**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-Q**

 

**ý****                                ****QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended September 30,2005**

 

**OR**

 

**o****                                ****TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thetransition period from           to           **

 

**Commission File Number:  333-114102**

 

**Merisant Worldwide, Inc.**

(Exact Name of Registrantas Specified in its Charter)
| **Delaware**                                 | ** ** | **52-2219000**         |
|----------------------------------------------|------------|------------------------|
| (State or Other Jurisdiction of              |       | (I.R.S. Employer       |
| Incorporation or Organization)               |       | 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 checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes  o  No  ý

 

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

 

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

 

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

 

As of November 14,2005, the registrant had 9,089,380 shares of common stock, par value $0.01 pershare, outstanding.

 

 

----

 

MERISANT WORLDWIDE, INC.

 

INDEX TO REPORT

 

FOR THE QUARTER ENDED SEPTEMBER 30,2005

 
| PART I  - FINANCIAL INFORMATION |                                                                                                                                                          |
|--------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                 |                                                                                                                                                          |   |
| Item  1.                             | Financial  Statements of Merisant Worldwide, Inc.                                                                                                        |   |
|                                 |                                                                                                                                                          |   |
|                                 | 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 Stockholders’ 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 - FINANCIAL INFORMATION**

 

Item1.  Financial Statements

 

**MERISANT WORLDWIDE, INC. AND SUBSIDIARIES**

**Unaudited Consolidated BalanceSheets**

**(Dollars In Thousands, Except Per Share Amounts)**

 
| ** **                                                                                               | ** ** | **At December 31,  2004** | ** ** | **At September 30,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                               |       |                           |       |                            |       |
| Current Assets:                                                                                          |       |                           |       |                            |       |
| Cash and cash equivalents                                                                                |       | $                              | 9,103      |                            | $          | 13,039 |   |
| 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                                                                                    |       | 98                             |       | 744                             |       |
| Total current assets                                                                                     |       | 133,826                        |       | 127,155                         |       |
| 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 $3,751 and $5,852,  respectively             |       | 16,990                         |       | 16,571                          |       |
| 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                                                                                             |       | $                              | 535,574    |                            | $          | 505,877 |   |
|                                                                                                     |       |                           |       |                            |       |
| **LIABILITIES  AND STOCKHOLDERS’ 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                                                                   |       | 27,652                         |       | 25,184                          |       |
| Current maturities of long-term obligations                                                              |       | 10,206                         |       | 21,186                          |       |
| Total current liabilities                                                                                |       | 100,144                        |       | 93,552                          |       |
| Long-term  obligations                                                                                   |       | 515,987                        |       | 513,074                         |       |
| Deferred income  tax liabilities                                                                         |       | 12,259                         |       | 14,479                          |       |
| Other  liabilities                                                                                       |       | 22,641                         |       | 14,879                          |       |
| Total liabilities                                                                                        |       | 651,031                        |       | 635,984                         |       |
| Commitments and  contingencies (Note 7)                                                                  |       |                           |       |                            |       |
| Stockholders’  Deficit:                                                                             |       |                           |       |                            |       |
| Common stock, $0.01 par value, 10,000,000 shares  authorized, 9,169,552 issued and 9,089,380 outstanding |       | 91                             |       | 91                              |       |
| Due for purchase of common stock                                                                         |       | (767                           | )          | (767                            | )          |
| Retained deficit                                                                                         |       | (109,112                       | )          | (121,641                        | )          |
| Accumulated other comprehensive loss                                                                     |       | (3,948                         | )          | (6,069                          | )          |
|                                                                                                     |       | (113,736                       | )          | (128,386                        | )          |
| Less cost of  treasury stock (80,172 shares)                                                             |       | (1,721                         | )          | (1,721                          | )          |
| Total stockholders’ deficit                                                                         |       | (115,457                       | )          | (130,107                        | )          |
| Total liabilities and stockholders’ deficit                                                         |       | $                              | 535,574    |                            | $          | 505,877 |   |

 

The accompanying notes are an integral part of these unauditedconsolidated financial statements.

