 2.                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                   |   |
|                                |                                                                                                                                                          |   |
| Item 3.                             | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                   |   |
|                                |                                                                                                                                                          |   |
| Item 4.                             | Controls and  Procedures                                                                                                                                      |   |
|                                |                                                                                                                                                          |   |
| PART II - OTHER  INFORMATION   |                                                                                                                                                          |
|                                |                                                                                                                                                          |   |
| Item 1.                             | Legal Proceedings                                                                                                                                             |   |
|                                |                                                                                                                                                          |   |
| Item 5.                             | Other Information                                                                                                                                             |   |
|                                |                                                                                                                                                          |   |
| Item 6.                             | Exhibits                                                                                                                                                      |   |

 

2

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**PART I - FINANCIALINFORMATION**

 

Item1.  Financial Statements

 

**MERISANTCOMPANY AND SUBSIDIARIES**

**UnauditedConsolidated Balance Sheets**

**(DollarsIn Thousands, Except Per Share Amounts)**

 
| ** **                                                                                  | ** ** | **At December 31,  2004** | ** ** | **At September 30,  2005** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------|------------|---------------------------------|------------|
| ** **                                                                                  | ** ** | ** **                     | ** ** | ** **                      | ** ** |
| **ASSETS**                                                                                  |       |                           |       |                            |       |
| Current Assets:                                                                             |       |                           |       |                            |       |
| Cash and cash  equivalents                                                                  |       | $                              | 9,096      |                            | $          | 13,029 |   |
| Trade accounts  receivable, net of allowances of $4,326 and $3,808, respectively       |       | 81,654                         |       | 66,559                          |       |
| Other  receivables                                                                          |       | 13,324                         |       | 8,621                           |       |
| Inventories                                                                                 |       | 25,730                         |       | 34,669                          |       |
| Prepaid expenses  and other assets                                                          |       | 3,411                          |       | 2,553                           |       |
| Current portion  of note receivable from director                                           |       | 506                            |       | 970                             |       |
| Deferred income  taxes                                                                      |       | 111                            |       | 744                             |       |
| Total current  assets                                                                       |       | 133,832                        |       | 127,145                         |       |
| Property and equipment, net                                                                 |       | 35,332                         |       | 29,997                          |       |
| Trademarks, less accumulated amortization of  $106,378 and $123,035, respectively           |       | 235,641                        |       | 218,984                         |       |
| Goodwill                                                                                    |       | 107,209                        |       | 107,209                         |       |
| Deferred financing costs, less accumulated  amortization of $3,438 and $5,330, respectively |       | 14,580                         |       | 14,088                          |       |
| Non-current portion of note receivable from director                                        |       | 4,160                          |       | 3,363                           |       |
| Investment in equity affiliate                                                              |       | 769                            |       | 861                             |       |
| Other non-current assets                                                                    |       | 1,647                          |       | 1,737                           |       |
| Total assets                                                                                |       | $                              | 533,170    |                            | $          | 503,384 |   |
|                                                                                        |       |                           |       |                            |       |
| **LIABILITIES AND STOCKHOLDER’S DEFICIT**                                              |       |                           |       |                            |       |
| Current Liabilities:                                                                        |       |                           |       |                            |       |
| Accounts payable                                                                            |       | $                              | 29,956     |                            | $          | 22,001 |   |
| Income taxes  payable                                                                       |       | 2                              |       | 1,275                           |       |
| Accrued interest  expense                                                                   |       | 12,968                         |       | 7,923                           |       |
| Accrued trade  and consumer promotions                                                      |       | 19,360                         |       | 15,983                          |       |
| Accrued expenses  and other liabilities                                                     |       | 26,449                         |       | 24,968                          |       |
| Current  maturities of long-term obligations                                                |       | 10,206                         |       | 21,186                          |       |
| Total current  liabilities                                                                  |       | 98,941                         |       | 93,336                          |       |
| Long-term obligations                                                                       |       | 430,006                        |       | 418,487                         |       |
| Deferred income tax liabilities                                                             |       | 12,272                         |       | 14,479                          |       |
| Other liabilities                                                                           |       | 22,641                         |       | 14,879                          |       |
| Total  liabilities                                                                          |       | 563,860                        |       | 541,181                         |       |
| Commitments and contingencies (Note 7)                                                      |       |                           |       |                            |       |
| Stockholder’s Deficit:                                                                 |       |                           |       |                            |       |
| Common stock,  $0.01 par value, 100 shares authorized, issued and outstanding               |       | —                         |       | —                          |       |
| Due for purchase  of shares in Merisant Worldwide, Inc.                                |       | (767                           | )          | (767                            | )          |
| Retained deficit                                                                            |       | (25,975                        | )          | (30,961                         | )          |
| Accumulated  other comprehensive loss                                                       |       | (3,948                         | )          | (6,069                          | )          |
| Total  stockholder’s deficit                                                           |       | (30,690                        | )          | (37,797                         | )          |
| Total  liabilities and stockholder’s deficit                                           |       | $                              | 533,170    |                            | $          | 503,384 |   |

 

The accompanyingnotes are an integral part of these unaudited consolidated financialstatements.

 

3

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**MERISANTCOMPANY AND SUBSIDIARIES**

**UnauditedConsolidated Statements of Operations and**

**ComprehensiveIncome (Loss)**

**(DollarsIn Thousands)**

 
| ** **                             | ** ** | **Three Months  Ended  September 30,** | ** ** | **Nine Months  Ended  September 30,** | ** ** |
|----------------------------------------|------------|---------------------------------------------|------------|--------------------------------------------|------------|
| ** **                             | ** ** | **2004**                                    | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2005** | ** ** |
| Net sales                              |       | $                                           | 83,390     |                                       | $          | 75,072 |   | $ | 251,254 |   | $ | 230,136 |   |
| Cost of sales                          |       | 36,427                                      |       | 31,420                                     |       | 102,248 |   | 96,157 |   |
| Gross profit                           |       | 46,963                                      |       | 43,652                                     |       | 149,006 |   | 133,979 |   |
| Operating expenses:                    |       |                                        |       |                                       |       |   |   |   |   |
| Marketing and  selling expenses        |       | 20,385                                      |       | 17,113                                     |       | 68,190 |   | 57,987 |   |
| Administration  expenses               |       | 9,421                                       |       | 9,475                                      |       | 30,108 |   | 31,456 |   |
| Amortization of  intangible assets     |       | 5,554                                       |       | 5,554                                      |       | 16,673 |   | 16,662 |   |
| Transaction fees                       |       | 196                                         |       | —                                     |       | 196 |   | (107 | ) |
| Impairment and loss  on sale of assets |       | 328                                         |       | 340                                        |       | 3,710 |   | 340 |   |
| Restructuring  expenses                |       | 484                                         |       | 342                                        |       | 2,284 |   | 2,254 |   |
| Total operating  expenses              |       | 36,368                                      |       | 32,824                                     |       | 121,161 |   | 108,592 |   |
| Income from operations                 |       | 10,595                                      |       | 10,828                                     |       | 27,845 |   | 25,387 |   |
| Other expense (income):                |       |                                        |       |                                       |       |   |   |   |   |
| Interest income                        |       | (157                                        | )          | (137                                       | )          | (423 | ) | (607 | ) |
| Interest expense                       |       | 11,224                                      |       | 11,697                                     |       | 33,351 |   | 34,719 |   |
| Other income,  net                     |       | (698                                        | )          | (1,175                                     | )          | (7,493 | ) | (10,068 | ) |
| Total other  expense                   |       | 10,369                                      |       | 10,385                                     |       | 25,435 |   | 24,044 |   |
| Income before income taxes             |       | 226                                         |       | 443                                        |       | 2,410 |   | 1,343 |   |
| Provision for income taxes             |       | 2,280                                       |       | 1,376                                      |       | 4,367 |   | 5,306 |   |
| Net loss                               |       | $                                           | (2,054     | )                                          | $          | (933 | ) | $ | (1,957 | ) | $ | (3,963 | ) |
|                                   |       |                                        |       |                                       |       |   |   |   |   |
| Net loss from above                    |       | $                                           | (2,054     | )                                          | $          | (933 | ) | $ | (1,957 | ) | $ | (3,963 | ) |
| Other comprehensive income (loss)      |       | 291                                         |       | 1,051                                      |       | (258 | ) | (2,121 | ) |
| Total comprehensive income (loss)      |       | $                                           | (1,763     | )                                          | $          | 118 |   | $ | (2,215 | ) | $ | (6,084 | ) |

 

The accompanyingnotes are an integral part of these unaudited consolidated financialstatements.

 

4

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**MERISANTCOMPANY AND SUBSIDIARIES**

**UnauditedConsolidated Statements of Stockholder’s Deficit**

**(DollarsIn Thousands)**

 
| ** **                                                               | ** ** | **Common  Stock** | ** ** | **Due for Purchase  of Shares in  Merisant  Worldwide, Inc.** | ** ** | **Retained****Deficit** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total**  | ** ** |
|--------------------------------------------------------------------------|------------|-------------------|------------|--------------------------------------------------------------------|------------|-------------------------|------------|---------------------------------------------|------------|------------|------------|
| ** **                                                               | ** ** | ** **        | ** ** | ** **                                                         | ** ** | ** **              | ** ** | ** **                                  | ** ** | ** ** | ** ** |
| **Balance at December 31, 2004**                                    |       | $                 | —     |                                                               | $          | (767                    | )          | $                                           | (25,975    | )          | $          | (3,948 | ) | $ | (30,690 | ) |
| Foreign currency translation adjustment                                  |       | —            |       | —                                                             |       | —                  |       | (3,898                                      | )          | (3,898     | )          |
| Net change in  fair value of derivative instruments, net of income taxes |       | —            |       | —                                                             |       | —                  |       | 1,777                                       |       | 1,777      |       |
| Distribution to Merisant Worldwide, Inc.                            |       | —            |       | —                                                             |       | (1,023                  | )          | —                                      |       | (1,023     | )          |
| Net loss                                                                 |       | —            |       | —                                                             |       | (3,963                  | )          | —                                      |       | (3,963     | )          |
| **Balance at September 30, 2005**                                   |       | $                 | —     |                                                               | $          | (767                    | )          | $                                           | (30,961    | )          | $          | (6,069 | ) | $ | (37,797 | ) |

 

The accompanyingnotes are an integral part of these unaudited consolidated financialstatements.

 

5

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**MERISANTCOMPANY AND SUBSIDIARIES**

**UnauditedConsolidated Statements of Cash Flows**

**(DollarsIn Thousands)**

 
| ** **                                                                        | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                        | ** ** | **2004**                                  | ** ** | **2005** | ** ** |
| **Operating Activities**                                                          |       |                                      |       |   |   |
| Net loss                                                                          |       | $                                         | (1,957     | ) | $ | (3,963 | ) |
|                                                                              |       |                                      |       |   |   |
| Adjustments to  reconcile net loss to net cash provided by operating activities:  |       |                                      |       |   |   |
| Depreciation                                                                      |       | 7,279                                     |       | 7,984 |   |
| Loss on sale or  disposal of fixed assets                                         |       | 174                                       |       | 52 |   |
| Impairment loss  on sale of fixed assets                                          |       | 3,128                                     |       | 301 |   |
| Amortization of  intangible assets                                                |       | 16,673                                    |       | 16,662 |   |
| Amortization of  deferred financing costs                                         |       | 1,754                                     |       | 1,892 |   |
| Euro-denominated  loan foreign exchange gain                                      |       | (1,077                                    | )          | (5,228 | ) |
| Unrealized gain  on derivative instruments                                        |       | (6,339                                    | )          | (4,782 | ) |
| Equity in income  of affiliate                                                    |       | (38                                       | )          | (93 | ) |
| Deferred income  tax provision                                                    |       | 1,909                                     |       | 1,465 |   |
| Changes in  operating assets and liabilities:                                     |       |                                      |       |   |   |
| Trade accounts  receivable                                                        |       | 10,665                                    |       | 11,584 |   |
| Other  receivables                                                                |       | (1,986                                    | )          | 4,999 |   |
| Inventories                                                                       |       | (2,427                                    | )          | (10,517 | ) |
| Prepaid expenses  and other assets                                                |       | (727                                      | )          | 690 |   |
| Accounts payable                                                                  |       | (4,183                                    | )          | (7,866 | ) |
| Accrued expenses  and other                                                       |       | (3,791                                    | )          | (8,090 | ) |
| Net cash  provided by operating activities                                        |       | 19,057                                    |       | 5,090 |   |
| **Investing Activities**                                                          | ** ** | ** **                                | ** ** | ** ** | ** ** |
| Proceeds from  sale of property and equipment                                     |       | 1,652                                     |       | 96 |   |
| Purchases of  property and equipment                                              |       | (9,745                                    | )          | (3,116 | ) |
| Net cash used in  investing activities                                            |       | (8,093                                    | )          | (3,020 | ) |
| **Financing Activities**                                                          | ** ** | ** **                                | ** ** | ** ** | ** ** |
| Borrowings under  revolving credit facility                                       |       | —                                    |       | 12,000 |   |
| Principal  payments on long-term obligations, excluding revolving credit facility |       | (5,596                                    | )          | (7,321 | ) |
| Payment of  deferred financing costs                                              |       | (347                                      | )          | (1,399 | ) |
| Distribution to  shareholder                                                      |       | (500                                      | )          | (1,023 | ) |
| Net cash (used  in) provided by financing activities                              |       | (6,443                                    | )          | 2,257 |   |
|                                                                              |       |                                      |       |   |   |
| Effect of  exchange rate on cash and cash equivalents                             |       | (364                                      | )          | (394 | ) |
| Net increase in cash and cash equivalents                                         |       | 4,157                                     |       | 3,933 |   |
|                                                                              |       |                                      |       |   |   |
| Cash and cash equivalents at beginning of period                                  |       | 8,833                                     |       | 9,096 |   |
| Cash and cash equivalents at end of period                                        |       | $                                         | 12,990     |   | $ | 13,029 |   |
|                                                                              |       |                                      |       |   |   |
| Supplemental cash flow information                                                |       |                                      |       |   |   |   |   |
| Cash paid for  interest                                                           |       | $                                         | 34,833     |   | $ | 36,904 |   |

 

The accompanyingnotes are an integral part of these unaudited consolidated financialstatements.

 

6

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**MERISANTCOMPANY AND SUBSIDIARIES**

**Notes toUnaudited Consolidated Financial Statements**

**(DollarsIn Thousands)**

 

**1.****                       ****Principles of Consolidation**

** **

The accompanying interim consolidated financialstatements are unaudited.  In the opinionof management, all normal, recurring adjustments necessary for a fairpresentation of such financial statements have been included therein. Forinterim reporting purposes, certain marketing and advertising expenses arecharged to results of operations as a percentage of sales.  Interim results may not be indicative ofresults for a full year.

 

The consolidated financial statements and notes do notcontain certain information included in the annual consolidated financialstatements and notes of Merisant Company and subsidiaries (the “Company”). Theconsolidated balance sheet at December 31, 2004 was derived from theCompany’s audited consolidated financial statements, but does not include alldisclosures required by generally accepted accounting principles in the UnitedStates of America. These consolidated financial statements and footnotes shouldbe read in conjunction with the Company’s annual consolidated financialstatements.

 

The preparation ofconsolidated financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, disclosure ofcontingent assets and liabilities at the date of the consolidated financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

**2.****                       ****Segment Information**

 

The Company manufactures and markets primarily lowcalorie tabletop sweeteners globally. Therefore, the Company’s reportable segments are organized and managedprincipally by geographic region:  NorthAmerica; Europe/Africa/Middle East, referred to as EAME; Latin America; andAsia/Pacific.  The Company’s managementreviews Operating EBITDA to evaluate segment performance and allocateresources.  Operating EBTIDA consists ofsegment earnings before interest expense, income tax expense and depreciationand amortization as well as items such as expenses related to restructuringcharges, certain significant charges related to obsolete or slow-movinginventory or uncollectible receivables and indebtedness, and certain othernon-cash or excludable charges or losses. Other expense (income), net, as reported in the unaudited consolidatedfinancial statements, is included in Operating EBITDA of the respectivereportable segment, except for the portion of other expense (income), net thatrelates to the foreign currency remeasurement gains or losses associated withthe Company’s euro-denominated debt (see Note 5) and unrealized gains or losseson derivative instruments.  Corporateexpenses include corporate staff costs and related amounts.  Corporate expenses, interest and otherexpenses and the provision for income taxes are centrally managed and,accordingly, such items are not presented by segment since they are excludedfrom the measure of segment performance reviewed by management.  The Company’s assets, which are principallyin the United States and Europe, are also managed geographically.  A summary of the Company’s operations byreportable segment for the three months and nine months ended September 30,2004 and 2005, is as follows:

 