 

3

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**MERISANT WORLDWIDE, INC. AND SUBSIDIARIES**

**Unaudited Consolidated Statementsof Operations and**

**Comprehensive Income (Loss)**

**(Dollars In 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               |       | 9,501                                       |       | 9,508                                      |       | 30,246 |   | 31,535 |   |
| Amortization of intangible assets     |       | 5,554                                       |       | 5,554                                      |       | 16,673 |   | 16,662 |   |
| Transaction fees                      |       | 3,004                                       |       | —                                     |       | 3,395 |   | (501 | ) |
| Impairment and loss on sale of assets |       | 328                                         |       | 340                                        |       | 3,710 |   | 340 |   |
| Restructuring expenses                |       | 484                                         |       | 342                                        |       | 2,284 |   | 2,254 |   |
| Total operating expenses              |       | 39,256                                      |       | 32,857                                     |       | 124,498 |   | 108,277 |   |
| Income from  operations               |       | 7,707                                       |       | 10,795                                     |       | 24,508 |   | 25,702 |   |
| Other expense  (income):              |       |                                        |       |                                       |       |   |   |   |   |
| Interest income                       |       | (157                                        | )          | (137                                       | )          | (423 | ) | (607 | ) |
| Interest expense                      |       | 13,775                                      |       | 14,773                                     |       | 40,764 |   | 43,600 |   |
| Other income, net                     |       | (698                                        | )          | (1,175                                     | )          | (7,493 | ) | (10,068 | ) |
| Total other expense                   |       | 12,920                                      |       | 13,461                                     |       | 32,848 |   | 32,925 |   |
| Loss before  income taxes             |       | (5,213                                      | )          | (2,666                                     | )          | (8,340 | ) | (7,223 | ) |
| Provision for  income taxes           |       | 2,280                                       |       | 1,376                                      |       | 4,367 |   | 5,306 |   |
| Net loss                              |       | $                                           | (7,493     | )                                          | $          | (4,042 | ) | $ | (12,707 | ) | $ | (12,529 | ) |
|                                  |       |                                        |       |                                       |       |   |   |   |   |
| Net loss from  above                  |       | $                                           | (7,493     | )                                          | $          | (4,042 | ) | $ | (12,707 | ) | $ | (12,529 | ) |
| Other  comprehensive income (loss)    |       | 291                                         |       | 1,051                                      |       | (258 | ) | (2,121 | ) |
| Total  comprehensive loss             |       | $                                           | (7,202     | )                                          | $          | (2,991 | ) | $ | (12,965 | ) | $ | (14,650 | ) |

 

The accompanying notes are an integral part of these unauditedconsolidated financial statements.

 

4

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**MERISANT WORLDWIDE, INC. AND SUBSIDIARIES**

**Unaudited Consolidated Statementsof Stockholders’ Deficit**

**(Dollars In Thousands)**

 
| ** **                                                               | ** ** | **Common  Stock** | ** ** | **Due for Purchase  of Common Stock** | ** ** | **Retained****Deficit** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Treasury  Stock, at   Cost** | ** ** | **Total**  | ** ** |
|--------------------------------------------------------------------------|------------|-------------------|------------|---------------------------------------|------------|-------------------------|------------|---------------------------------------------|------------|--------------------------------|------------|------------|------------|
| ** **                                                               | ** ** | ** **        | ** ** | ** **                            | ** ** | ** **              | ** ** | ** **                                  | ** ** | ** **                     | ** ** | ** ** | ** ** |
| **Balance at December 31, 2004**                                    |       | $                 | 91         |                                  | $          | (767                    | )          | $                                           | (109,112   | )                              | $          | (3,948     | )          | $ | (1,721 | ) | $ | (115,457 | ) |
| Foreign currency translation adjustment                                  |       | —            |       | —                                |       | —                  |       | (3,898                                      | )          | —                         |       | (3,898     | )          |
| Net change in fair value of derivative instruments,  net of income taxes |       | —            |       | —                                |       | —                  |       | 1,777                                       |       | —                         |       | 1,777      |       |
| Net loss                                                                 |       | —            |       | —                                |       | (12,529                 | )          | —                                      |       | —                         |       | (12,529    | )          |
| **Balance at September 30, 2005**                                   |       | $                 | 91         |                                  | $          | (767                    | )          | $                                           | (121,641   | )                              | $          | (6,069     | )          | $ | (1,721 | ) | $ | (130,107 | ) |

 

The accompanying notes are an integral part of these unauditedconsolidated financial statements.