7

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**For theThree Months Ended September 30, 2004**

 
| ** **                                              | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
|                                                    |       |               |       |     |       |               |       |               |       |             |       |
| Net sales                                               |       | $                  | 36,656     |     | $          | 30,556             |       | $                  | 10,241     |             | $          | 5,939 |   | $ | 83,390 |   |
|                                                    |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                        |       | $                  | 12,029     |     | $          | 8,404              |       | $                  | 2,528      |             | $          | 1,379 |   | $ | 24,340 |   |
| Less (plus):                                            |       |               |       |     |       |               |       |               |       |             |       |
| Corporate expenses                                      |       |               |       |     |       |               |       |               |       | 4,605            |       |
| Restructuring expense                                   |       |               |       |     |       |               |       |               |       | 484              |       |
| Depreciation expense                                    |       |               |       |     |       |               |       |               |       | 2,397            |       |
| Loss on sale or disposal of fixed assets                |       |               |       |     |       |               |       |               |       | 31               |       |
| Amortization expense                                    |       |               |       |     |       |               |       |               |       | 5,554            |       |
| Currency loss on euro debt                              |       |               |       |     |       |               |       |               |       | 457              |       |
| Unrealized gain on derivative instruments               |       |               |       |     |       |               |       |               |       | (762             | )          |
| Transaction fees                                        |       |               |       |     |       |               |       |               |       | 196              |       |
| Other non-cash income                                   |       |               |       |     |       |               |       |               |       | 85               |       |
| Other income, net                                       |       |               |       |     |       |               |       |               |       | 698              |       |
| Income from operations                                  |       |               |       |     |       |               |       |               |       | 10,595           |       |
| Interest expense, net                                   |       |               |       |     |       |               |       |               |       | 11,067           |       |
| Other income, net                                       |       |               |       |     |       |               |       |               |       | (698             | )     |
|                                                    |       |               |       |     |       |               |       |               |       |             |       |
| Income before income taxes                              |       |               |       |     |       |               |       |               |       | $                | 226        |   |
|                                                    |       |               |       |     |       |               |       |               |       |             |       |
| **For the  Three Months Ended September 30, 2005** |
|                                                    |       |               |       |     |       |               |       |               |       |             |       |
| ** **                                              | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|                                                    |       |               |       |     |       |               |       |               |       |             |       |
| Net sales                                               |       | $                  | 29,482     |     | $          | 31,940             |       | $                  | 8,169      |             | $          | 5,481 |   | $ | 75,072 |   |
|                                                    |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                        |       | $                  | 11,741     |     | $          | 10,327             |       | $                  | 2,173      |             | $          | 1,000 |   | $ | 25,241 |   |
| Less (plus):                                            |       |               |       |     |       |               |       |               |       |             |       |
| Corporate expenses                                      |       |               |       |     |       |               |       |               |       | 5,497            |       |
| Restructuring expense                                   |       |               |       |     |       |               |       |               |       | 342              |       |
| Depreciation expense                                    |       |               |       |     |       |               |       |               |       | 2,736            |       |
| Impairment loss on sale of fixed assets                 |       |               |       |     |       |               |       |               |       | 301              |       |
| Loss on sale or disposal of fixed assets                |       |               |       |     |       |               |       |               |       | 22               |       |
| Amortization expense                                    |       |               |       |     |       |               |       |               |       | 5,554            |       |
| Currency gain on euro debt                              |       |               |       |     |       |               |       |               |       | (428             | )          |
| Unrealized gain on derivative instruments               |       |               |       |     |       |               |       |               |       | (800             | )          |
| Other non-cash income                                   |       |               |       |     |       |               |       |               |       | 14               |       |
| Other income, net                                       |       |               |       |     |       |               |       |               |       | 1,175            |       |
| Income from operations                                  |       |               |       |     |       |               |       |               |       | 10,828           |       |
| Interest expense, net                                   |       |               |       |     |       |               |       |               |       | 11,560           |       |
| Other income, net                                       |       |               |       |     |       |               |       |               |       | (1,175           | )     |
|                                                    |       |               |       |     |       |               |       |               |       |             |       |
| Income before income taxes                              |       |               |       |     |       |               |       |               |       | $                | 443        |   |

 

8

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**For theNine Months Ended September 30, 2004**

 
| ** **                                                      | ** ** | **North  America** | ** ** | **EAME**   | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|--------------------|------------|------------|------------|--------------------|------------|--------------------|------------|------------------|------------|
|                                                            |       |               |       |       |       |               |       |               |       |             |       |
| Net sales                                                       |       | $                  | 106,402    |       | $          | 98,268             |       | $                  | 29,130     |             | $          | 17,455 |   | $ | 251,254 |   |
|                                                            |       |               |       |       |       |               |       |               |       |             |       |
| Operating EBITDA                                                |       | $                  | 39,779     |       | $          | 25,106             |       | $                  | 6,897      |             | $          | 2,320 |   | $ | 74,102 |   |
| Less (plus):                                                    |       |               |       |       |       |               |       |               |       |             |       |
| Corporate expenses                                              |       |               |       |       |       |               |       |               |       | 16,350           |       |
| Restructuring expense                                           |       |               |       |       |       |               |       |               |       | 2,284            |       |
| Depreciation expense                                            |       |               |       |       |       |               |       |               |       | 7,279            |       |
| Impairment loss on sale of fixed assets                         |       |               |       |       |       |               |       |               |       | 3,128            |       |
| Loss on sale or disposal of fixed assets                        |       |               |       |       |       |               |       |               |       | 174              |       |
| Amortization expense                                            |       |               |       |       |       |               |       |               |       | 16,673           |       |
| Currency gain on euro debt                                      |       |               |       |       |       |               |       |               |       | (1,077           | )          |
| Unrealized gain on derivative instruments                       |       |               |       |       |       |               |       |               |       | (6,339           | )          |
| Transaction fees                                                |       |               |       |       |       |               |       |               |       | 196              |       |
| Other non-cash income                                           |       |               |       |       |       |               |       |               |       | 96               |       |
| Other income, net                                               |       |               |       |       |       |               |       |               |       | 7,493            |       |
| Income from operations                                          |       |               |       |       |       |               |       |               |       | 27,845           |       |
| Interest expense, net                                           |       |               |       |       |       |               |       |               |       | 32,928           |       |
| Other income, net                                               |       |               |       |       |       |               |       |               |       | (7,493           | )          |
|                                                            |       |               |       |       |       |               |       |               |       |             |       |
| Income before income taxes                                      |       |               |       |       |       |               |       |               |       | $                | 2,410      |   |
|                                                            |       |               |       |       |       |               |       |               |       |             |       |
| **For the  Nine Months Ended September 30, 2005**          |
| ** **                                                      | ** ** | ** **         | ** ** | ** ** | ** ** | ** **         | ** ** | ** **         | ** ** | ** **       | ** ** |
| ** **                                                      | ** ** | **North  America** | ** ** | **EAME**   | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|                                                            |       |               |       |       |       |               |       |               |       |             |       |
| Net sales                                                       |       | $                  | 87,020     |       | $          | 103,751            |       | $                  | 23,800     |             | $          | 15,565 |   | $ | 230,136 |   |
|                                                            |       |               |       |       |       |               |       |               |       |             |       |
| Operating EBITDA                                                |       | $                  | 30,536     |       | $          | 29,907             |       | $                  | 6,122      |             | $          | 4,003 |   | $ | 70,568 |   |
| Less (plus):                                                    |       |               |       |       |       |               |       |               |       |             |       |
| Corporate expenses                                              |       |               |       |       |       |               |       |               |       | 17,829           |       |
| Restructuring expense                                           |       |               |       |       |       |               |       |               |       | 2,254            |       |
| Depreciation expense                                            |       |               |       |       |       |               |       |               |       | 7,984            |       |
| Impairment loss on sale of fixed assets                         |       |               |       |       |       |               |       |               |       | 301              |       |
| Loss on sale or disposal of fixed assets                        |       |               |       |       |       |               |       |               |       | 52               |       |
| Amortization expense                                            |       |               |       |       |       |               |       |               |       | 16,662           |       |
| Currency gain on euro debt                                      |       |               |       |       |       |               |       |               |       | (5,228           | )          |
| Unrealized gain on derivative instruments                       |       |               |       |       |       |               |       |               |       | (4,783           | )          |
| Certain  allowances and reserves excluded from Operating EBITDA |       |               |       |       |       |               |       |               |       | 141              |       |
| Transaction fees                                                |       |               |       |       |       |               |       |               |       | (107             | )          |
| Other non-cash income                                           |       |               |       |       |       |               |       |               |       | 8                |       |
| Other income, net                                               |       |               |       |       |       |               |       |               |       | 10,068           |       |
| Income from operations                                          |       |               |       |       |       |               |       |               |       | 25,387           |       |
| Interest expense, net                                           |       |               |       |       |       |               |       |               |       | 34,112           |       |
| Other income, net                                               |       |               |       |       |       |               |       |               |       | (10,068          | )          |
|                                                            |       |               |       |       |       |               |       |               |       |             |       |
| Income before income taxes                                      |       |               |       |       |       |               |       |               |       | $                | 1,343      |   |

 

9

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**3.**                        RestructuringExpenses

** **

During the nine months ended September 30, 2005,the Company continued to initiate actions designed to improve both financialresults and the long-term value of the business.  Restructuring expenses for workforcereductions of $484 and $342 were recorded for the three months ended September 30,2004 and September 30, 2005, respectively, and $2,284 and $2,254 wererecorded for the nine months ended September 30, 2004 and September 30,2005, respectively.  The 2005 chargesprincipally relate to termination costs for employees, including chargesrelated to 26 additional personnel that were notified of their terminationduring the nine months ended September 30, 2005 and to continuingprovisions for previously notified employees being recorded over their stayperiods.  Payouts are scheduled to bemade over the next fourteen months.

 

A summary of the activity within the restructuringliability for the nine months ended September 30, 2005 is as follows:

 
| Restructuring liability at December 31, 2004                         |   | $      | 3,871  |   |
|---------------------------------------------------------------------------|--------|--------|--------|--------|
| Restructuring expenses for the nine months ended  September 30, 2005 |   | 2,254  |   |
| Cash payments for the nine months ended  September 30, 2005          |   | (3,449 | )      |
| Restructuring liability at September 30, 2005                        |   | $      | 2,676  |   |

 

Therestructuring liability at December 31, 2004 and September 30, 2005is included in Accrued expenses and other liabilities and long-term Otherliabilities in the accompanying unaudited consolidated balance sheets andincludes $1,529 due to one of the Company’s directors as of September 30,2005.

 

Thefollowing table represents restructuring expenses included in each segment andcorporate expenses for the three and nine months ended September 30, 2004and 2005:

 
| ** **    | ** ** | **Three Months Ended**       | ** ** | **Nine Months Ended**        | ** ** |
|---------------|------------|------------------------------|------------|------------------------------|------------|
| ** **    | ** ** | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** |
|          |       |                         |       |                         |       |   |   |   |   |
| North America |       | $                            | —     |                         | $          | — |   | $ | — |   | $ | 139 |   |
| EAME          |       | 215                          |       | 170                          |       | 1,753 |   | 1,236 |   |
| Latin America |       | 93                           |       | 184                          |       | 308 |   | 517 |   |
| Asia/Pacific  |       | —                       |       | —                       |       | — |   | 39 |   |
| Corporate     |       | 176                          |       | (12                          | )          | 223 |   | 323 |   |
| Total         |       | $                            | 484        |                         | $          | 342 |   | $ | 2,284 |   | $ | 2,254 |   |
|               |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |

** **

**4.**                        Inventories

** **

Inventories consisted of thefollowing:

 
| ** **                      | ** ** | **December 31,  2004** | ** ** | **September 30,  2005** | ** ** |
|---------------------------------|------------|-----------------------------|------------|------------------------------|------------|
|                            |       |                        |       |                         |       |
| Raw materials and supplies      |       | $                           | 7,157      |                         | $          | 12,274 |   |
| Work in process                 |       | 2,556                       |       | 3,188                        |       |
| Finished goods                  |       | 19,165                      |       | 22,032                       |       |
| Inventory obsolescence reserves |       | (3,148                      | )          | (2,825                       | )          |
| Total                           |       | $                           | 25,730     |                         | $          | 34,669 |   |

 

10

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**5.**                        Debt

** **

At September 30, 2005, borrowings included$36,653 (“Term A”) principal amount of a loan bearing interest at 5.38% perannum due in installments through January 2009 and $165,834 (“Term B”)principal amount of a loan bearing interest at 6.93% per annum due ininstallments through January 2010 under the Company’s senior creditfacility, and $225,000 aggregate principal amount of the Company’s seniorsubordinated notes due 2013 (the “Notes”) bearing interest at 10.75% perannum.  The Term A loan iseuro-denominated and is translated into U.S. dollars at the spot rate as of September 30,2005.  The stated rate of interest forthe Notes is 9.5% per annum.  Commencing July 5,2004, the interest rate increased 0.25% over the stated rate for the Notes dueto the Company’s failure to complete an exchange offer of the Notes for noteswith the same terms,  but that areregistered under the Securities Act of 1933 (“Exchange Notes”), as amended,prior to the agreed deadline, and commencing on each of October 5, 2004, January 5,2005, April 5, 2005 and July 5, 2005, the interest rate on the Notesincreased an additional 0.25% for a total increase of 1.25%.  The cumulative impact of the 1.25% additionalinterest was approximately $234 per month. As a result of the consummation of the exchange offer on October 5,2005, the interest rate returned to its stated rate of 9.5% per annum.   Total exchange offer related fees of $650are classified as deferred financing fees and will be amortized over theremaining life of the Exchange Notes.

 

At September 30, 2005, $23,000 of the Company’smaximum $35,000 borrowing capacity was available under the revolving loanfacility of the Company’s senior credit facility.

 

On March 11, 2005, the Company amended its seniorcredit facility.  Pursuant to thisamendment, the Company’s existing financial condition covenant ratios wererevised and an additional financial condition covenant ratio, the consolidatedsenior leverage ratio, was added.   Inaddition, charges related to obsolete or slow-moving inventory or uncollectiblereceivables or indebtedness, up to a maximum of $5,000 since September 30,2004, and transaction fees related to the execution of this amendment areexcludable from the Bank EBITDA calculation and the existing limit onrestructuring costs excludable from the Bank EBITDA calculation has beenincreased by $4,000.  Fees ofapproximately $900 were incurred in the first quarter of 2005 to execute thisamendment.  These fees are classified asdeferred financing fees and are being amortized over the remaining life of therelated debt.

 

The Company hasexperienced continued declines in its Bank EBITDA over the past few years.  Further declines could result in the breachof maintenance covenants under the Company’s senior credit facility, in whichevent, the Company’s bank lenders would be entitled to accelerate alloutstanding principal and due and unpaid interest under the senior creditfacility.  The Company is continuing toimplement its strategy to address these trends by reducing operating costs,improving the efficiency of its organization and accelerating new productdevelopment and product launches.  TheCompany has engaged Booz Allen Hamilton, Inc. to assist with this effort.

 

**6.**                        Transactionswith Related Parties

** **

The Company has deferred compensation payable to oneof its directors and a note receivable from the same director. The Companyrecorded $71 and $67 of interest income on the note receivable for the threemonths ended September 30, 2004 and September 30, 2005, respectively,and $213 and $201 of interest income on the note receivable for the nine monthsended September 30, 2004 and September 30, 2005, respectively, and anequal amount of interest expense related to the deferred compensation in therespective quarters.

 

The Company has enteredinto a sublease agreement with The Digital Home/Digital Office, LLC for itsvacated office space located in Clayton, Missouri for a term to expire on March 1,2006 at a rate of approximately $9 per month. At the end of the term of the sublease agreement, Digital Home/DigitalOffice, LLC will acquire the office furniture and equipment at no cost.  The Company currently leases this space for abase rent of $15 per month.  In the threeand nine months ended September 30, 2005, the Company recorded a $182charge associated with the impairment of the fixed assets at this location andfor the difference between

 

11

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its lease paymentobligation and the sublease rental payments. Digital Home/Digital Office, LLC is controlled by Arnold Donald, one ofthe Company’s directors.

 

The principal stockholderof the Company’s parent, Tabletop Holdings, LLC, is controlled by PegasusPartners II, L.P., which is, in turn, managed by Pegasus Capital Advisors, L.P.(“Pegasus Advisors”).  Employees ofPegasus Advisors have in the past and currently serve as members of the Company’sboard of directors and the senior management of Merisant Company regularlyconsults with Pegasus Advisors on strategic and other business issues.  Merisant Company and Pegasus Advisors haveformalized this advisory function by entering into an Advisory Agreement.  Pegasus Advisors will provide such financial,strategic and other advisory services to the senior management of the Companyand its subsidiaries as such managers may reasonably request, and the Companywill reimburse Pegasus Advisors and its affiliates for all reasonable costs andexpenses incurred in connection with the performance of such services, subjectto any contractual limitation on such payments between the Company and itslenders. The Company will not pay any other fees to Pegasus Advisors under theagreement and will indemnify and hold harmless Pegasus Advisors and relatedparties against losses and direct damages arising out of the AdvisoryAgreement.

 

**During the nine months ended September 30,2004 and September 30, 2005, the Company made distributions of $500 and$1,023, respectively, to its sole stockholder, Merisant Worldwide, Inc.**

** **

**7.**                        Commitmentsand Contingencies

** **

TheCompany is committed to a minimum purchase requirement at a fixed price foraspartame, its primary raw material ingredient, from The NutraSweet Companypursuant to a supply agreement that expires on December 31, 2005.

 

The Company has aninvestment in an affiliate located in the Philippines that is accounted forusing the equity method.  The affiliate,a 50/50 joint venture, distributes sugar substitute sweeteners for theinternational consumer food markets, primarily under the *Equal®* and *Nutrasweet®* brands. In addition to its investment in the joint venture, the Company iscommitted to a 50% share in any additional joint venture borrowings.  As of December 31, 2004 and September 30,2005, there were no additional joint venture borrowings.

 

The Company ordered inventory from third partyproducers in anticipation of a new product launch in the European markets.  The Company decided not to launch theproduct, but it remained committed to purchase the inventory that had alreadybeen produced by its vendors.  The totalvalue of the inventory produced was approximately $753.  The Company has taken title to approximately$634 of this inventory as of September 30, 2005 and has incurredobsolescence expense of $493 in the nine month period ended September 30,2005 for the portion of this inventory that is currently estimated to beunrecoverable.  In addition, the Companyis potentially required to compensate these vendors for their investment inequipment to produce the inventory.  Thetotal obligation for the equipment investment is estimated at approximately$348.  The Company has accrued for $258of the equipment obligation to a particular vendor as it has become probablethat this vendor will require the Company to purchase the equipment.  The Company has also incurred an impairmentcharge of $158 to properly reflect this equipment at its estimated fair marketvalue.

 

On May 6, 2004,Merisant Manufacturing Australia Pty. Ltd. was served with a complaint in theDistrict Court of Western Australia by an individual alleging that she sufferedadverse symptoms after consuming Travacalm brand of motion sickness preventiondrug manufactured in 2001 for a pharmaceutical client under a contractmanufacturing agreement.  Although theCompany sold its entire interest in Merisant Manufacturing Australia Pty. Ltd.in July 2004, pursuant to the sale agreement, the Company has retainedliability for this action.  The Companyhas filed an answer denying the plaintiff’s allegations.

 

In October, 2004, theCompany requested the National Advertising Division of the Council of BetterBusiness Bureaus, referred to as the NAD, to review advertising by McNeilNutritionals, LLC (“McNeil”) for its

 

12

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*Splenda®*brand tabletop sweetener. The Company believed such advertising to be false and misleading.  McNeil refused to participate in suchindustry self-regulating forum and filed a complaint in the United StatesDistrict Court for the District of Puerto Rico requesting the court to declareits advertising truthful and not misleading. Because of the filing by McNeil in Puerto Rico, the NAD elected not toreview the matter.  On November 26,2004, the Company filed a complaint against McNeil in the United StatesDistrict Court for the Eastern District of Pennsylvania alleging the sameissues as were addressed to the NAD.  On January 13,2005, McNeil voluntarily dismissed its action in Puerto Rico.  On March 23, 2005, McNeil filed a motionto amend its answer to the Company’s complaint in the Pennsylvania action.  McNeil sought to amend its answer to add acounterclaim against the Company alleging that the Company’s *Equal® Sugar Lite**Ô*packaging and advertising are misleading inthat, according to McNeil, on a volumetric basis, *Equal® Sugar Lite**Ô* does not deliver half the calories of a cupof sugar.  On April 18, 2005, thecourt granted McNeil’s motion to amend. The Company’s own investigation has confirmed that when measured byweight, in accordance with the formulation for *Equal®Sugar Lite**Ô,*measurements for *Equal® Sugar Lite**Ô* are correct under the FDA compliancestandards, which is generally a measurement by weight.  The Company further determined that certainmeasurements may be volumetrically inaccurate. The manufacturing and packaging process for *Equal® SugarLite**Ô*has been adjusted to ensure volumetric accuracy, while remaining accurate inaccordance with FDA compliance standards based on weight.  For the year ended December 31, 2004,gross profit was reduced by $3,208 to increase the allowances against accountsreceivable and establish inventory reserves associated with this issue.  For the nine month period ended September 30,2005, an adjustment to reduce the reserve by $188 has been recorded due tolower returns than originally anticipated.

 

Current and formermembers of management participate in Merisant Worldwide, Inc.’s 2000 StockAppreciation Rights Plan (the “2000 SAR Plan”). Stock appreciation rights (“SARs”) that are vested under this plan arenot exercisable by the owners thereof and payments are only made with respectto the SARs upon a sale of all of the common stock of the Company’s parent orother distribution event.   On September 19,2005, the board of directors of the Company’s parent approved the 2005 MerisantWorldwide, Inc. Share Appreciation Rights Plan (the “2005 SAR Plan”).  The 2005 SAR Plan is in addition to and willnot replace the 2000 SAR Plan.  The 2005SAR Plan is designed to provide incentives to senior management to increase theequity value of the Company’s parent.  Ingeneral, participants in the 2005 SAR Plan may receive three types of awards,each of which corresponds to a percentage of the aggregate net proceedsdistributed to the stockholders of the Company’s parent, participants in the2000 SAR Plan and participants in the 2005 SAR Plan upon a change in control(as defined under the 2005 SAR Plan). Participants in the 2005 SAR Plan will be entitled to receive awards ofshare units representing, in the aggregate, up to 8% of the first $100 millionof such net proceeds, up to 10% of the next $100 million of such net proceedsand up to 12% of such net proceeds in excess of $200 million.  The net proceeds will be increased by anydividends or other distributions made to the holders of common stock of theCompany’s parent prior to the change in control and reduced by an amount equalto 12% compounded annual return on any new equity investment in the Company’sparent.  The share units underlying the2005 SAR Plan will be determined on a fully diluted basis, taking into accountthe outstanding number of shares of common stock of the Company’s parent andshare units underlying the 2000 SAR Plan. New issuances of common stock of the Company’s parent will dilute theshare units underlying the 2005 SAR Plan. Upon a distribution under the Plan, participants will receive payoutsunder the 2005 SAR Plan in the same form as the consideration received by thestockholders of the Company’s parent.  Noawards under the 2005 SAR Plan have been granted to date, but the Company’sparent and the Company, have made commitments to make grants to certainindividuals.  The Company’s parent doesnot anticipate that it will be able to determine the aggregate value of theawards under either the 2000 SAR Plan or the 2005 SAR Plan because its equityis privately held and there is no public market for the underlying securities.

 

In addition to thematters described above, the Company is subject to various claims pending andpossible legal actions and other matters arising out of the conduct of theCompany’s business, including tax uncertainties arising from doing business invarious European jurisdictions.  TheCompany believes, based on

 

13

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current knowledge,recorded accruals, and consultation with counsel, that the outcome of suchclaims and actions will not have a material adverse effect on the Company’sconsolidated financial position or results of operations.

 

**8.**                        ConsolidatingGuarantor and Non-Guarantor Financial Information

** **

The following tables setforth the unaudited consolidating statements of operations for the three andnine months ended September 30, 2004 and September 30, 2005, theunaudited statements of cash flow for each of the nine month periods ended September 30,2004 and September 30, 2005 and the unaudited consolidating balance sheetsas of December 31, 2004 and September 30, 2005.  The following information is included hereinas a result of the guarantee of the Notes by certain of the Company’s whollyowned U.S. subsidiaries (“Guarantor Companies”).  None of the Company’s other subsidiariesguarantee the debt.  Each of theguarantees is joint and several and full and unconditional.

 

14

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**UnauditedConsolidating Statement of OperationsFor the Three Months Ended September 30, 2004**

 
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 37,386                       |       | $                               | 48,096     |             | $          | (2,092 | ) | $ | 83,390 |   |
| Cost of sales                                                              |       | —                |       | 18,905                   |       | 19,614                       |       | (2,092                          | )          | 36,427           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 18,481                   |       | 28,482                       |       | —                          |       | 46,963           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Operating expenses:                                                        |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Marketing and  selling expenses                                            |       | —                |       | 7,758                    |       | 12,627                       |       | —                          |       | 20,385           |       |
| Administration  expenses                                                   |       | 17                    |       | 5,022                    |       | 4,382                        |       | —                          |       | 9,421            |       |
| Amortization of  intangible assets                                         |       | 2,164                 |       | —                   |       | 3,390                        |       | —                          |       | 5,554            |       |
| Transaction fees                                                           |       | 196                   |       | —                   |       | —                       |       | —                          |       | 196              |       |
| Impairment and loss  on sale of assets                                     |       | —                |       | —                   |       | 328                          |       | —                          |       | 328              |       |
| Restructuring  expenses                                                    |       | —                |       | 191                      |       | 293                          |       | —                          |       | 484              |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total operating  expenses                                                  |       | 2,377                 |       | 12,971                   |       | 21,020                       |       | —                          |       | 36,368           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss) from operations                                              |       | (2,377                | )          | 5,510                    |       | 7,462                        |       | —                          |       | 10,595           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Other expense (income):                                                    |       |                  |       |                     |       |                         |       |                            |       |             |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Interest income                                                            |       | (2,742                | )          | (15                      | )          | (54                          | )          | 2,654                           |       | (157             | )          |
| Interest expense                                                           |       | 8,965                 |       | 4,189                    |       | 724                          |       | (2,654                          | )          | 11,224           |       |
| Other expense  (income), net                                               |       | (5,615                | )          | 5,274                    |       | (357                         | )          | —                          |       | (698             | )          |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total other expense  (income)                                              |       | 608                   |       | 9,448                    |       | 313                          |       | —                          |       | 10,369           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  before income taxes and equity in consolidated subsidiaries |       | (2,985                | )          | (3,938                   | )          | 7,149                        |       | —                          |       | 226              |       |
| Provision (benefit) for income taxes                                       |       | 711                   |       | 732                      |       | 837                          |       | —                          |       | 2,280            |       |
| Equity in consolidated subsidiaries                                        |       | 1,642                 |       | 6,312                    |       | —                       |       | (7,954                          | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (2,054     | )                        | $          | 1,642                        |       | $                               | 6,312      |             | $          | (7,954 | ) | $ | (2,054 | ) |

 

15

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**UnauditedConsolidating Statement of Operations**

**For theThree Months Ended September 30, 2005**

 
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 29,983                       |       | $                               | 46,410     |             | $          | (1,321 | ) | $ | 75,072 |   |
| Cost of sales                                                              |       | —                |       | 13,727                   |       | 19,014                       |       | (1,321                          | )          | 31,420           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 16,256                   |       | 27,396                       |       | —                          |       | 43,652           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Operating expenses:                                                        |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Marketing and  selling expenses                                            |       | —                |       | 5,407                    |       | 11,706                       |       | —                          |       | 17,113           |       |
| Administration  expenses                                                   |       | 7                     |       | 6,458                    |       | 3,010                        |       | —                          |       | 9,475            |       |
| Amortization of  intangible assets                                         |       | 2,164                 |       | —                   |       | 3,390                        |       | —                          |       | 5,554            |       |
| Transaction fees                                                           |       | —                |       | —                   |       | —                       |       | —                          |       | —           |       |
| Impairment and loss  on sale of assets                                     |       | —                |       | 182                      |       | 158                          |       | —                          |       | 340              |       |
| Restructuring  expenses                                                    |       | —                |       | (15                      | )          | 357                          |       | —                          |       | 342              |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total operating  expenses                                                  |       | 2,171                 |       | 12,032                   |       | 18,621                       |       | —                          |       | 32,824           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss) from operations                                              |       | (2,171                | )          | 4,224                    |       | 8,775                        |       | —                          |       | 10,828           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Other expense (income):                                                    |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Interest income                                                            |       | (3,678                | )          | (4                       | )          | (55                          | )          | 3,600                           |       | (137             | )          |
| Interest expense                                                           |       | 11,692                |       | 3,250                    |       | 355                          |       | (3,600                          | )          | 11,697           |       |
| Other expense  (income), net                                               |       | (5,576                | )          | 4,336                    |       | 65                           |       | —                          |       | (1,175           | )          |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total other  expense (income)                                              |       | 2,438                 |       | 7,582                    |       | 365                          |       | —                          |       | 10,385           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  before income taxes and equity in consolidated subsidiaries |       | (4,609                | )          | (3,358                   | )          | 8,410                        |       | —                          |       | 443              |       |
| Provision for income taxes                                                 |       | (2,070                | )          | 676                      |       | 2,770                        |       | —                          |       | 1,376            |       |
| Equity in consolidated subsidiaries                                        |       | 1,606                 |       | 5,640                    |       | —                       |       | (7,246                          | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (933       | )                        | $          | 1,606                        |       | $                               | 5,640      |             | $          | (7,246 | ) | $ | (933 | ) |

 

16

----

 

**UnauditedConsolidating Statement of Operations**

**For theNine Months Ended September 30, 2004**

 
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 109,419                      |       | $                               | 147,070    |             | $          | (5,235 | ) | $ | 251,254 |   |
| Cost of sales                                                              |       | —                |       | 46,851                   |       | 60,632                       |       | (5,235                          | )          | 102,248          |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 62,568                   |       | 86,438                       |       | —                          |       | 149,006          |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Operating expenses:                                                        |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Marketing and  selling expenses                                            |       | —                |       | 25,424                   |       | 42,766                       |       | —                          |       | 68,190           |       |
| Administration  expenses                                                   |       | 113                   |       | 17,792                   |       | 12,203                       |       | —                          |       | 30,108           |       |
| Amortization of  intangible assets                                         |       | 6,492                 |       | —                   |       | 10,181                       |       | —                          |       | 16,673           |       |
| Transaction fees                                                           |       | 196                   |       | —                   |       | —                       |       | —                          |       | 196              |       |
| Impairment and loss  on sale of assets                                     |       | —                |       | —                   |       | 3,710                        |       | —                          |       | 3,710            |       |
| Restructuring  expenses                                                    |       | —                |       | 223                      |       | 2,061                        |       | —                          |       | 2,284            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total operating  expenses                                                  |       | 6,801                 |       | 43,439                   |       | 70,921                       |       | —                          |       | 121,161          |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss) from operations                                              |       | (6,801                | )          | 19,129                   |       | 15,517                       |       | —                          |       | 27,845           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Other expense (income):                                                    |       |                  |       |                     |       |                         |       |                            |       |             |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Interest income                                                            |       | (7,816                | )          | (26                      | )          | (138                         | )          | 7,557                           |       | (423             | )          |
| Interest expense                                                           |       | 25,721                |       | 12,623                   |       | 2,564                        |       | (7,557                          | )          | 33,351           |       |
| Other expense  (income), net                                               |       | (22,883               | )          | 15,397                   |       | (7                           | )          | —                          |       | (7,493           | )          |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total other  expense (income)                                              |       | (4,978                | )          | 27,994                   |       | 2,419                        |       | —                          |       | 25,435           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  before income taxes and equity in consolidated subsidiaries |       | 1,823                 |       | (8,865                   | )          | 13,098                       |       | —                          |       | 2,410            |       |
| Provision (benefit) for income taxes                                       |       | (266                  | )          | 1,732                    |       | 2,901                        |       | —                          |       | 4,367            |       |
| Equity in consolidated subsidiaries                                        |       | (400                  | )          | 10,197                   |       | —                       |       | (9,797                          | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (1,957     | )                        | $          | (400                         | )          | $                               | 10,197     |             | $          | (9,797 | ) | $ | (1,957 | ) |

 

17

----

 

**UnauditedConsolidating Statement of OperationsFor the Nine Months Ended September 30, 2005**

 
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 88,580                       |       | $                               | 146,134    |             | $          | (4,578 | ) | $ | 230,136 |   |
| Cost of sales                                                              |       | —                |       | 41,640                   |       | 59,095                       |       | (4,578                          | )          | 96,157           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 46,940                   |       | 87,039                       |       | —                          |       | 133,979          |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Operating expenses:                                                        |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Marketing and  selling expenses                                            |       | —                |       | 18,623                   |       | 39,364                       |       | —                          |       | 57,987           |       |
| Administration  expenses                                                   |       | 97                    |       | 20,809                   |       | 10,550                       |       | —                          |       | 31,456           |       |
| Amortization of  intangible assets                                         |       | 6,492                 |       | —                   |       | 10,170                       |       | —                          |       | 16,662           |       |
| Transaction fees                                                           |       | (107                  | )          | —                   |       | —                       |       | —                          |       | (107             | )          |
| Impairment and loss  on sale of assets                                     |       | —                |       | 182                      |       | 158                          |       | —                          |       | 340              |       |
| Restructuring  expenses                                                    |       | —                |       | 354                      |       | 1,900                        |       | —                          |       | 2,254            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total operating  expenses                                                  |       | 6,482                 |       | 39,968                   |       | 62,142                       |       | —                          |       | 108,592          |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss) from operations                                              |       | (6,482                | )          | 6,972                    |       | 24,897                       |       | —                          |       | 25,387           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Other expense (income):                                                    |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Interest income                                                            |       | (10,336               | )          | (205                     | )          | (169                         | )          | 10,103                          |       | (607             | )          |
| Interest expense                                                           |       | 34,693                |       | 8,674                    |       | 1,455                        |       | (10,103                         | )          | 34,719           |       |
| Other expense  (income), net                                               |       | (23,027               | )          | 12,979                   |       | (20                          | )          | —                          |       | (10,068          | )          |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total other  expense (income)                                              |       | 1,330                 |       | 21,448                   |       | 1,266                        |       | —                          |       | 24,044           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  before income taxes and equity in consolidated subsidiaries |       | (7,812                | )          | (14,476                  | )          | 23,631                       |       | —                          |       | 1,343            |       |
| Provision for income taxes                                                 |       | (2,070                | )          | 3,098                    |       | 4,278                        |       | —                          |       | 5,306            |       |
| Equity in consolidated subsidiaries                                        |       | 1,779                 |       | 19,353                   |       | —                       |       | (21,132                         | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (3,963     | )                        | $          | 1,779                        |       | $                               | 19,353     |             | $          | (21,132 | ) | $ | (3,963 | ) |

 

18

----

 

**CondensedConsolidating Balance Sheetat December 31, 2004**

 
| ** **                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| **Assets**                                                 |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents                                 |       | $                     | 245        |                     | $          | —                       |       | $                               | 8,851      |             | $          | — |   | $ | 9,096 |   |
| Trade accounts  receivable, net of allowances              |       | —                |       | 21,938                   |       | 59,716                       |       | —                          |       | 81,654           |       |
| Other  receivables and intercompany receivables            |       | 77                    |       | 8,835                    |       | 11,664                       |       | (7,252                          | )          | 13,324           |       |
| Inventories                                                |       | —                |       | 10,909                   |       | 14,821                       |       | —                          |       | 25,730           |       |
| Other current  assets                                      |       | 597                   |       | 812                      |       | 2,619                        |       | —                          |       | 4,028            |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total current  assets                                      |       | 919                   |       | 42,494                   |       | 97,671                       |       | (7,252                          | )          | 133,832          |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Property and  equipment, net                               |       | —                |       | 26,157                   |       | 9,175                        |       | —                          |       | 35,332           |       |
| Trademarks, less  accumulated amortization                 |       | 88,368                |       | —                   |       | 147,273                      |       | —                          |       | 235,641          |       |
| Goodwill                                                   |       | —                |       | 107,209                  |       | —                       |       | —                          |       | 107,209          |       |
| Deferred  financing costs, less accumulated amortization   |       | 14,580                |       | —                   |       | —                       |       | —                          |       | 14,580           |       |
| Other non-current  assets                                  |       | 4,160                 |       | 494                      |       | 1,153                        |       | —                          |       | 5,807            |       |
| Investment in  subsidiary and intercompany debt            |       | 350,305               |       | 175,429                  |       | 769                          |       | (525,734                        | )          | 769              |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total assets                                               |       | $                     | 458,332    |                     | $          | 351,783                      |       | $                               | 256,041    |             | $          | (532,986 | ) | $ | 533,170 |   |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Liabilities**                                            |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Accounts payable  and intercompany payable                 |       | $                     | 3,054      |                     | $          | 17,313                       |       | $                               | 16,165     |             | $          | (6,576 | ) | $ | 29,956 |   |
| Income taxes  payable                                      |       | 2,564                 |       | (686                     | )          | (1,876                       | )          | —                          |       | 2                |       |
| Accrued expenses  and other liabilities                    |       | 12,548                |       | 17,366                   |       | 28,863                       |       | —                          |       | 58,777           |       |
| Current  maturities of long-term obligations               |       | 10,000                |       | 206                      |       | —                       |       | —                          |       | 10,206           |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total current  liabilities                                 |       | 28,166                |       | 34,199                   |       | 43,152                       |       | (6,576                          | )          | 98,941           |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Long-term  obligations and intercompany debt               |       | 429,873               |       | 181,360                  |       | —                       |       | (181,227                        | )          | 430,006          |       |
| Other liabilities                                          |       | 30,983                |       | 3,644                    |       | 286                          |       | —                          |       | 34,913           |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total  liabilities                                         |       | 489,022               |       | 219,203                  |       | 43,438                       |       | (187,803                        | )          | 563,860          |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Stockholder’s Equity (Deficit)**                    |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Stockholder’s  equity (deficit)                       |       | (30,690               | )          | 132,580                  |       | 212,603                      |       | (345,183                        | )          | (30,690          | )          |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total  liabilities and stockholder’s equity (deficit) |       | $                     | 458,332    |                     | $          | 351,783                      |       | $                               | 256,041    |             | $          | (532,986 | ) | $ | 533,170 |   |