 

5

----

 

**MERISANT WORLDWIDE, INC. AND SUBSIDIARIES**

**Unaudited Consolidated Statementsof Cash Flows**

**(Dollars In Thousands)**

 
| ** **                                                                        | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                        | ** ** | **2004**                                  | ** ** | **2005** | ** ** |
| **Operating Activities**                                                          |       |                                      |       |   |   |
| Net loss                                                                          |       | $                                         | (12,707    | ) | $ | (12,529 | ) |
|                                                                              |       |                                      |       |   |   |
| 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                                          |       | 1,962                                     |       | 2,101 |   |
| Interest accretion on senior subordinated discount  notes                         |       | 7,204                                     |       | 8,606 |   |
| 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                                                                  |       | (4,304                                    | )          | (7,866 | ) |
| Accrued expenses and other                                                        |       | (777                                      | )          | (9,077 | ) |
| Net cash provided by operating activities                                         |       | 18,612                                    |       | 4,352 |   |
| **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                                               |       | (383                                      | )          | (1,681 | ) |
| Net cash (used in) provided by financing activities                               |       | (5,979                                    | )          | 2,998 |   |
|                                                                              |       |                                      |       |   |   |
| Effect of exchange rate on cash and cash equivalents                              |       | (364                                      | )          | (394 | ) |
| Net increase in cash and cash equivalents                                         |       | 4,176                                     |       | 3,936 |   |
|                                                                              |       |                                      |       |   |   |
| Cash and cash equivalents at beginning of period                                  |       | 8,833                                     |       | 9,103 |   |
| Cash and cash equivalents at end of period                                        |       | $                                         | 13,009     |   | $ | 13,039 |   |
|                                                                              |       |                                      |       |   |   |
| Supplemental cash flow information                                                |       |                                      |       |   |   |
| Cash paid for interest                                                            |       | $                                         | 34,833     |   | $ | 36,904 |   |

 

The accompanying notes are an integral part of these unauditedconsolidated financial statements.

 

6

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**MERISANT WORLDWIDE, INC. AND SUBSIDIARIES**

**Notes to Unaudited ConsolidatedFinancial Statements**

**(Dollars In Thousands)**

** **

**1.****                        Principlesof Consolidation**

 

The accompanying interim consolidatedfinancial statements are unaudited.  Inthe opinion of management, all normal, recurring adjustments necessary for afair presentation 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 statementsand notes do not contain certain information included in the annualconsolidated financial statements and notes of Merisant Worldwide, Inc.and subsidiaries (the “Company”). The consolidated balance sheet at December 31,2004 was derived from the Company’s audited consolidated financial statements,but does not include all disclosures required by generally accepted accountingprinciples in the United States of America. These consolidated financialstatements and footnotes should be read in conjunction with the Company’sannual consolidated financial statements.

 

Thepreparation of consolidated financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities,disclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Actual resultscould differ from those estimates.

 

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

 

The Company manufactures and marketsprimarily low calorie tabletop sweeteners globally.  Therefore, the Company’s reportable segmentsare organized and managed principally by geographic region:  North America; Europe/Africa/Middle East,referred to as EAME; Latin America; and Asia/Pacific.  The Company’s management reviews OperatingEBITDA to evaluate segment performance and allocate resources.  Operating EBTIDA consists of segment earningsbefore interest expense, income tax expense and depreciation and amortizationas well as items such as expenses related to restructuring charges, certainsignificant charges related to obsolete or slow-moving inventory oruncollectible receivables and indebtedness, and certain other non-cash orexcludable charges or losses.  Otherexpense (income), net, as reported in the unaudited consolidated financialstatements, is included in Operating EBITDA of the respective reportablesegment, except for the portion of other expense (income), net that relates tothe foreign currency remeasurement gains or losses associated with the Company’seuro-denominated debt (see Note 5) and unrealized gains or losses on derivativeinstruments.  Corporate expenses includecorporate staff costs and related amounts. Corporate expenses, interest and other expenses and the provision forincome taxes are centrally managed and, accordingly, such items are notpresented by segment since they are excluded from the measure of segmentperformance reviewed by management.  TheCompany’s assets, which are principally in the United States and Europe, arealso managed geographically.  A summaryof the Company’s operations by reportable segment for the three months and ninemonths ended September 30, 2004 and 2005, is as follows:

 