 

19

----

 

**UnauditedCondensed Consolidating Balance Sheetat September 30, 2005**

 
| ** **                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| **Assets**                                                 |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents                                 |       | $                     | 44         |                     | $          | 2,204                        |       | $                               | 10,781     |             | $          | — |   | $ | 13,029 |   |
| Trade accounts  receivable, net of allowances              |       | —                |       | 16,009                   |       | 50,550                       |       | —                          |       | 66,559           |       |
| Other  receivables and intercompany receivables            |       | 300                   |       | 7,203                    |       | 8,106                        |       | (6,988                          | )          | 8,621            |       |
| Inventories                                                |       | —                |       | 20,763                   |       | 13,906                       |       | —                          |       | 34,669           |       |
| Other current  assets                                      |       | 1,010                 |       | 707                      |       | 2,550                        |       |                            |       | 4,267            |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total current  assets                                      |       | 1,354                 |       | 46,886                   |       | 85,893                       |       | (6,988                          | )          | 127,145          |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Property and  equipment, net                               |       | —                |       | 22,127                   |       | 7,870                        |       | —                          |       | 29,997           |       |
| Trademarks, less  accumulated amortization                 |       | 81,876                |       | —                   |       | 137,108                      |       | —                          |       | 218,984          |       |
| Goodwill                                                   |       | —                |       | 107,209                  |       | —                       |       | —                          |       | 107,209          |       |
| Deferred  financing costs, less accumulated amortization   |       | 14,088                |       | —                   |       | —                       |       | —                          |       | 14,088           |       |
| Other  non-current assets                                  |       | 3,363                 |       | 512                      |       | 1,225                        |       | —                          |       | 5,100            |       |
| Investment in  subsidiary and intercompany debt            |       | 338,217               |       | 192,661                  |       | 861                          |       | (530,878                        | )          | 861              |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total assets                                               |       | $                     | 438,898    |                     | $          | 369,395                      |       | $                               | 232,957    |             | $          | (537,866 | ) | $ | 503,384 |   |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Liabilities**                                            |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Accounts payable  and intercompany payable                 |       | $                     | 3,519      |                     | $          | 12,049                       |       | $                               | 12,523     |             | $          | (6,090 | ) | $ | 22,001 |   |
| Income taxes  payable                                      |       | —                |       | —                   |       | 1,275                        |       | —                          |       | 1,275            |       |
| Accrued expenses  and other liabilities                    |       | 9,719                 |       | 16,544                   |       | 22,611                       |       | —                          |       | 48,874           |       |
| Current  maturities of long-term obligations               |       | 21,023                |       | 163                      |       | —                       |       | —                          |       | 21,186           |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total current  liabilities                                 |       | 34,261                |       | 28,756                   |       | 36,409                       |       | (6,090                          | )          | 93,336           |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Long-term  obligations and intercompany debt               |       | 418,465               |       | 203,411                  |       | —                       |       | (203,389                        | )          | 418,487          |       |
| Other liabilities                                          |       | 23,969                |       | 4,990                    |       | 399                          |       | —                          |       | 29,358           |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total  liabilities                                         |       | 476,695               |       | 237,157                  |       | 36,808                       |       | (209,479                        | )          | 541,181          |       |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Stockholder’s Equity (Deficit)**                    |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Stockholder’s  equity (deficit)                       |       | (37,797               | )          | 132,238                  |       | 196,149                      |       | (328,387                        | )          | (37,797          | )          |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total liabilities  and stockholder’s equity (deficit) |       | $                     | 438,898    |                     | $          | 369,395                      |       | $                               | 232,957    |             | $          | (537,866 | ) | $ | 503,384 |   |

 

20

----

 

**UnauditedConsolidating Statement of Cash FlowsFor the Nine Months Ended September 30, 2004**

 
| ** **                                           | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                 |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Operating activities**                             |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash  provided by (used in) operating activities |       | $                     | (4,346     | )                        | $          | (8,490                       | )          | $                               | 41,690     |             | $          | (9,797 | ) | $ | 19,057 |   |
|                                                 |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Investing activities**                             |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Proceeds from  sale of fixed assets                  |       | —                |       | 154                      |       | 1,498                        |       | —                          |       | 1,652            |       |
| Purchases of  property and equipment                 |       | —                |       | (6,881                   | )          | (2,864                       | )          | —                          |       | (9,745           | )          |
|                                                 |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash used in  investing activities               |       | —                |       | (6,727                   | )          | (1,366                       | )          | —                          |       | (8,093           | )          |
|                                                 |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Financing activities**                             |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Principal  payments on long-term obligations         |       | (5,436                | )          | (160                     | )          | —                       |       | —                          |       | (5,596           | )          |
| Payment of  deferred financing costs                 |       | (347                  | )          | —                   |       | —                       |       | —                          |       | (347             | )          |
| Receivable/payable,  parent company                  |       | 10,590                |       | 15,377                   |       | (35,764                      | )          | 9,797                           |       | —           |       |
| Distribution to  shareholder                         |       | (500                  | )          | —                   |       | —                       |       | —                          |       | (500             | )          |
|                                                 |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash  provided by (used in) financing activities |       | 4,307                 |       | 15,217                   |       | (35,764                      | )          | 9,797                           |       | (6,443           | )          |
|                                                 |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Effect of  exchange rate on cash                     |       | —                |       | —                   |       | (364                         | )          | —                          |       | (364             | )          |
|                                                 |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net increase in  cash and cash equivalents           |       | (39                   | )          | —                   |       | 4,196                        |       | —                          |       | 4,157            |       |
|                                                 |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents at beginning of period    |       | 56                    |       | —                   |       | 8,777                        |       | —                          |       | 8,833            |       |
|                                                 |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents at end of period          |       | $                     | 17         |                     | $          | —                       |       | $                               | 12,973     |             | $          | — |   | $ | 12,990 |   |

 

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**UnauditedConsolidating Statement of Cash FlowsFor the Nine Months Ended September 30, 2005**

 
| ** **                                            | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                  |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Operating activities**                              |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash (used  in) provided by operating activities  |       | $                     | (14,357    | )                        | $          | (18,300                      | )          | $                               | 58,879     |             | $          | (21,132 | ) | $ | 5,090 |   |
|                                                  |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Investing activities**                              |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Proceeds from  sale of fixed assets                   |       | —                |       | —                   |       | 96                           |       | —                          |       | 96               |       |
| Purchases of  property and equipment                  |       | —                |       | (1,302                   | )          | (1,814                       | )          | —                          |       | (3,116           | )          |
|                                                  |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash used in  investing activities                |       | —                |       | (1,302                   | )          | (1,718                       | )          | —                          |       | (3,020           | )          |
|                                                  |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Financing activities**                              |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Borrowings under  long-term obligations               |       | 12,000                |       | —                   |       | —                       |       | —                          |       | 12,000           |       |
| Principal  payments on long-term obligations          |       | (7,166                | )          | (155                     | )          | —                       |       | —                          |       | (7,321           | )          |
| Payment of  deferred financing costs                  |       | (1,399                | )          | —                   |       | —                       |       | —                          |       | (1,399           | )          |
| Receivable/payable,  parent company                   |       | 11,744                |       | 21,961                   |       | (54,837                      | )          | 21,132                          |       | —           |       |
| Distribution to  shareholder                          |       | (1,023                | )          | —                   |       | —                       |       | —                          |       | (1,023           | )          |
|                                                  |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash  provided by (used in) financing activities  |       | 14,156                |       | 21,806                   |       | (54,837                      | )          | 21,132                          |       | 2,257            |       |
|                                                  |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Effect of  exchange rate on cash                      |       | —                |       | —                   |       | (394                         | )          | —                          |       | (394             | )          |
|                                                  |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net (decrease)  increase in cash and cash equivalents |       | (201                  | )          | 2,204                    |       | 1,930                        |       | —                          |       | 3,933            |       |
|                                                  |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents at beginning of period     |       | 245                   |       | —                   |       | 8,851                        |       | —                          |       | 9,096            |       |
|                                                  |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents at end of period           |       | $                     | 44         |                     | $          | 2,204                        |       | $                               | 10,781     |             | $          | — |   | $ | 13,029 |   |

 

**9.**                                      SubsequentEvents

** **

On October 24, 2005, Merisant Company 2, Sarl,the Company’s Swiss subsidiary, entered into a Share Purchase Agreement for thesale of all of its shares of Merisant South Africa (Proprietary) Ltd. with aSouth African distributor of consumer goods. The purchaser, through the newly acquired entity, will become theexclusive distributor of *Canderel®*and other edible fast moving consumer good products of the Company that aresold in the Republic of South Africa as well as certain neighboringcountries.  Merisant Company 2 and itsformer subsidiary will enter into a distribution agreement upon the closing ofthe sale transaction.  The saletransaction is scheduled to close in early December and is contingent onthe satisfaction or waiver of certain conditions, including the making of anyrequired filings with the South African Competition Commission.

 

22

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Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations

 

*Youshould read the following discussion together with our unaudited consolidatedfinancial statements and their accompanying notes included elsewhere in this document.  Our discussion of results by reportablesegment should be read in conjunction with Note 2 to our unauditedconsolidated financial statements included elsewhere in this document, whichillustrates the reconciliation of Operating EBITDA to income before**income taxes.  Unless otherwise indicated or unless thecontext requires otherwise, all references in this discussion to “our company,”“we,” “us,” “our” or similar references mean Merisant Company and itsconsolidated subsidiaries.*

 

**Overview**

 

We are a worldwide leaderin the marketing of primarily low calorie tabletop sweeteners, with anestimated 26% dollar share as of December 31, 2004 of a growing globalretail market, which we estimate at $1.4 billion.  We believe that we have the leading dollarmarket share as of December 31, 2004 in 11 of the top 20 countries for lowcalorie tabletop sweetener sales.  Ourbrands, including our premium-priced brands *Equal*® and *Canderel*®, are sold in over 85 countries and are among themost recognized low calorie tabletop sweetener products in the world, withbrand awareness estimated above 80% in each of their respective keymarkets.  The strength of our leadingbrands is evidenced by price premiums relative to most of our competitors.

 

Our company was formed byan investor group led by an affiliate of Pegasus Capital Advisors, L.P. in 2000to acquire certain assets of the tabletop sweetener business of Monsanto.  Monsanto entered the sweetener market in 1985through its acquisition of G.D. Searle & Co., which discoveredaspartame and founded the business over 20 years ago.

 

We sell through multiplechannels of distribution, including grocery and pharmacy retailers, foodservice distributors, mass merchandisers and club/warehouse retailers.  We use distributors and brokers to distributeour products throughout the world and sell our products directly to selectedcustomers in our largest markets.  In2004, $74.7 million, or 21% of our net sales, were made to Heinz U.S.A., whichwe refer to as Heinz, our primary distributor to the grocery and food servicecustomers in the United States.  Otherthan Heinz, no customer, including those serviced by Heinz, accounted forgreater than 10% of our total net sales in 2004.  We have contracts with Heinz for the retailgrocery and food service channels, both of which agreements are year-to-yearand are renegotiated at the end of each calendar year.  From time to time, we reevaluate our strategyto determine whether it is more advantageous to maintain a direct salesinfrastructure or to use distributors and brokers within certain markets.

 

Our reportable segmentsare organized and managed principally by geographic region:  North America, Europe/Africa/Middle East,which we refer to as EAME, Latin America and Asia/Pacific.  We review Operating EBITDA to evaluatesegment performance and allocate resources. Operating EBITDA consists of segment earnings before interest expense,income tax expense and depreciation and amortization as well as items such asexpenses related to restructuring charges, certain significant charges relatedto obsolete or slow-moving inventory or uncollectible receivables andindebtedness, and certain other non-cash or excludable charges or losses.  Other expense (income), net, as reported inour unaudited consolidated financial statements, is included in OperatingEBITDA of the respective reportable segment, except for the portion of otherexpense (income), net that relates to foreign currency remeasurement gains orlosses associated with the euro-denominated debt and unrealized gains or losseson derivative instruments.  Corporateexpenses include corporate staff costs and related amounts.  Corporate expenses, interest and otherexpenses and the provision for income taxes are centrally managed and,accordingly, such items are not presented by segment since they are excludedfrom the measure of segment performance utilized by management.  Our assets, which are principally in theUnited States and Europe, are also managed geographically.

 

**RecentTrends**

 

We continue to experienceincreased competition from McNeil Nutritionals LLC, a subsidiary of Johnson &Johnson, and our market share and net sales have declined in the United Statesas consumers have switched from *Equal*®to McNeil’s artificial sweetener product, *Splenda*®.  We anticipate that the declines that we haveexperienced in net sales will continue through 2006 unless we are able tostabilize our core premium *Equal*®brand

 

23

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in the United States.  We have successfullyaddressed *Splenda®’s* earlierattempts to enter the UK market, but we face some potential risk to Europeansales volumes unless we continue to effectively defend our premium *Canderel®* brand in Europe.  As a result of our declining net sales, we haveexperienced declines in our Bank EBITDA from $110.2 million in 2003 to $87.3million in 2004 and $57.8 million to $52.7 million for the nine months ended September 30,2004 and 2005, respectively.  Furtherdeclines in our Bank EBITDA could result in the breach of maintenance covenantsunder our senior credit facility, in which event, our bank lenders would beentitled to accelerate all outstanding principal and due and unpaid interestunder the senior credit facility.  For adescription of Bank EBITDA, a reconciliation of Bank EBITDA to cash flow fromoperating activities and a description of our maintenance covenants under oursenior credit facility see “—Liquidity and Capital Resources”.

 

We continue to implementour strategy to address these trends by reducing operating costs, improving theefficiency of our organization and accelerating new product development andproduct launches.  We have engaged BoozAllen Hamilton, Inc. to assist with this effort.

 

We believe that McNeil’s gains in the UnitedStates are due in large part to its significant advertising spending which, inturn, has spread false and misleading claims about its *Splenda®* product.  Merisant has filed a complaint in FederalCourt in the Eastern District of Pennsylvania against McNeil asserting causesof action for false and misleading advertising by McNeil in connection with its*Splenda®* product.  For more information, see Note 7 to ourunaudited consolidated financial statements found elsewhere in this document.

 

Periodically, claims are made regarding thesafety of aspartame consumption.  On July 14,2005, the European Ramazzini Foundation of Oncology and Environmental Sciencesannounced the preliminary results of a study that the institute claimsindicates a possible link between the daily consumption of aspartame by femalelaboratory rats and the development of lymphomas and leukemia.  A number of food safety regulatory agencies,including the European Food Safety Authority, have indicated that they willreview the study and its findings but have not suggested any change in consumer’sdiets relative to aspartame.

 

The announcement by theRamazzini Foundation has been reported consistently in the press and, inFrance, we observed a decline in consumer purchases in the low caloriesweetener category in general and of our products continuing through the end ofthe third quarter.  We have now confirmedthrough consumer research that the decline in the category and our products inFrance is directly linked to the publishing of this study.  At this point in time, we have no evidencethat this study has had a direct, significant impact in markets outside France.

 

We continue to believethat aspartame and our products that contain aspartame are safe for humanconsumption.   Aspartame is one of the mostthoroughly studied food ingredients. More than 200 toxicological and clinical studies during the past 30years have clearly confirmed the safety of aspartame.  Nevertheless we cannot assure you that theclaims made by the Ramazzini Foundation with respect to aspartame or thereporting of the study in the press will not have a negative impact on ourresults of operations in the future.

 

Our contract manufacturer in Australia may ceaseoperations in November 2005 due to insolvency.  This manufacturer currently produces all *Equal®* branded sachet products sold by ourcompany in Australia, New Zealand and other countries within the Asia/Pacificregion.  We are attempting to recover allraw materials and finished product located at the manufacturer’s facility, andwe believe that we have sufficient inventory on hand to meet almost all of ouranticipated customer demand through December. We plan to use another contract manufacturer or source these productsfrom our facilities in Manteno, Illinois or Zarate, Argentina.

 

24

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**Results of Operations**

 

Foreach of the periods described below, the information set forth under thecaption “Consolidated Results” represents an overview of our results ofoperations on a consolidated basis. Additional detail regarding our results of operations can be found underthe caption “—Segment Results”for each period described below.

 

***Three MonthsEnded September 30, 2004 Compared to Three Months Ended September 30,2005***

 

The following table setsforth certain of our financial data for the three month periods ended September 30,2004 and 2005 (totals may not foot due to rounding).

 
| ** **                             | ** ** | **Three  Months Ended  September 30,** | ** ** | **Three  Months Ended  September 30,** | ** ** |
|----------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                             | ** ** | **2004**                                    | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **2005** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **                             | ** ** | **(in  millions)**                          | ** ** | **as % of  Net Sales**                      | ** ** | **Dollars** | ** ** | **%** | ** ** |
|                                   |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Net sales                              |       | $                                           | 83.4       |                                        | $          | 75.1 |   | 100 | % | 100 | % | $ | (8.3 | ) | (10 | )% |
| Cost of sales                          |       | 36.4                                        |       | 31.4                                        |       | 44 | % | 42 | % | 5.0 |   | 14 | % |
| Gross profit                           |       | 47.0                                        |       | 43.7                                        |       | 56 | % | 58 | % | (3.3 | ) | (7 | )% |
|                                   |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Operating expenses:                    |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Marketing and  selling expenses        |       | 20.4                                        |       | 17.1                                        |       | 24 | % | 23 | % | 3.3 |   | 16 | % |
| Administration  expenses               |       | 8.8                                         |       | 9.1                                         |       | 11 | % | 12 | % | (0.2 | ) | (3 | )% |
| Research and  development expenses     |       | 0.6                                         |       | 0.4                                         |       | 1 | % | 1 | % | 0.2 |   | 32 | % |
| Amortization of  intangibles           |       | 5.6                                         |       | 5.6                                         |       | 7 | % | 7 | % | 0.0 |   | 0 | % |
| Transaction fees                       |       | 0.2                                         |       | —                                      |       | 0 | % | — |   | 0.2 |   | 100 | % |
| Impairment and loss  on sale of assets |       | 0.3                                         |       | 0.3                                         |       | 0 | % | 0 | % | (0.0 | ) | (4 | )% |
| Restructuring  expenses                |       | 0.5                                         |       | 0.3                                         |       | 1 | % | 0 | % | 0.1 |   | 29 | % |
| Total operating  expenses              |       | 36.4                                        |       | 32.8                                        |       | 44 | % | 44 | % | 3.5 |   | 10 | % |
|                                   |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Income from operations                 |       | 10.6                                        |       | 10.8                                        |       | 13 | % | 14 | % | 0.2 |   | 2 | % |
|                                   |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Other expenses (income):               |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Interest income                        |       | (0.2                                        | )          | (0.1                                        | )          | (0 | )% | (0 | )% | (0.0 | ) | (13 | )% |
| Interest expense                       |       | 11.2                                        |       | 11.7                                        |       | 13 | % | 16 | % | (0.5 | ) | (4 | )% |
| Other expense  (income), net           |       | (0.7                                        | )          | (1.2                                        | )          | (1 | )% | (2 | )% | 0.5 |   | 68 | % |
| Total other  expenses                  |       | 10.4                                        |       | 10.4                                        |       | 12 | % | 14 | % | (0.0 | ) | (0 | )% |
|                                   |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Income before income taxes             |       | 0.2                                         |       | 0.4                                         |       | 0 | % | 1 | % | 0.2 |   | 95 | % |
|                                   |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Provision for income taxes             |       | 2.3                                         |       | 1.4                                         |       | 3 | % | 2 | % | 0.9 |   | 40 | % |
| Net loss                               |       | $                                           | (2.1       | )                                           | $          | (0.9 | ) | (2 | )% | (1 | )% | $ | 1.1 |   | 54 | % |

 

**Consolidated Results**

 

*Net sales.*  The decrease in consolidated net sales wasprimarily attributable to lower sales in North America and, to a lesser extent,in Latin America and Asia/Pacific.  InNorth America, sales were lower mainly due to reduced sales volume in thegrocery and food service channels, unfavorable sales mix in the club channeldue to a shift to a new, but lower margin product configuration and highertrade marketing spend in the grocery and mass channels.  In Latin

 

25

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America, sales were lower across most of the region due to lowerdemand, as well as the expected reduction in sales in Colombia due to a shiftfrom a direct sales model to a distributor model.  In Asia/Pacific, sales declined primarily dueto the elimination of sales related to contract manufacturing as a result ofthe sale of our manufacturing facility in Fairfield, Australia in July 2004and the discontinuation of certain low margin product lines.  These unfavorable impacts were partiallyoffset by strengthening of currencies in the EAME region.

 

*Cost of sales.*  Cost of sales decreased mainly due to lowersales volume, as well as costs related to the launch of *Equal® Sugar Lite**Ô*and the transition to a new warehouse in theUnited States during the third quarter of 2004 that did not repeat in2005.  These decreases were partiallyoffset by currency translation and a volume-related penalty pursuant to a thirdparty manufacturing contract for the packaging of *Equal® Sugar Lite**Ô* recorded in the three months ended September 30,2005.  Overall, gross profit increasedfrom 56% for the three months ended September 30, 2004 to 58% for the sameperiod in 2005.

 

*Operating expenses.*  Marketing and selling expenses decreasedmainly due to lower advertising and promotions costs in North America and LatinAmerica, coupled with lower marketing and selling administrative expenses inEAME, Latin America and Asia/Pacific. These reductions were partially offset by increased advertising andpromotions costs in the EAME and Asia/Pacific regions.  Administration expenses increased slightly ashigher corporate expenses, mainly related to increased litigation costs, weresubstantially offset by the partial reversal of incentive accruals in the thirdquarter of 2005 that were recorded in the first six months of 2005 andrestructuring savings.  During the threemonths ended September 30, 2005, we continued our plan designed to improveboth financial results and the long-term value of our business.  As a result of these actions, we recordedrestructuring charges for workforce reductions of $0.3 million in the thirdquarter of 2005 as compared to $0.5 million in the third quarter of 2004.  The restructuring charges incurred in thethird quarter of 2005 relate to new employee termination costs mainly in theEAME and Latin America segments and are expected to be substantially paid bythe end of the year.  Additionalinformation regarding restructuring charges and the related liability can befound in Note 3 to the unaudited consolidated financial statements foundelsewhere in this document.

 

The impairment loss inthe third quarter of 2004 relates to the sale of our Fairfield, Australiamanufacturing facility.  In the thirdquarter of 2005, the impairment loss relates to the write down of equipmentthat we are obligated to purchase from third party vendors due to thecancellation of a product launch in the EAME region and the write down ofassets at our vacated Clayton, Missouri location that is currently beingsubleased, as well as the difference between our lease payment obligation andthe sublease rental income through the end of the lease.  Additional information regarding the chargesin the third quarter of 2005 can be found in Notes 6 and 7 to the unauditedconsolidated financial statements found elsewhere in this document.

 

*Interest.*  Net interest expense increased mainly due tohigher interest rates on our outstanding senior subordinated notes due 2013(the “Notes”) as we did not register exchange notes prior to the agreeddeadline.  As a result of theconsummation of the exchange offer on October 5, 2005, the interest rate returnedto its stated rate of 9.5% per annum.

 

*Otherincome/expense, net*. The favorable variance is primarily attributable to a $0.4 millioncurrency gain in the third quarter of 2005 on our euro-denominated debt issuedin July 2003 as compared to a $0.5 million currency loss in the thirdquarter of 2004.   This favorable impactis partially offset by balance sheet remeasurement losses.

 

*Taxes.*  For the three months ended September 30,2005, we recorded a $1.4 million tax expense on income before taxes of $0.4million.  The unusual relationship of ourtax provision to our pre-tax income in the three months ended September 30,2005 relates to a combination of factors including increased tax losscarryforwards generated for which we have not recorded a tax benefit andadditional tax expense recorded in the United States.  Our tax provision in the three months ended September 30,2004 was similarly unusual.  We havedecreased our total valuation allowance by $1.1 million in the third quarter of2005 to a total of $45.5 million, due to higher SubPart F income thanpreviously estimated.  With regard to thedeferred tax assets on the tax loss carryforwards, we determined that we havenot satisfied the “more likely than not” test in certain jurisdictions.  A promissory note from our Swiss subsidiaryis expected to be repaid as early as the fourth quarter of 2005.  The repayment of the principal of this noteis not subject to tax in the United States. However, once the note is repaid in full, any cash repatriation fromthis subsidiary could result in a higher United States federal taxliability.  As of September 30,2005, we had estimated net operating loss, or NOL, carryforwards for UnitedStates federal income tax purposes of approximately

 

26

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$86 million, which are available to offset future United States federaltaxable income.  The full repayment ofthe promissory note from our Swiss subsidiary in the foreseeable futureincreases the likelihood that some portion of our NOLs for United Statesfederal income tax purposes will be utilized. We will continue to assess the valuation allowances, and, to the extentwe determine that such allowances are no longer required, these deferred taxbenefits will be recognized in the future.

 

**Segment Results**

 

The following tablepresents net sales and Operating EBITDA expressed in millions of dollarsfor each of our reportable segments (totals may not foot due to rounding):

 
| ** **               | ** ** | **Net Sales**                              | ** ** | **Operating EBITDA (1)**            | ** ** |
|--------------------------|------------|--------------------------------------------|------------|-------------------------------------|------------|
| ** **               | ** ** | **Three Months Ended  September 30,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** | **Three Months Ended  September 30,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **               | ** ** | **2004**                                   | ** ** | **2005**                            | ** ** | **$** | ** ** | **%** | ** ** | **2004** | ** ** | **2005** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **               | ** ** | **(in millions)**                          | ** ** | ** **                          | ** ** | **(in millions)** | ** ** | ** ** | ** ** |
|                     |       |                                       |       |                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| North America            |       | $                                          | 36.7       |                                | $          | 29.5 |   | $ | (7.2 | ) | (20 | )% | $ | 12.0 |   | $ | 11.7 |   | $ | (0.3 | ) | (2 | )% |
| Operating EBITDA  Margin |       |                                       |       |                                |       |   |   |   |   | 33 | % | 40 | % | 7 | % |   |   |
| EAME                     |       | 30.6                                       |       | 31.9                                |       | 1.4 |   | 5 | % | 8.4 |   | 10.3 |   | 1.9 |   | 23 | % |
| Operating EBITDA  Margin |       |                                       |       |                                |       |   |   |   |   | 28 | % | 32 | % | 5 | % |   |   |
| Latin America            |       | 10.2                                       |       | 8.2                                 |       | (2.1 | ) | (20 | )% | 2.5 |   | 2.2 |   | (0.4 | ) | (14 | )% |
| Operating EBITDA  Margin |       |                                       |       |                                |       |   |   |   |   | 25 | % | 27 | % | 2 | % |   |   |
| Asia/Pacific             |       | 5.9                                        |       | 5.5                                 |       | (0.5 | ) | (8 | )% | 1.4 |   | 1.0 |   | (0.4 | ) | (28 | )% |
| Operating EBITDA  Margin |       |                                       |       |                                |       |   |   |   |   | 23 | % | 18 | % | (5 | )% |   |   |
|                          |            |                                            |            |                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)  “OperatingEBITDA” as used with respect to our operating segments is a measure upon whichmanagement assesses the financial performance of these segments.  Operating EBITDA excludes interest expense,income tax expense and depreciation and amortization, as well as items such asrestructuring expenses, certain significant charges related to obsolete orslow-moving inventory or uncollectible receivables and indebtedness, andcertain other non-cash or excludable charges or losses.  See Note 2 to the unaudited consolidatedfinancial statements for a description of Operating EBITDA and a reconciliationof Operating EBITDA to income before income taxes.  Operating EBITDA margin represents OperatingEBITDA as a percentage of net sales.

 

***NorthAmerica***

 

*Net sales.*  The decrease in net sales in our NorthAmerica segment as compared to the third quarter of 2004 was principallyattributable to reduced volumes in the grocery and food service channels due tolower consumer demand.  In addition,unfavorable sales mix in the club channel, higher trade marketing expenses inthe mass channel and lower sales in Canada negatively impacted sales in thethird quarter of 2005 as compared to the third quarter of 2004.  In the club channel, the unfavorable salesmix related to a shift to a new, but lower margin product configuration. Theseunfavorable impacts were only slightly offset by increased sales volume in theclub and drug channels.

 

*Operating EBITDA.*  Despite the significant reduction in sales,Operating EBITDA was down slightly.   Themargin impact of lower sales and a volume-related penalty pursuant to a thirdparty manufacturing contract for the packaging of *Equal® Sugar Lite**Ô* were offset by reductions in cost of goodssold and marketing and selling costs primarily due to launch costs related to *Equal® Sugar Lite**Ô*that were incurred in the third quarter of2004 and did not repeat in 2005, as well as the partial reversal of incentiveaccruals that were initially recorded in the first six months of 2005.  Operating EBITDA margin increased primarilydue to the increase in gross margin percentage and decrease in marketing andselling costs as a percentage of sales as a result of the favorable impactspreviously described.

 

***EAME***

 

*Net sales.*  The net sales increase in EAME resultedprimarily from the favorable impact of currency translation.  Sales volume growth in the UK and Portugalwas mostly offset by sales volume declines in a number of

 

27

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other parts of the region, mainly France, Italy, South Africa andHungary.  Sales in Portugal weresignificantly impacted by sales to a new distributor to establish appropriatestarting inventory levels.  Sales inFrance appear to have been negatively impacted by the media coverage of theRamazzini Foundation study discussed earlier.

 

*Operating EBITDA.*  Operating EBITDA increased mainly due tolower product costs and lower marketing, selling and general administrativecosts primarily due to restructuring savings, infrastructure improvements andthe partial reversal of incentive accruals that were initially recorded in thefirst six months of 2005.  Thesefavorable impacts were partially offset by increased brand support in Franceand at the regional level.  The increasein Operating EBITDA margin was primarily due to the improvement in gross marginpercentage and lower administrative costs as a percentage of sales previouslydescribed.

 

***LatinAmerica***

 

*Net sales.*  The decrease in Latin American sales wasattributable to lower sales volume across the entire region, with the exceptionof Argentina, due primarily to softer demand, increased competitive pressure,lower sales in Colombia due to a shift from a direct sales model to adistributor model and, in some countries, poor distributor performance.

 

*OperatingEBITDA.*  OperatingEBITDA decreased primarily due to the unfavorable margin impact of lower sales,which was partially offset by lower brand support in Puerto Rico, CentralAmerica, Mexico and Argentina and the partial reversal of incentive accrualsthat were initially recorded in the first six months of 2005.  Operating EBITDA margin increased due tolower marketing and selling costs as a percentage of sales.

 

***Asia/Pacific***

 

*Net sales.*  Net sales in the Asia/Pacific regiondecreased primarily due to the elimination of contract manufacturing sales as aresult of the sale of our manufacturing facility in July 2004 and thediscontinuation of certain low margin product lines in Australia/NewZealand.  These unfavorable impacts werepartially offset by favorable currency translation.

 

*Operating EBITDA.*  Operating EBITDA decreased due to higherfreight costs in the third quarter of 2005 relating to the new sourcing modelsubsequent to the sale of our local manufacturing facility in Fairfield,Australia, improved product costs in the third quarter of 2004 influenced byhigh volumes at our Fairfield facility and higher brand support inAustralia/New Zealand in the third quarter of 2005.  These unfavorable impacts were somewhatoffset by the partial reversal of incentive accruals that were initiallyrecorded in the first six months of 2005. Operating EBITDA margin decreased due to a lower gross margin percentageas the unfavorable items previously discussed more than offset the improvementin gross margin related to the elimination of low margin product lines.  Additionally, Operating EBITDA margin wasnegatively impacted by higher marketing and selling costs as a percentage ofsales, also related to the impacts previously discussed.

 

**Corporate Expenses**

 

Corporate expenses increased from $4.6 million in thethird quarter of 2004 to $5.5 million in the third quarter of 2005, primarilydue to higher litigation costs, which were partially offset by restructuringsavings and the partial reversal of incentive accruals that were initiallyrecorded in the first six months of 2005.

 

28

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***Nine MonthsEnded September 30, 2004 Compared to Nine Months Ended September 30,2005***

 

The following table setsforth certain of our financial data for the nine month periods ended September 30,2004 and 2005 (totals may not foot due to rounding).

 
| ** **                             | ** ** | **Nine Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| ** **                             | ** ** | **2004**                                  | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2005** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **                             | ** ** | **(in millions)**                         | ** ** | **as % of Net Sales**                     | ** ** | **Dollars** | ** ** | **%** | ** ** |
|                                   |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Net sales                              |       | $                                         | 251.3      |                                      | $          | 230.1 |   | 100 | % | 100 | % | $ | (21.1 | ) | (8 | )% |
| Cost of sales                          |       | 102.2                                     |       | 96.2                                      |       | 41 | % | 42 | % | 6.1 |   | 6 | % |
| Gross profit                           |       | 149.0                                     |       | 134.0                                     |       | 59 | % | 58 | % | (15.0 | ) | (10 | )% |
|                                   |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Operating expenses:                    |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Marketing and  selling expenses        |       | 68.2                                      |       | 58.0                                      |       | 27 | % | 25 | % | 10.2 |   | 15 | % |
| Administration  expenses               |       | 27.8                                      |       | 30.1                                      |       | 11 | % | 13 | % | (2.3 | ) | (8 | )% |
| Research and  development expenses     |       | 2.3                                       |       | 1.3                                       |       | 1 | % | 1 | % | 1.0 |   | 42 | % |
| Amortization of  intangibles           |       | 16.7                                      |       | 16.7                                      |       | 7 | % | 7 | % | 0.0 |   | 0 | % |
| Transaction fees                       |       | 0.2                                       |       | (0.1                                      | )          | 0 | % | (0 | )% | 0.3 |   | 155 | % |
| Impairment and loss  on sale of assets |       | 3.7                                       |       | 0.3                                       |       | 1 | % | 0 | % | 3.4 |   | 91 | % |
| Restructuring  expenses                |       | 2.3                                       |       | 2.3                                       |       | 1 | % | 1 | % | 0.0 |   | 1 | % |
| Total operating  expenses              |       | 121.2                                     |       | 108.6                                     |       | 48 | % | 47 | % | 12.6 |   | 10 | % |
|                                   |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Income from operations                 |       | 27.8                                      |       | 25.4                                      |       | 11 | % | 11 | % | (2.5 | ) | (9 | )% |
|                                   |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Other expenses (income):               |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Interest income                        |       | (0.4                                      | )          | (0.6                                      | )          | (0 | )% | (0 | )% | 0.2 |   | 43 | % |
| Interest expense                       |       | 33.4                                      |       | 34.7                                      |       | 13 | % | 15 | % | (1.4 | ) | (4 | )% |
| Other expense  (income), net           |       | (7.5                                      | )          | (10.1                                     | )          | (3 | )% | (4 | )% | 2.6 |   | 34 | % |
| Total other  expenses                  |       | 25.4                                      |       | 24.0                                      |       | 10 | % | 10 | % | 1.4 |   | 5 | % |
|                                   |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Income before income taxes             |       | 2.4                                       |       | 1.3                                       |       | 1 | % | 1 | % | (1.1 | ) | (44 | )% |
|                                   |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Provision for income taxes             |       | 4.4                                       |       | 5.3                                       |       | 2 | % | 2 | % | (0.9 | ) | (21 | )% |
| Net loss                               |       | $                                         | (2.0       | )                                         | $          | (4.0 | ) | (1 | )% | (2 | )% | $ | (2.0 | ) | (103 | )% |

 

**Consolidated Results**

 

*Net sales.*  The decrease in consolidated net sales wasprimarily attributable to lower sales in North America and, to a lesser extent,in Latin America and Asia/Pacific.  InNorth America, sales were lower mainly due to reduced volumes in the grocery,food service, club and mass channels.  Inaddition, unfavorable sales mix in the club channel due to a shift to a new,but lower margin product configuration and higher trade marketing expenses inthe grocery, mass and food service channels also contributed to the salesdecline.  In Latin America, sales werelower in most regions due mainly to lower volumes.  A shift from a direct sales model to adistributor model in Colombia resulted in lower revenues; however, the overallprofitability of Colombia improved.   InAsia/Pacific, sales declined due to the elimination of contract manufacturingsales as a result of the sale of our manufacturing facility located inFairfield, Australia in July 2004 and the discontinuance of certain lowmargin product lines.  These unfavorableimpacts were partially offset by improved sales in the EAME region, improvedsales volumes in Canada, contract manufacturing sales in the United States andthe impact of slotting expenses related to *Equal®Sugar Lite**Ô*in 2004 that did not repeat in 2005.  In the EAME region, stronger sales resulting from the strengthening ofcurrencies and improved sales in the UK, Portugal, South Africa, the MiddleEast and Belgium were partially offset by lower sales in other markets.   Sales in Portugal were significantlyimpacted by sales to a new distributor to establish appropriate startinginventory levels.