7

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**For the Three 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                        |       |               |       |     |       |               |       |               |       | 4,685            |       |
| 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                           |       |               |       |     |       |               |       |               |       | 3,004            |       |
| Other non-cash  income                     |       |               |       |     |       |               |       |               |       | 85               |       |
| Other income,  net                         |       |               |       |     |       |               |       |               |       | 698              |       |
| Income from  operations                    |       |               |       |     |       |               |       |               |       | 7,707            |       |
| Interest  expense, net                     |       |               |       |     |       |               |       |               |       | 13,618           |       |
| Other income,  net                         |       |               |       |     |       |               |       |               |       | (698             | )          |
|                                       |       |               |       |     |       |               |       |               |       |             |       |
| Loss before  income taxes                  |       |               |       |     |       |               |       |               |       | $                | (5,213     | ) |

 

**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                         |       |               |       |     |       |               |       |               |       | 5,530            |       |
| 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                    |       |               |       |     |       |               |       |               |       | 10,795           |       |
| Interest  expense, net                     |       |               |       |     |       |               |       |               |       | 14,636           |       |
| Other income,  net                         |       |               |       |     |       |               |       |               |       | (1,175           | )          |
|                                       |       |               |       |     |       |               |       |               |       |             |       |
| Loss before  income taxes                  |       |               |       |     |       |               |       |               |       | $                | (2,666     | ) |

 

8

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**For the Nine 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                         |       |               |       |     |       |               |       |               |       | 16,488           |       |
| 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                           |       |               |       |     |       |               |       |               |       | 3,395            |       |
| Other non-cash  income                     |       |               |       |     |       |               |       |               |       | 96               |       |
| Other income,  net                         |       |               |       |     |       |               |       |               |       | 7,493            |       |
| Income from  operations                    |       |               |       |     |       |               |       |               |       | 24,508           |       |
| Interest  expense, net                     |       |               |       |     |       |               |       |               |       | 40,341           |       |
| Other income,  net                         |       |               |       |     |       |               |       |               |       | (7,493           | )          |
|                                       |       |               |       |     |       |               |       |               |       |             |       |
| Loss before  income taxes                  |       |               |       |     |       |               |       |               |       | $                | (8,340     | ) |

 

**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                                              |       |               |       |     |       |               |       |               |       | 17,908           |       |
| 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                                                |       |               |       |     |       |               |       |               |       | (501             | )          |
| Other non-cash  income                                          |       |               |       |     |       |               |       |               |       | 8                |       |
| Other income,  net                                              |       |               |       |     |       |               |       |               |       | 10,068           |       |
| Income from  operations                                         |       |               |       |     |       |               |       |               |       | 25,702           |       |
| Interest  expense, net                                          |       |               |       |     |       |               |       |               |       | 42,993           |       |
| Other income,  net                                              |       |               |       |     |       |               |       |               |       | (10,068          | )          |
|                                                            |       |               |       |     |       |               |       |               |       |             |       |
| Loss before  income taxes                                       |       |               |       |     |       |               |       |               |       | $                | (7,223     | ) |

 

9

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**3.****                        RestructuringExpenses**

 

During the nine monthsended September 30, 2005, the Company continued to initiate actionsdesigned to improve both financial results 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 therestructuring liability for the nine months ended September 30, 2005 is asfollows:

 

| 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  |   |

 

The restructuring liability at December 31, 2004and September 30, 2005 is included in Accrued expenses and otherliabilities and long-term Other liabilities in the accompanying unauditedconsolidated balance sheets and includes $1,529 due to one of the Company’sdirectors as of September 30, 2005.

 

The following table represents restructuring expensesincluded in each segment and corporate expenses for the three and nine monthsended September 30, 2004 and 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**

 

Inventoriesconsisted of the following:

 

| ** **                       | ** ** | **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 |   |

 

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**5.****                        Debt**

 

At September 30, 2005,borrowings included $36,653 (“Term A”) principal amount of a loan bearinginterest at 5.38% per annum due in installments through January 2009 and$165,834 (“Term B”) principal amount of a loan bearing interest at 6.93% perannum due in installments through January 2010 under the senior creditfacility of the Company’s wholly owned subsidiary, Merisant Company (“Merisant”),$225,000 aggregate principal amount of Merisant’s senior subordinated notes due2013 (the “Notes”) bearing interest at 10.75% per annum and $94,587 principalamount of the Company’s senior subordinated discount notes due 2014 (the “DiscountNotes”) accruing interest at 13.25%.  TheDiscount Notes had an initial accreted value of principal of $.551 per $1 fullyaccreted stated principal amount at maturity. The accreted value of principal of each Discount Note increases from thedate of issuance until November 15, 2008 at a rate equal to the theneffective annual interest rate which results in non-cash interest expense.  Cash interest becomes payable commencing May 15,2009 and will be paid semiannually in arrears on every May 15thand November 15th, ending on May 15, 2014.  The Term A loan is euro-denominated and istranslated 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 and the stated rate of interest for the DiscountNotes is 12.25%.