 

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*Cost of sales.*  Cost of sales decreased mainly due to lowersales volume in the 2005 period, as well as costs in the 2004 period related tothe launch of *Equal® Sugar Lite**Ô*and the transition to a new warehouse in theUnited States that did not repeat in 2005. These favorable impacts were partially offset by currency translationlosses, increased distribution costs, inventory adjustments, obsolescencereserves and a volume-related penalty pursuant to a third party manufacturingcontract for the packaging of *Equal® SugarLite**Ô*.  Overall, gross profit decreased from 59% forthe first nine months of 2004 to 58% for the same period in 2005.

 

*Operating expenses.*  Marketing and selling expenses decreasedmainly due to lower advertising and other marketing costs in all segments, someof which relates to timing of brand support, coupled with lower marketing andselling administrative expenses in EAME, Latin America and Asia/Pacific.  Administration expenses increased primarilydue to a charge of $1.2 million to increase the allowance against accountsreceivable relating to the announcement by Food Brokers LTD, a formerdistributor in the UK, that it was going into administration in February 2005.  This charge, in combination with theallowance established as of December 31, 2004 of $1.7 million, representsan allowance for the entire net receivable as of September 30, 2005.  In addition, higher corporate expenses,mainly related to increased litigation costs, were partially offset byrestructuring savings, lower incentive accruals and, in the EAME segment,reduced infrastructure costs and capital tax accruals.  During the nine months ended September 30,2005, we continued our plan designed to improve both financial results and thelong-term value of our business.  As aresult of these actions, we recorded restructuring charges for workforcereductions of $2.3 million in each of the nine month periods ended September 30,2005 and September 30, 2004.  Therestructuring charges incurred in the nine month period ended September 30,2005 related to additional personnel that were notified of their terminationduring this period and to continuing provisions for previously notifiedemployees being recorded over their stay periods.  Restructuring charges were incurred in allsegments and at the corporate headquarters, but primarily related to the EAMEregion where the majority of charges have already been paid.   Additional information regardingrestructuring charges and the related liability can be found in Note 3 to theunaudited consolidated financial statements found elsewhere in this document.

 

The impairment loss inthe nine months ended September 30, 2004 relates to the sale of ourFairfield, Australia manufacturing facility. In the nine months ended September 30, 2005, the impairment lossrelates to the write down of equipment that we are obligated to purchase fromthird party vendors due to the cancellation of a product launch in the EAMEregion and write down of assets at our vacated Clayton, Missouri location thatis currently being subleased, as well as the difference between our leasepayment obligation and the sublease rental income through the end of thelease.  Additional information regardingthe charges in the nine months ended September 30, 2005 can be found inNotes 6 and 7 to the unaudited consolidated financial statements foundelsewhere in this document.

 

*Interest.*  Net interest expense increased mainly due tohigher interest rates on the Notes, as we did not register exchange notes priorto the agreed deadline.  As a result ofthe consummation of the exchange offer on October 5, 2005, the interestrate returned to its stated rate of 9.5% per annum.

 

*Otherincome/expense, net*. The favorable variance is mainly attributable to a $5.2 million currencygain on our euro-denominated debt for the nine month period ended September 30,2005, as compared to a $1.1 million currency gain on this debt for the sameperiod in 2004, and the reversal of a $1.3 million currency loss related to thesettlement of an outstanding liability in the second quarter of 2005.  These favorable impacts were partially offsetby a $1.6 million lower unrealized gain on derivative instruments and theimpact of balance sheet remeasurement losses in the nine month period ended September 30,2005 as compared to the nine month period ended September 30, 2004.  The unrealized gain on derivative instrumentsis related to our interest rate swaps required by our senior credit facility,which we have marked to market through our statement of operations since ourdebt refinancing in July 2003.

 

*Taxes.*  For the nine months ended September 30,2005, we recorded a $5.3 million tax provision on income before income taxes of$1.3 million.  The unusual relationshipof our tax provision to our pre-tax income in the first nine months of 2005 relatesto increased tax loss carryforwards generated for which we have not recorded atax benefit. Our tax provision in the nine months ended September 30, 2004was similarly unusual.  For the ninemonths ended September 30, 2005, we increased our total valuationallowance by $8.7 million to $45.5****million.  With regard to the deferred tax assets on thetax loss carryforwards, we determined that we have not satisfied the “morelikely than not” test in certain jurisdictions. A promissory note from our Swiss subsidiary is expected to be repaid asearly as the fourth quarter of 2005.  Therepayment of the principal of this note is not subject to tax in the UnitedStates.

 

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However, once the note is repaid in full, any cash repatriation fromthis subsidiary could result in a higher United States federal taxliability.  As of September 30,2005, we had estimated net operating loss, or NOL, carryforwards for UnitedStates federal income tax purposes of approximately $86 million, which areavailable to offset future United States federal taxable income.  The full repayment of the promissory notefrom our Swiss subsidiary in the foreseeable future increases the likelihoodthat some portion of our NOLs for United States federal income tax purposeswill be utilized.  We will continue toassess the valuation allowances, and, to the extent we determine that suchallowances are no longer required, these deferred tax benefits will be recognizedin the future.

 

**Segment Results**

 

The following tablepresents net sales and Operating EBITDA expressed in millions of dollarsfor each of our reportable segments (totals may not foot due to rounding):

 
| ** **               | ** ** | **Net Sales**                             | ** ** | **Operating EBITDA (1)**            | ** ** |
|--------------------------|------------|-------------------------------------------|------------|-------------------------------------|------------|
| ** **               | ** ** | **Nine Months Ended  September 30,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** | **Nine Months Ended  September 30,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **               | ** ** | **2004**                                  | ** ** | **2005**                            | ** ** | **$** | ** ** | **%** | ** ** | **2004** | ** ** | **2005** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **               | ** ** | **(in millions)**                         | ** ** | ** **                          | ** ** | **(in millions)** | ** ** | ** ** | ** ** |
|                     |       |                                      |       |                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| North America            |       | $                                         | 106.4      |                                | $          | 87.0 |   | $ | (19.4 | ) | (18 | )% | $ | 39.8 |   | $ | 30.5 |   | $ | (9.2 | ) | (23 | )% |
| Operating EBITDA  Margin |       |                                      |       |                                |       |   |   |   |   | 37 | % | 35 | % | (2 | )% |   |   |
| EAME                     |       | 98.3                                      |       | 103.8                               |       | 5.5 |   | 6 | % | 25.1 |   | 29.9 |   | 4.8 |   | 19 | % |
| Operating EBITDA  Margin |       |                                      |       |                                |       |   |   |   |   | 26 | % | 29 | % | 3 | % |   |   |
| Latin America            |       | 29.1                                      |       | 23.8                                |       | (5.3 | ) | (18 | )% | 6.9 |   | 6.1 |   | (0.8 | ) | (11 | )% |
| Operating EBITDA  Margin |       |                                      |       |                                |       |   |   |   |   | 24 | % | 26 | % | 2 | % |   |   |
| Asia/Pacific             |       | 17.5                                      |       | 15.6                                |       | (1.9 | ) | (11 | )% | 2.3 |   | 4.0 |   | 1.7 |   | 73 | % |
| Operating EBITDA  Margin |       |                                      |       |                                |       |   |   |   |   | 13 | %  | 26 | % | 12 | % |   |   |
|                          |            |                                           |            |                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)  “OperatingEBITDA” as used with respect to our operating segments is a measure upon which managementassesses the financial performance of these segments.  Operating EBITDA excludes interest expense,income tax expense and depreciation and amortization, as well as items such asrestructuring expenses, certain significant charges related to obsolete orslow-moving inventory or uncollectible receivables and indebtedness, andcertain other non-cash or excludable charges or losses.  See Note 2 to the unaudited consolidatedfinancial statements for a description of Operating EBITDA and a reconciliationof Operating EBITDA to income before income taxes.  Operating EBITDA margin represents OperatingEBITDA as a percentage of net sales.

 

***NorthAmerica***

 

*Net sales.*  In North America, net sales were lower duemainly to reduced volumes in the grocery, food service, club and mass channelsprimarily attributable to lower consumer demand.  Additionally, unfavorable sales mix in theclub channel due to a shift to a new, but lower margin product configurationand higher trade marketing expenses in the grocery, mass and food servicechannels also contributed to the sales decline. These unfavorable impacts were partially offset by increased sales inCanada due to an adverse inventory adjustment in the first quarter of 2004 thatdid not occur in the first quarter of 2005, higher sales in the drug channeland increased 2005 sales related to contract manufacturing activities.

 

*Operating EBITDA.*  The decrease in Operating EBITDA wasprimarily related to the margin impact of lower sales volumes, shift in salesmix, inventory adjustments and a volume-related penalty pursuant to a thirdparty manufacturing contract for the packaging of *Equal® Sugar Lite**Ô*, partially offset by lower advertisingproduction and media expenses and reduced incentive accruals.  Operating EBITDA margin decreased dueprimarily to the unfavorable impacts previously described.

 

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***EAME***

 

*Net sales.*  The net sales increase in EAME resultedprimarily from the favorable impact of currency translation.  In addition, there was sales growth in theUK, Portugal, South Africa, the Middle East and Belgium, which was partiallyoffset by a sales decline in a number of other parts of the region, mainlyFrance, Italy, Switzerland and Hungary.  Sales in Portugal were significantly impacted by sales to a newdistributor to establish appropriate starting inventory levels.

 

*Operating EBITDA.*  Operating EBITDA increased mainly due to themargin impact of increased sales, favorable currency impacts, decreased brandsupport in the UK, France and the Middle East, reduced infrastructure costs, afavorable capital tax ruling in Switzerland resulting in the reduction ofcapital tax accruals and reduced incentive accruals.  These favorable items were offset by theimpact of the increase to the allowance against the Food Brokers, LTD accountsreceivable and balance sheet remeasurement losses.  The increase in Operating EBITDA margin wasprimarily due to an increase in gross margin percentage and lower marketing,selling and administrative costs as a percentage of sales.

 

***LatinAmerica***

 

*Net sales.*  The decrease in Latin American sales wasattributable to lower sales across the entire region due primarily to softerdemand, increased competitive pressure and, in some countries, poor distributorperformance.  A shift from a direct salesmodel to a distributor model in Colombia resulted in lower revenues; however,the overall profitability of our operations in Colombia improved.

 

*OperatingEBITDA.*  OperatingEBITDA decreased due mainly to the unfavorable margin impact of lowersales.  This impact was significantlyoffset by the reversal of a $1.3 million currency loss related to thesettlement of an outstanding liability, reduced incentive accruals and improvedinfrastructure costs, a portion of which related to the change in our businessmodel in Colombia.  Operating EBITDAmargin increased due to the reversal of the currency loss, partially offset bylower gross margin percentage and higher marketing expenses as a percentage ofsales.

 

***Asia/Pacific***

 

*Net sales.*  Net sales in the Asia/Pacific regiondecreased due to the elimination of contract manufacturing sales as a result ofthe sale of our manufacturing facility located in Fairfield, Australia in July 2004and the discontinuation of certain low margin product lines in Australia/NewZealand.  These impacts were partiallyoffset by favorable currency impacts and increased sales in certain Asianmarkets.

 

*Operating EBITDA.*  Operating EBITDA increased despite thereduction in sales primarily due to significant positive sales mix related tolower sales of negative or low margin products, reduced incentive accruals andlower brand support and marketing and selling administrative costs inAustralia/New Zealand.  Operating EBITDAmargin increased significantly due to improved gross margin percentageresulting from the reduction in negative and lower margin sales, lower productcosts and improved operating costs as a percentage of sales due to reductionsin brand support and selling and marketing administrative costs inAustralia/New Zealand.

 

**Corporate Expenses**

 

Corporate expenses increased from $16.3 million in thefirst nine months of 2004 to $17.8 million in the first nine months of 2005,primarily due to higher litigation, human resources and consulting costs, whichwere partially offset by savings related to restructuring activities andreduced incentive accruals.

 

**Liquidity and Capital Resources**

 

Our liquidity needs areprimarily met through internally generated cash flow.  From time to time, we also borrow money underour revolving line of credit under our senior credit facility.  Our primary uses of cash are cost of sales,operating expenses, debt service, capital expenditures and distributions to ourshareholder.

 

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Accounts receivablelevels, time to payment and inventory levels impact the amount of internallygenerated cash flow.  The following tableshows information with respect to our accounts receivable and inventory as of December 31,2004 and September 30, 2005. Accounts receivable decreased in the nine months ended September 30,2005 primarily due to significantly lower sales in the third quarter of 2005 ascompared to the fourth quarter of 2004. The increase in inventory was the result of significant aspartamepurchases in the first quarter that are being consumed throughout 2005 and aportion of 2006.

 
| ** **                        | ** ** | **December 31,  2004** | ** ** | **September 30,  2005** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|------------------------------|------------|
|                              |       |                        |       |                         |       |
| Accounts receivable (in millions) |       | $                           | 81.7       |                         | $          | 66.6 |   |
| Days sales outstanding            |       | 85                          |       | 73                           |       |
| Inventory (in millions)           |       | $                           | 25.7       |                         | $          | 34.7 |   |
| Days sales in inventory           |       | 64                          |       | 90                           |       |

 

***Nine Months Ended September 30, 2004 Compared to Nine Months EndedSeptember 30, 2005***

 

For the nine months endedSeptember 30, 2005, net cash provided by operating activities was $5.1million, whereas in the nine months ended September 30, 2004, net cashprovided by operating activities was $19.1 million.  Operating cash flows decreased $14.0 millionversus the nine months ended September 30, 2004, primarily due to reduced netincome after adjusting for non-cash items and a decrease in the contributionfrom working capital of $6.7 million. The contribution from working capital decreased mainly due to changes inaccounts payable and an increase in aspartame inventories that will continue tobe consumed throughout the rest of 2005 and a portion of 2006.

 

Net cash used ininvesting activities totaled $3.0 million for the nine months ended September 30,2005, compared to $8.1 million for the nine months ended September 30,2004.  Capital expenditures in the ninemonths ended September 30, 2005 were significantly lower than in the ninemonths ended September 30, 2004, primarily due to equipment upgrades atour Manteno and Zarate facilities, spending at our former facility in Fairfield,Australia and business system enhancements in the nine months ended September 30,2004 that did not repeat in the comparable period in 2005.

 

For the nine months endedSeptember 30, 2005, financing activities provided $2.3 million in cash, an$8.7 million increase as compared to the nine months ended September 30,2004, when cash used in financing activities totaled $6.4 million.  As of September 30, 2005, cash wasprovided from borrowings of $12.0 million under our revolving loan facility, ascompared to no borrowings under our revolving loan facility as of September 30,2004.  For the nine months ended September 30,2005, we used cash mainly to pay our scheduled principal payments of $7.3million under our senior credit facility, representing an increase of $1.7million over scheduled principal payments for the nine months ended September 30,2004, and to pay approximately $0.9 million in fees to execute an amendment toour senior credit facility in the first quarter of 2005.  In addition, distributions of $1.0 millionand $0.5 million were issued to our stockholder in the first nine months of2005 and the first nine months of 2004, respectively, for the purpose of payingexpenses, mainly financing fees, relating entirely to our sole stockholder.

 

***CapitalExpenditures***

 

Capital expenditures in2005 are expected to be in the range of $4.0 million to$6.0 million.  We believe thatinternally generated cash flow, together with borrowings available under oursenior credit facility, will be sufficient to fund our operations over the next12 months.

 

***Financing***

 

On July 11, 2003, weissued $225.0 million principal amount of our Notes and refinanced our creditfacility with a new senior credit facility. A portion of the proceeds of the Notes and the new senior creditfacility were used to pay a dividend. Our senior credit facility provides for aggregate commitments of up to$310.0 million, consisting of a

 

33

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revolving loan facility of $35.0 million, of which a portion isavailable at our option in euro or dollars or in the form of letters of creditdenominated in dollars or euro, as well as term loan facilities of $275.0million, consisting of a Euro Term Loan A of $50.0 million, and a Term Loan Bof $225.0 million, denominated in dollars. The senior credit facility is guaranteed by our sole stockholder andeach of our domestic subsidiaries.  Thesenior credit facility and the guarantees of the guarantors are secured by afirst-priority security interest in substantially all of our assets and theassets of the guarantors.

 

Commencing July 5, 2004, theinterest rate on the Notes increased 0.25% over the stated rate as we did notregister exchange notes prior to the agreed deadline, and commencing on each ofOctober 5, 2004, January 5, 2005, April 5, 2005 and July 5,2005, the interest rate on the Notes increased an additional 0.25% for a totalincrease of 1.25%.  The cumulative impactof the 1.25% additional interest was approximately $0.2 million per month.  As a result of the consummation of theexchange offer on October 5, 2005, the interest rate returned to itsstated rate of 9.5% per annum.  Totalexchange offer related fees of $0.7 million are classified as deferredfinancing fees and will be amortized over the remaining life of the Notes.

 

As part of our refinancing in 2003, we incurredsignificant financing costs that are being amortized in accordance with theterms of the respective debt instruments. As of September 30, 2005, our deferred financing cost balancerelated to the refinancing of our senior credit facility and the issuance ofthe Notes in July 2003 and the execution of any subsequent amendments tothe credit facility was approximately $13.4 million.

 

Borrowings under oursenior credit facility bear interest, at our option, at either adjusted LIBORor, in the case of dollar-denominated loans, at the alternate base rate plus,in each case, a spread.   Outstandingletters of credit under the revolving loan facility will be subject to a perannum fee equal to the applicable spread over adjusted LIBOR for revolvingloans.  The Euro Term Loan A and therevolving loan facility have a maturity of five and one-half years while theTerm Loan B has a maturity of six and one-half years.

 

The indenture governing theNotes and the senior credit facility contain covenants that limit, among otherthings, our ability to:

 

•                  paydividends,

 

•                  incuradditional debt,

 

•                  createliens,

 

•                  engagein transactions with affiliates, or

 

•                  sellor purchase property and equipment and take certain other actions with respectto the business.

 

In addition, the seniorcredit facility contains covenants that require us to maintain a specifiedmaximum leverage ratio and senior debt ratio and a minimum fixed charge ratioand interest coverage ratio.  Theseratios are measured on the basis of Bank EBITDA for the four fiscal quartersending at least 45 days prior to the payment date. Bank EBITDA as originallydefined in the senior credit facility excludes interest expense, income taxexpense and depreciation and amortization, as well as items such as expensesrelated to restructuring expenses and other non-cash items. On October 20,2004, we entered into an amendment to the senior credit facility.  Pursuant to the amendment, fees related to ourparent’s withdrawn offering of income deposit securities of up to a maximum of$4.5 million are excludable from our Bank EBITDA calculation and we are allowedto pay dividends to our parent in an aggregate amount not to exceed $4.5million for the payment of such fees and expenses.  In addition, the existing limit onrestructuring costs excludable from our Bank EBITDA calculation was increasedby $2.0 million.  On March 11, 2005,we again amended our senior credit facility. Pursuant to this amendment, our existing financial condition covenantratios were revised and an additional financial condition covenant ratio,consolidated senior leverage ratio, was added.  In addition, charges related to obsolete or slow-moving inventory oruncollectible receivables or indebtedness, up to a maximum of $5.0 millionsince September 30, 2004, and transaction fees related to the execution ofthis amendment are excludable from our Bank EBITDA calculation and the existinglimit on restructuring costs excludable from our Bank EBITDA calculation hasbeen increased by $4.0 million.  Fees ofapproximately $0.9 million were incurred in the first quarter of 2005 toexecute this amendment.  These fees areclassified as deferred financing fees and are being amortized

 

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over the remaining life of the related debt.  Bank EBITDA is presented because we believethat it is a useful supplement to cash flow from operating activities inunderstanding cash flows generated from operations that are available for tax,debt service and capital expenditures and because it is the measure upon whichthe covenants contained in our senior credit facility are measured. However,Bank EBITDA is not a measure of liquidity under GAAP. Accordingly, while providinguseful information with respect to an assessment of our liquidity as impactedby the covenants in our primary debt obligations, this measure should not beconsidered in isolation from, or as a substitute for, consolidated statement ofcash flow data prepared in accordance with GAAP as an indication of ourliquidity. In addition, the Bank EBITDA measure presented may differ from, andmay not be comparable to, similarly titled measures used by othercompanies.  Bank EBITDA for the ninemonths ended September 30, 2005 was $52.7 million.  We were in compliance with our obligationsunder the senior credit facility, as amended, at September 30, 2005.

 

The following tableillustrates the reconciliation of Bank EBITDA to cash flow from operatingactivities, which management believes is the most nearly equivalent GAAPmeasure:

 
| ** **                                                        | ** ** | **Nine Months  Ended  September 30,  2005** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                        | ** ** | **(in millions)**                                | ** ** |
| Net cash provided by operating activities                         |       | $                                                | 5.1        |   |
| Provision for income taxes, net of deferred income  tax provision |       | 3.8                                              |       |
| Interest expense, net of non-cash interest expense                |       | 32.2                                             |       |
| Cash costs of refinancing                                         |       | (0.1                                             | )          |
| Restructuring expenses (a)                                        |       | 2.3                                              |       |
| Other items (b)                                                   |       | 0.1                                              |       |
| Equity in (income) loss of affiliates                             |       | 0.1                                              |       |
| Net change in operating assets and liabilities                    |       | 9.2                                              |       |
| Bank EBITDA                                                       |       | $                                                | 52.7       |   |

 

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(a)                                  Thecharges principally relate to planned employee termination costs that have beenannounced in the period. The restructuring liability as of the end of eachperiod is included in accrued expenses and other liabilities in ourconsolidated balance sheets.

 

(b)                                 Other itemsconsist mainly of certain non-cash expenses (income) that are not included inour definition of Bank EBITDA.

 

We have experiencedsignificant declines in our Bank EBITDA from $110.2 million in 2003 to $87.3 millionin 2004 and $57.8 million to $52.7 million for the nine months ended September 30,2004 and 2005, respectively.  Furtherdeclines in our Bank EBITDA could result in the breach of maintenance covenantsunder our senior credit facility, in which event, our bank lenders would beentitled to accelerate all outstanding principal and due and unpaid interestunder the senior credit facility.  Wecontinue with our strategy to address these trends by reducing operating costs,improving the efficiency of our organization and accelerating new productdevelopment and product launches.  Wehave engaged Booz Allen Hamilton, Inc. to assist with this effort.

 

Including the impact ofour open interest rate protection agreements described under “Quantitative andQualitative Disclosure About Market Risk - Foreign Currency and Interest RateRisks”, the effective cash interest rate on all borrowings under the seniorcredit facility was approximately 8% as of September 30, 2005.

 

Our ability to makescheduled payments of principal of, or to pay the interest on, or to refinanceour indebtedness, including the senior subordinated notes and our senior creditfacility, or to fund planned capital expenditures will depend on our ability togenerate cash in the future.  This ability,to a certain extent, is subject to general economic, financial, competitive,legislative, regulatory, and other factors beyond our control.

 

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**Risks Related to Our Business**

 

***Changesin consumer preferences could decrease our revenues and cash flow***.

 

We are subject to therisks of evolving consumer preferences and nutritional and health-relatedconcerns.  Substantially all of ourrevenues are derived from the sale of low calorie tabletop sweeteners in whichaspartame is the primary ingredient.  Tothe extent that consumer preferences evolve away from low calorie tabletopsweeteners, and aspartame-based low calorie tabletop sweeteners in particular,there will be a decreased demand for our products.  Consumer perception that there are lowcalorie tabletop sweetener alternatives that are healthier or more natural thanaspartame could also decrease demand for our products.  Any shift in consumer preferences away fromour products, including any shift in preferences from aspartame-based productsto sucralose-based products or other low calorie tabletop sweetener products,could significantly decrease our revenues and cash flows and impair our abilityto operate our business.

 

***Competitionand consolidation may reduce our sales and margins.***

 

We operate in a highlycompetitive industry.  We compete withcompanies that have greater capital resources, facilities and diversity ofproduct lines than ours.  Increased competitionfor our products could result in reduced volumes and/or prices, both of whichwould reduce our sales and margins.

 

Our competitors may alsointroduce new low-calorie sweeteners, such as has occurred with thesucralose-based low calorie tabletop sweetener, *Splenda®*,a product of McNeil Nutritionals, LLC, a Johnson & Johnson company whowe refer to as McNeil, which could increase competition.  To the extent that current users of ourproducts switch to other low calorie sweeteners, there could be a decrease inthe demand for our products.

 

Our margins are alsounder pressure from consolidation in the retail food industry in many regionsof the world.  In the United States, wehave experienced a shift in the channels where consumers purchase our productsfrom the higher margin retail to the lower margin club and massmerchandisers.  Such consolidation maysignificantly increase our costs of doing business and may further result inlower sales of our products and/or lower margins on sales.  In addition, increased competition fromprivate label manufacturers of low calorie tabletop sweeteners may have anegative impact on our sales and/or margins.

 

***Our substantial indebtedness could adversely affect ourfinancial condition.***

 

We have a significantamount of indebtedness.  As of September 30,2005, our total debt was $439.5 million, excluding unused revolving loancommitments under our senior credit facility and our capital lease obligationof $0.2 million, $158.6 million of which is currently scheduled to become duein January 2010.  Our substantialindebtedness could:

 

•                                          requireus to dedicate a substantial portion of our cash flow from operations topayments in respect of our indebtedness, thereby reducing the availability ofour cash flow to fund working capital, capital expenditures, potentialacquisition opportunities, a level of marketing necessary to maintain ourcurrent level of sales and other general corporate purposes;

 

•                                          increase theamount of interest expense that we have to pay, because some of our borrowingsare at variable rates of interest, which will result in higher interest expenseif interest rates increase, and, if and when we are required to refinance anyof our indebtedness, an increase in interest rates would also result in higherinterest expense;

 

•                                          increaseour vulnerability to adverse general economic or industry conditions;

 

•                                          requirerefinancing, which we may not be able to do on reasonable terms;

 

•                                          limitour flexibility in planning for, or reacting to, competition and/or changes inour business or the industry in which we operate;

 

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•                                          limitour ability to borrow additional funds;

 

•                                          restrictus from making strategic acquisitions or necessary divestitures, introducingnew brands and/or products or exploiting business opportunities; and

 

•                                          placeus at a competitive disadvantage compared to our competitors that have lessdebt and/or more financial resources.

 

***Ourbusiness may be adversely affected by our dependence upon our suppliers.***

 

We rely on a limitednumber of suppliers for our raw materials. Currently, we are committed to a minimum purchase requirement at a fixedprice for aspartame, our primary raw ingredient, from The NutraSweet Company,which we refer to as NutraSweet, pursuant to an aspartame supply agreement thatexpires on December 31, 2005. Contractual restrictions prevent use of this aspartame in some foreigncountries, and therefore it is used primarily in the United States and in othermarkets sourced from our United States manufacturing facility.  The remaining minimum purchase requirementsignificantly exceeds our projected usage for these markets in 2005.  Nevertheless, we also purchase aspartame fromother suppliers for use in our European markets and in other markets sourced fromour European manufacturing facilities. If for any reason, NutraSweet is unable to fulfill its obligations underthe aspartame supply agreement, we may be unable to meet our aspartame supplyneeds on terms as favorable as those we have negotiated with NutraSweet.  Additionally, there are a limited number ofaspartame manufacturers who have the capacity to supply our global needs andmeet our quality specifications.  Weestimate that the current aspartame market totals approximately 16,200 metrictons per year (with a capacity of 16,500 to 17,000 metric tons per year).  Failure to acquire in a timely fashion asufficient quantity of aspartame meeting our specifications would negativelyimpact our production schedule and could lead to shortages in stock, bothof which would have a negative impact on our earnings and cash flows and impairour ability to operate our business.  Anincrease in the price of aspartame would negatively impact our earnings andcash flows.

 

***Inabilityto protect our trademarks and other proprietary rights could damage our competitiveposition.***

 

Any infringement ormisappropriation of our intellectual property could damage its value and limitour ability to compete.  We rely oncopyrights, trademarks, trade secrets, confidentiality provisions and licensingarrangements to establish and protect our intellectual property.  We own no patents relating to aspartame orotherwise.  We may have to engage inlitigation to protect our rights to our intellectual property, which couldresult in significant litigation costs and require significant amounts ofmanagement’s time.

 

In a limited number ofcases, we license our *Equal*®trademark to certain third parties for use in marketing certain of theirproducts.  We have invested substantiallyin the promotion and development of our trademarked brands and establishingtheir reputation as high-quality products. Actions taken by these parties may damage our reputation and ourtrademarks’ value, which could lead to reduced sales of our products.

 

We and our affiliateshave worldwide, royalty-free, exclusive licenses to the *NutraSweet*®mark in the tabletop sweetener category for products which contain aspartamesourced from NutraSweet.  The licensesare in effect during the term of our aspartame supply agreement with NutraSweetand thereafter, subject to certain minimum purchase obligations.  NutraSweet has the option to terminate thelicenses upon six months’ notice if we do not purchase at least 200 metric tonsof aspartame from it in the calendar year then expired.  Upon termination of our rights to the *NutraSweet*® mark, there is no guarantee that a third party,including NutraSweet, will not introduce a tabletop sweetener product under the*NutraSweet*® brand which competes withour products.

 

We believe that theformulas and blends for our products are trade secrets.  We rely on security procedures andconfidentiality agreements to protect this proprietary information; however,such agreements and security procedures may be insufficient to keep others fromacquiring this information.  Any such disseminationor misappropriation of this information could deprive us of the value of ourproprietary information.

 

***Health-relatedallegations could damage consumer confidence in our products.***

 

Periodically, claims aremade regarding the safety of aspartame consumption.  Past claims include

 

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allegations that aspartame leads to neurological illnesses and otherhealth problems.  Current claims includethe Ramazzini study discussed above. Although we believe that we have been successful in presentingscientific evidence to dispute past claims and restore consumer confidence inour products that contain aspartame, there can be no assurance that we will besimilarly successful in refuting the Ramazzini study or other health-relatedallegations that may be made in the future. We continue to believe that aspartame and our products that containaspartame are safe for human consumption. However, if consumers lose confidence in the safety of our products, oursales and margins would be negatively impacted.

 

***Productliability claims or product recalls could adversely affect our businessreputation.***

 

The sale of food productsfor human consumption involves the risk of injury to consumers.  Such hazards could result from:

 

•                  tamperingby unauthorized third parties;

 

•                  productcontamination;

 

•                  thepresence of foreign objects, substances, chemicals and other agents; or

 

•                  residuesintroduced during the manufacturing, packaging, storage, handling ortransportation phases.

 

Some of the products wesell are produced for us by third parties and such third parties may not haveadequate quality control standards to ensure that such products are notadulterated, misbranded, contaminated or otherwise defective.  In addition, we license our brands for use onproducts produced and marketed by third parties, for which we receiveroyalties.  We, as well as themanufacturers of aspartame, may be subject to claims made by consumers as aresult of products manufactured by these third parties, which are marketedunder our brand names.

 

Consumption ofadulterated products may cause serious health-related illnesses and we may besubject to claims or lawsuits relating to such matters.  Even an inadvertent shipment of adulteratedproducts is a violation of law and may lead to an increased risk of exposure toproduct liability claims, product recalls and increased scrutiny by federal andstate regulatory agencies.  Such claimsor liabilities may not be covered by our insurance or by any rights ofindemnity or contribution, which we may have against third parties.  In addition, even if a product liabilityclaim is not successful or is not fully pursued, the negative publicitysurrounding any assertion that our products caused illness or injury could havea material adverse effect on our reputation with existing and potentialconsumers and on our brand image, all of which could negatively impact ourearnings and cash flows.

 

Additionally, our formerfacility in Fairfield, Australia manufactured certain pharmaceutical productsfor third parties.  Our current insurancecoverage excludes liabilities resulting from pharmaceutical manufacturing.  A claim related to a pharmaceutical productwhich we produced could have a significant negative impact on our earnings andcash flows.  We are currently defendingone such claim in the District Court of Western Australia, as discussed furtherin Note 7 to our unaudited consolidated financial statements found elsewhere inthis document.

 

***Ourinternational operations involve the use of foreign currencies, which subjectsus to exchange rate fluctuations and other currency risks.***

 

The revenues and expensesof our international operations generally are denominated in local currencies,which subject us to exchange rate fluctuations between such local currenciesand the U.S. dollar.  These exchange ratefluctuations subject us to currency translation risk with respect to thereported results of our international operations, as well as to other riskssometimes associated with international operations.  In the future, we could experiencefluctuations in financial results from our operations outside of the UnitedStates, and there can be no assurance we will be able, contractually or otherwise,to reduce the currency risks associated with our international operations.

 

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***If wedo not manage costs in the highly competitive tabletop sweetener industry, ourprofitability could decrease.***

 

Our success depends inpart on our ability to manage costs and be efficient in the highly competitivetabletop sweetener industry.  If we donot continue to manage costs and achieve additional efficiencies, ourprofitability could decrease.  Inaddition, following our cost reduction activities, we will have fewer internalresources with which to effectively compete against companies with greaterresources than ours.

 

***If wefail to comply with the many laws applicable to our business, we may incursignificant fines and penalties.***

 

Our facilities and productsare subject to laws and regulations administered by the Federal Food and DrugAdministration, and other federal, state, local, and foreign governmentalagencies relating to the processing, packaging, storage, distribution,advertising, labeling, quality and safety of food products.  Our failure to comply with applicable lawsand regulations could subject us to administrative penalties and injunctiverelief, civil remedies, including fines, injunctions and recalls of ourproducts.  Our operations are alsosubject to regulations administered by the Environmental Protection Agency andother state, local and foreign governmental agencies.  Failure to comply with these regulations canhave serious consequences, including civil and administrative penalties andnegative publicity.

 

In addition to thepossible fines and penalties discussed above, changes in laws and regulationsin domestic and foreign jurisdictions, including changes in food and drug laws,accounting standards, taxation requirements (including tax rate changes, newtax laws and revised tax law interpretations) and environmental laws could havea significant adverse effect on our results of operations.

 

***Thereis no assurance that our senior management team or other key employees willremain with us.***

 

We believe that ourability to successfully implement our business strategy and to operateprofitably depends on the continued employment of our senior management teamand other key employees.  If members ofthe management team or other key employees become unable or unwilling tocontinue in their present positions, the operation of our business would bedisrupted and we may not be able to replace their skills and leadership in atimely manner to continue our operations as currently anticipated.

 

***We relyon a major distributor in our largest market.***

 

We have an agreement withHeinz to purchase and distribute our products to grocery and food servicecustomers in the United States.  In 2004,purchases by Heinz represented 21% of our consolidated net sales.  Currently, we are dependent on Heinz to sellour products to grocery stores, certain food wholesalers and food servicedistributors and operators.  We do nothave a significant sales force or sales organization to support the sale ofproducts in the United States.  If Heinzbecomes unwilling or unable to continue to fulfill its obligations under ouragreement with them, or is not in the financial position to purchase or marketour products, we may be required to find alternative means to sell our productsand our financial performance may be adversely and materially affected.  The terms of our agreement with Heinz providethat either party may terminate the agreement upon 180 days prior writtennotice.  Each year we re-negotiate theterms of our agreement with Heinz.  If weare unsuccessful in negotiating or implementing a distribution arrangement thatis favorable to us, our earnings may be negatively impacted.