 

Commencing July 19, 2004, theinterest rate increased 0.25% over the stated rate for the Discount Notes dueto the Company’s failure to register under the Securities Act of 1933 theexchange offer of the Discount Notes for notes with the same terms, but thatare registered under the securities Act of 1933 (“Exchange Notes”), as amended,prior to the agreed deadline, and commencing on each of October 19, 2004, January 19,2005 and April 19, 2005, the interest rate on the Discount Notes increasedan additional 0.25% for a total increase of 1.0%.  The cumulative impact of the 1.0% additionalinterest is approximately $75 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 12.25% per annum.   Total exchange offer related fees of $358are classified as deferred financing fees and will be amortized over theremaining life of the Exchange Notes.

 

Commencing July 5, 2004, theinterest rate increased 0.25% over the stated rate for the Notes due to theCompany’s failure to complete an exchange offer of the Notes for notes with thesame terms, but that are registered under the Securities Act of 1933 (“Merisant’sExchange Notes”), as amended, prior to the agreed deadline, and commencing oneach of October 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 $234 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 $650 are classified as deferred financing feesand will be amortized over the remaining life of Merisant’s Exchange Notes.

 

At September 30, 2005, $23,000of Merisant’s maximum $35,000 borrowing capacity was available under therevolving loan facility of its senior credit facility.

 

On March 11, 2005, Merisantamended its senior credit facility. Pursuant to this amendment, Merisant’s existing financial conditioncovenant ratios were revised and an additional financial condition covenantratio, the consolidated senior leverage ratio, was added.   In addition, charges related to obsolete orslow-moving inventory or uncollectible receivables or indebtedness, up to amaximum of $5,000 since September 30, 2004, and transaction fees relatedto the execution of this amendment are excludable from the Bank EBITDAcalculation and the existing limit on restructuring costs excludable from theBank EBITDA calculation has been increased by $4,000.  Fees of approximately $900 were incurred inthe first quarter of 2005 to execute this amendment.  These fees are classified as deferredfinancing fees and are being amortized over the remaining life of the relateddebt.

 

Merisanthas experienced continued declines in its Bank EBITDA over the past fewyears.  Further declines could result inthe breach of maintenance covenants under Merisant’s senior credit facility, inwhich event, Merisant’s bank lenders would be entitled to accelerate alloutstanding principal and due and unpaid interest under the senior creditfacility.  Merisant is continuing toimplement its strategy to address these trends by reducing operating costs,improving the efficiency of its organization and accelerating new product

 

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developmentand product launches.  Merisant hasengaged Booz Allen Hamilton, Inc. to assist with this effort.

 

**6.****                        Transactionswith Related Parties**

 

The Company has deferred compensationpayable to one of its directors and a note receivable from the same director.The Company recorded $71 and $67 of interest income on the note receivable forthe three months ended September 30, 2004 and September 30, 2005,respectively, and $213 and $201 of interest income on the note receivable forthe nine months ended September 30, 2004 and September 30, 2005,respectively, and an equal amount of interest expense related to the deferredcompensation in the respective quarters.

 

TheCompany has entered into a sublease agreement with The Digital Home/DigitalOffice, LLC for its vacated office space located in Clayton, Missouri for aterm to expire on March 1, 2006 at a rate of approximately $9 permonth.  At the end of the term of thesublease agreement, Digital Home/Digital Office, LLC will acquire the officefurniture and equipment at no cost.  TheCompany currently leases this space for a base rent of $15 per month.  In the three and nine months ended September 30,2005, the Company recorded a $182 charge associated with the impairment of thefixed assets at this location and for the difference between its lease paymentobligation and the sublease rental payments. Digital Home/Digital Office, LLC is controlled by Arnold Donald, one ofthe Company’s directors.