 

***Theloss of agency arrangements in France could increase our selling expenses.***

 

Our sales force in France provides merchandisingand account management services to other unaffiliated companies pursuant toagency agreements.  By providing theseservices, we are able to reduce our own selling expenses.  The current agreements will expire at the endof 2005 and will not be renewed.  We havesecured agreements with two new parties to provide similar services, albeit ata lower price than the expiring agreements. We are continuing to evaluate other means to mitigate this financialimpact; however, if we are not successful, our selling expenses in France couldincrease.

 

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***Ourbusiness may be adversely affected by conditions in the countries where weoperate.***

 

We operate in manycountries throughout the world.  Economicand political changes in the countries where we market and produce ourproducts, such as inflation rates, recession, foreign ownership restrictions,restrictions on transfer of funds into or out of a country and similar factorsmay adversely affect our results of operations.

 

***Ourtaxes may increase.***

 

In 2000, our Swisssubsidiary purchased all of our foreign intangibles, including trademarks, fromus in exchange for a promissory note in the amount of $168.0 million.  The repayment of the principal of this noteis not subject to tax in the United States. However, once the note is repaid in full, which may occur as soon as thefourth quarter of 2005, any cash repatriation from this subsidiary could resultin a higher United States federal tax liability.  As of September 30, 2005, we hadestimated net operating loss, or NOL, carryforwards for United States federalincome tax purposes of approximately $86 million which are available to offsetfuture United States federal taxable income, if any, through 2021, subject toany limitations under Section 382 of the Internal Revenue Code of 1986which might apply.  We have not recordedany deferred tax benefits related to these NOLs in our consolidated financialstatements.   As a result, it isdifficult to predict the impact on our effective tax rate of the combination ofincreased taxable income from repatriation of foreign earnings to the UnitedStates and the recognition in our financial statement of the benefit of our NOLcarryforwards.

 

**Quantitative and QualitativeDisclosures About Market Risk**

 

***ForeignOperations***

 

With approximately 64% ofour consolidated total net sales generated by our subsidiaries outside of theUnited States in the nine months ended September 30, 2005, our ability toobtain funds necessary to meet our obligations is subject to applicable laws,foreign taxes and intercompany pricing laws, including those relating to theflow of funds between our foreign affiliates pursuant to, for example, purchaseagreements, licensing agreements or other arrangements.  Currently, we receive a vast majority offunds from our foreign affiliates through our Swiss subsidiary in the form ofpayments pursuant to a promissory note. Once the note is repaid in full, which may occur as early as the fourthquarter of 2005, we will receive funds from this subsidiary, as well as otherforeign affiliates, in the form of a dividend or other type of payment.  Such payments will be subject to anyapplicable laws or restrictions. Regulators in the United States and other foreign countries where weoperate may closely monitor our corporate structure and how we effectintercompany fund transfers.

 

Net sales outside of theUnited States aggregated 59% and 64% of our total net sales for the nine monthsended September 30, 2004 and September 30, 2005, respectively.  In addition, as of September 30, 2005,foreign affiliates comprised approximately 46% of our consolidated totalassets.  Accordingly, we have experiencedand continue to be exposed to foreign exchange risk.

 

***ForeignCurrency and Interest Rate Risks***

 

Inherent in ouroperations are certain risks related to changes in foreign currency exchangerates and interest rates.  We bearforeign exchange risk because a majority of our financing was obtained in U.S.dollars although a significant portion of our revenues are earned in thevarious currencies of our foreign subsidiaries’ operations.  Under our senior credit facility, a portionof our financing is obtained in euro. This euro-denominated loan decreases our transactional exposure to euroexchange fluctuations until the euro principal and interest are repaid.  Any decrease in sales and earnings from eurodenominated countries that results from the euro weakening against the U.S.dollar is currently more than offset by the decrease in our euro denominateddebt obligations (i.e., foreign currency transaction gain) and interest expensethat also results from such a decrease in exchange rate.  Likewise, any increase in sales and earningsfrom the euro denominated countries that results from a strengthening euroagainst the U.S. dollar partially offsets the increase in our euro denominateddebt obligations (i.e., foreign currency transaction loss) and interest expensethat results from such an exchange rate increase.

 

A majority of our debtbears interest at a fixed rate.  Interestrate exposure results from our floating rate borrowings.  The interest rate risk on nearly all of ouroutstanding debt with variable interest rates has been managed

 

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by entering into swap and collar agreements.  As a result, interest rate changes have nothad a significant effect on our earnings or cash flows or the fair value of ourinterest rate derivatives.  A 1.0% perannum increase in interest rates would not impact cash interest expensesignificantly, but would result in a fair value mark to market on our interestrate derivatives of a favorable $2.1 million. A 1.0% per annum decline in interest rates would not impact cashinterest expense significantly, but would result in a fair value mark to marketon our interest rate derivatives of an unfavorable $2.1 million.  Any fair value mark to market of our interestrate derivatives would impact our balance sheet and statements of operations.

 

In the normal course ofbusiness, we identify risks relating to foreign currency exchange rates andinterest rates and mitigate their financial impact through our corporatepolicies and hedging activities.  Ourhedging activities include the use of derivative financial instruments.  We use derivatives only where there is anunderlying exposure and do not use them for trading or speculativepurposes.  The counter parties to the hedgingactivities are highly rated financial institutions.

 

As of September 30,2005, the portion of accumulated other comprehensive loss related toderivatives is $0.1 million, which is expected to be recorded in the incomestatement over the next three months.

 

The table below providesinformation about our current derivative financial instruments and otherfinancial instruments that are sensitive to changes in interest rates,including interest rate swaps and debt obligations.  For debt obligations, the table presentsprincipal cash flows related to the senior credit facility, with theeuro-denominated debt converted at an estimated future rate of 1.3 U.S. dollarsper euro.  For interest rate swaps andcollars, the table presents notional amounts. Notional amounts are used to calculate the contractual payments to beexchanged under the contract.  The fairvalues of interest rate swaps and collars are based on third partyvaluations.  Obligations under ourderivative instruments are secured by substantially all of our and certain ofour subsidiaries’ assets.  Weperiodically review our derivative instruments in relation to anticipated debtpayments and may enter into new derivative instruments or terminate existinginstruments accordingly.

 
| ** **                                      | ** ** | **Total Debt**                        | ** ** | **$155M Swap** | ** ** | **$80M Collars** | ** ** | **Total Hedged** | ** ** |
|-------------------------------------------------|------------|---------------------------------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                      | ** ** | **(in millions, except percentages)** | ** ** |
| Swap Rate %                                     |       |                                  |       | 5.63           | %          |             |       |             |       |
| Collar Cap % ($80M)                             |       |                                  |       |           |       | 8.50             | %          |             |       |
| Collar Floor % ($40M)                           |       |                                  |       |           |       | 6.09             | %          |             |       |
| Collar Floor % ($40M)                           |       |                                  |       |           |       | 6.00             | %          |             |       |
| 2004                                            |       | $                                     | 214.9      |           | $          | 112.6            |       | $                | 80.0       |   | $ | 192.6 |   |
| 2005                                            |       | 204.7                                 |       | 62.8           |       | 80.0             |       | 142.8            |       |
| 2006                                            |       | 193.9                                 |       | 11.9           |       |             |       | 11.9             |       |
| 2007                                            |       | 181.0                                 |       | —         |       | —           |       | —           |       |
| Fair Value (pre-tax) at September 30, 2005 |       |                                  |       | (0.8           | )          | (0.6             | )          | (1.4             | )          |
|                                                 |            |                                       |            |                |            |                  |            |                  |            |  |  |  |  |

 

Based on our currentportfolio of interest rate swaps and collars, we do not believe we havematerial interest rate risk.

 

***InflationRisk***

 

Inflation is not expectedto have a material impact on our business, financial condition or results ofoperations.  In markets outside theUnited States in countries with higher inflation, we generally have been ableto offset the impact of inflation through a combination of cost-cuttingmeasures and price increases.

 

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Item 3.  Quantitative and Qualitative Disclosure AboutMarket Risk

 

The information requiredhereunder is set forth starting on page 40 of this Report under thecaption “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Quantitative and Qualitative Disclosure About MarketRisk.”

 

Item4.  Controls and Procedures

 

(a)                    Asof the end of the period covered by this report, our management,including our Chief Executive Officer and the Chief Financial Officer, carriedout an evaluation of the effectiveness of our disclosure controls andprocedures (as defined in Exchange Act Rule 15d-15(e)).  Based upon that evaluation and because of thematerial weaknesses described below, our Chief Executive Officer and ChiefFinancial Officer concluded that, as of September 30, 2005, our disclosurecontrols and procedures as of the end of the period covered by this report werenot necessarily effective to provide reasonable assurance that the information requiredto be disclosed in reports filed under the Securities Exchange Act of 1934, asamended (the “Exchange Act”), is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms.

 

(b)                   Therehave been some improvements, as described more fully below, in our internalcontrol over financial reporting that occurred during theperiod covered by this report that have materially affected, or are reasonablylikely to materially affect, our internal control over financialreporting.  During theperiod covered by this report, we have taken steps to improve our internalcontrol structure and procedures for financial reporting, including thosecontemplated by Section 404 of the Sarbanes-Oxley Act and the rules andregulations of the SEC promulgated thereunder, with which we are required to bein compliance as of December 31, 2007. We continue to take further steps with regard to these matters.

 

In a letter to us dated September 24, 2004related to our former auditor’s audit of our financial statements for the yearended December 31, 2003 and through discussions with management and theaudit committee of our board of directors on April 14, 2005 related to theformer auditor’s audit of the our financial statements for the year ended December 31,2004, the former auditor identified certain matters involving our system ofinternal control and its operation that the auditor considered to be materialweaknesses as defined in the Public Company Accounting Oversight Board’s, orPCAOB’s, Auditing Standard No. 2, *An Auditof Internal Control Over Financial Reporting Performed in Conjunction with anAudit of Financial Statements* (the PCAOB’s final standard will apply to our auditfor the year ended December 31, 2007). Our former auditor noted the following matters:

 

•                  Wedid not have proper documentation related to the effectiveness calculation of aderivative instrument causing the instrument to not qualify for hedgeaccounting in accordance with Statement of Financial Accounting Standard 133 *Accounting**for Derivative Instrumentsand Hedging Activities* (“FAS 133”). As a result, we made a material adjustment to the financial statementsthat was not initially identified by our internal control over financialreporting.

 

•                  We did notperform a comprehensive reconciliation, analysis and review of income taxes,inventory, fixed assets and trade promotions accounts in a timely manner.  As a result, we made material adjustments tothe financial statements that were not initially identified by our internalcontrol over financial reporting.

 

In addition to the above referenced matters, ourcurrent auditors have identified a weakness surrounding the timeliness forresolving customer deductions from amounts invoiced to them and recording therelated impacts.

 

We have reviewed the matters identified by our formerand current auditor and initiated an effort to address the issues, some ofwhich we now believe to be resolved.  This process is ongoing, and during the period covered by this report,we continued to make material changes in the following areas:

 

•                  In accordance with FAS 133, changes inthe fair value of our interest rate derivative instruments are consistentlymarked to market on a monthly basis, impacting our balance sheet and statementof operations.

 

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•                  We have continued to ensure that keyaccounts are reconciled and reviewed on a monthly basis and obsolete inventoryis identified and properly reflected in the financial statements.  In the third quarter, we conducted a physicalinventory at our largest inventory location, which represents approximately 50%of our consolidated inventory value, resulting in a dollar variance of approximately1% of total inventory.  The inventory wasobserved by our internal and external auditors who validated that the inventorytaking and reconciliation procedures surrounding this physical inventory werewell controlled.

 

•                  We continue to use an outside adviser toassist with our taxes on a regular basis as well as to assist with training ourfinance personnel on tax accounting matters.

 

•                  We implemented an improved, consistent,detailed methodology for estimating and accruing trade marketing expenses andmanaging and properly reserving for open customer deductions.

 

We believe that the changes we have implemented aresufficient to remediate the material weaknesses described; however, while wehave designed and implemented additional controls over inventories, we have nothad the opportunity to test these controls to ensure that they are adequate andeffective.  In addition to the on-goingefforts described above, we have made significant progress in documenting, testingand remediating our system of internal controls in preparation for compliancewith the requirements of Section 404 of the Sarbanes-Oxley Act and the rules andregulations of the SEC promulgated thereunder, with which we must be incompliance by December 31, 2007.  Wehave hired an internal audit department, continue to evaluate the effectivenessof our internal controls and procedures on an ongoing basis and will implementactions to enhance our resources and training in the area of financialreporting and disclosure responsibilities in light of this deadline.

 

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**PART II - OTHER INFORMATION**

 

Item 1.  LegalProceedings

 

From time to time, we areinvolved in litigation concerning our business operations.

 

On May 6, 2004, MerisantManufacturing Australia Pty. Ltd. was served with a complaint in the DistrictCourt of Western Australia by an individual alleging that she suffered adversesymptoms after consuming Travacalm brand of motion sickness prevention drugmanufactured in 2001 for a pharmaceutical client under a contract manufacturingagreement.  Although we sold our entireinterest in Merisant Manufacturing Australia Pty. Ltd. in July 2004,pursuant to the sale agreement, we have retained liability for thisaction.  We have filed an answer denyingthe plaintiff’s allegations.

 

In October 2004, we requestedthe National Advertising Division of the Council of Better Business Bureaus,referred to as the NAD, to review advertising by McNeil Nutritionals, LLC, orMcNeil, for its *Splenda®*brandtabletop sweetener.  We believed suchadvertising to be false and misleading. McNeil refused to participate in such industry self-regulating forum andfiled a complaint in the United States District Court for the District ofPuerto Rico requesting the court to declare its advertising truthful and notmisleading.  Because of the filing byMcNeil in Puerto Rico, the NAD elected not to review the matter.  On November 26, 2004, we filed acomplaint against McNeil in the United States District Court for the EasternDistrict of Pennsylvania alleging the same issues as were addressed to theNAD.  On January 13, 2005, McNeilvoluntarily dismissed its action in Puerto Rico.  On March 23, 2005, McNeil filed a motionto amend its answer to our complaint in the Pennsylvania action.  McNeil sought to amend its answer to add acounterclaim against us alleging that our *Equal®Sugar Lite**Ô***packaging and advertising are misleading in that,according to McNeil, on a volumetric basis, *Equal®Sugar Lite**Ô* does not deliverhalf the calories of a cup of sugar.  On April 18,2005, the court granted McNeil’s motion to amend.  Our own investigation has confirmed that whenmeasured by weight, in accordance with the formulation for *Equal® Sugar Lite**Ô**,*measurements for *Equal®Sugar Lite**Ô* are correct underthe FDA compliance standards, which is generally a measurement by weight.  We further determined that certainmeasurements may be volumetrically inaccurate. The manufacturing and packaging process for *Equal® Sugar Lite**Ô* has beenadjusted to ensure volumetric accuracy, while remaining accurate in accordancewith FDA compliance standards based on weight. For the year ended December 31, 2004, gross profit was reduced by$3,208 to increase the allowances against accounts receivable and establishinventory reserves associated with this issue. For the nine month period ended September 30, 2005, an adjustmentto reduce the reserve by $188 has been recorded due to lower returns thanoriginally anticipated.

 

Management believes that thelitigation in which we are currently involved is not reasonably likely to bematerial to our financial condition or the results of our operations.

 

Item 5.  OtherInformation

 

Forward-LookingStatements

 

Certain information included or incorporated in thisReport may be deemed to be “forward-looking statements” within the meaning of Section 21Eof the Exchange Act.  All statements,other than statements of historical facts, included or incorporated in thisReport, are forward-looking statements. In particular, statements that we make under the heading “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,”relating to our overall volume trends, pricing trends and industry forces,anticipated results, our expectation for funding capital expenditures andoperations and increased market share and the sufficiency of capital to meetworking capital, capital expenditures requirements and our strategies areforward-looking statements.  When used inthis document, the words “anticipate,” “estimate,” “project” and similarexpressions are intended to identify forward-looking statements.

 

These statements arebased on assumptions and assessments made by our management in light of theirexperience and their perception of historical trends, current conditions,expected future developments and other factors they believe to beappropriate.  Any forward-lookingstatements are not guarantees of our future performance and are subject torisks and uncertainties that could cause actual results, developments andbusiness decisions to differ materially from those contemplated by suchforward-looking statements.  We disclaimany duty to update any forward-looking statements.  Some of the factors that may cause actualresults, developments and business decisions to differ materially from thosecontemplated by such forward-looking statements include the following:  changes in

 

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consumer preferences and nutritional and health-related concerns;increased competition; changes in the terms on which we may obtain aspartame;damaged consumer confidence in our products as a result of health-relatedallegations; product liability claims; fluctuations in exchange rates and othercurrency risks; disruptions in our business as a result of strikes or workstoppages; changes in our relationship with our largest distributor; andchanges in economic and political conditions in the countries in which wemarket and produce our products.

 

Item 6. Exhibits

 
| **Exhibit No.** | ** ** | **Description**                                                                                                         |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                    |
| 10.1*                |       | 2005 Merisant  Worldwide, Inc. Share Appreciation Rights Plan.                                                     |
|                 |       |                                                                                                                    |
| 10.2*                |       | Advisory Agreement,  dated as of September 19, 2005, between Pegasus Capital Advisors, L.P.  and Merisant Company. |
|                 |       |                                                                                                                    |
| 31.1                 |       | Certificate of Paul  Block pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.                      |
|                 |       |                                                                                                                    |
| 31.2                 |       | Certificate of Anthony  J. Nocchiero pursuant to Rule 13a-14 under the Securities Exchange Act  of 1934.           |
|                 |       |                                                                                                                    |
| 32.1                 |       | Certificate of Paul  Block pursuant to 18 U.S.C. Section 1350.                                                     |
|                 |       |                                                                                                                    |
| 32.2                 |       | Certificate of Anthony  J. Nocchiero pursuant to 18 U.S.C. Section 1350.                                           |

 

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*  Incorporated by reference to the identicallynumbered exhibit to Merisant Company’s Current Report on Form 8-K filed onSeptember 23, 2005.

 

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### **SIGNATURES**

### ** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.

 

 
|                          | MERISANT  COMPANY |
|-------------------------------|-------------------|
|                          |              |
|                          |              |
| Date:  November 14, 2005 | By:               |   /s/  Anthony J. Nocchiero |   |
|                          |              | Anthony J. Nocchiero |   |
|                          |              | Chief Financial Officer |   |
|                          |              | (on  behalf of the Company and in capacity |   |
|                          |              | of  principal financial officer) |   |

 

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