 

TheCompany’s principal stockholder is controlled by Pegasus Partners II, L.P.,which is, in turn, managed by Pegasus Capital Advisors, L.P. (“Pegasus Advisors”).  Employees of Pegasus Advisors have in thepast and currently serve as members of the Company’s board of directors and theCompany’s senior management  regularlyconsults with Pegasus Advisors on strategic and other business issues.  The 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 ninemonths ended September 30, 2004 and September 30, 2005, the Companyreceived distributions of $500 and $1,023, respectively, from Merisant.**

** **

**7.****                        Commitmentsand Contingencies**

 

The Company is committed to a minimum purchaserequirement at a fixed price for aspartame, its primary raw materialingredient, from The NutraSweet Company pursuant to a supply agreement thatexpires on December 31, 2005.

 

TheCompany has an investment in an affiliate located in the Philippines that isaccounted for using the equity method. The affiliate, a 50/50 joint venture, distributes sugar substitutesweeteners for the international 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 orderedinventory from third party producers in anticipation of a new product launch inthe European markets.  The Companydecided not to launch the product, but it remained committed to purchase theinventory that had already been produced by its vendors.  The total value of the inventory produced wasapproximately $753.  The Company hastaken title to approximately $634 of this inventory as of September

 

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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 inthe District Court of Western Australia by an individual alleging that shesuffered adverse symptoms after consuming Travacalm brand of motion sicknessprevention drug manufactured in 2001 for a pharmaceutical client under acontract manufacturing agreement. Although the Company sold its entire interest in Merisant ManufacturingAustralia Pty. Ltd. in July 2004, pursuant to the sale agreement, theCompany has retained liability for this action. The Company has filed an answer denying the plaintiff’s allegations.

 

InOctober, 2004, the Company requested the National Advertising Division of theCouncil of Better Business Bureaus, referred to as the NAD, to reviewadvertising by McNeil Nutritionals, LLC (“McNeil”) for its *Splenda®*brand tabletop sweetener.  The Company believed such advertising to befalse and misleading.  McNeil refused toparticipate in such industry self-regulating forum and filed a complaint in theUnited States District Court for the District of Puerto Rico requesting thecourt to declare its advertising truthful and not misleading.  Because of the filing by McNeil in PuertoRico, the NAD elected not to review the matter. On November 26, 2004, the Company filed a complaint against McNeilin the United States District Court for the Eastern District of Pennsylvaniaalleging the same issues as were addressed to the NAD.  On January 13, 2005, McNeil voluntarilydismissed its action in Puerto Rico.  On March 23,2005, McNeil filed a motion to amend its answer to the Company’s complaint inthe Pennsylvania action.  McNeil soughtto amend its answer to add a counterclaim against the Company alleging that theCompany’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.

 

Currentand former members of management participate in the Company’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 or otherdistribution event.   On September 19,2005, the Company’s board of directors approved the 2005 Merisant Worldwide, Inc.Share Appreciation Rights Plan (the “2005 SAR Plan”).  The 2005 SAR Plan is in addition to and willnot replace the 2000 SAR Plan previously adopted.  The 2005 SAR Plan is designed to provideincentives to senior management to increase the equity value of theCompany.  In general, participants in the2005 SAR Plan may receive three types of awards, each of which corresponds to apercentage of the aggregate net proceeds distributed to the stockholders of theCompany, participants in the 2000 SAR Plan and participants in the 2005 SARPlan upon a change in control (as defined under the 2005 SAR Plan).  Participants in the 2005 SAR Plan will beentitled to receive awards of share units representing, in the aggregate, up to8% of the first $100 million of such net proceeds, up to 10% of the next $100million of such net proceeds and up to 12% of such net proceeds in

 

 

13

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excess of $200million.  The net proceeds will beincreased by any dividends or other distributions made to the holders of commonstock of the Company prior to the change in control and reduced by an amountequal to 12% compounded annual return on any new equity investment in theCompany.  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 and share unitsunderlying the 2000 SAR Plan.  Newissuances of common stock of the Company will dilute the share units underlyingthe 2005 SAR Plan.  Upon a distributionunder the Plan, participants will receive payouts under the 2005 SAR Plan inthe same form as the consideration received by the stockholders of theCompany.  No awards under the 2005 SARPlan have been granted to date, but the Company and Merisant, have madecommitments to make grants to certain individuals.  The Company does not anticipate that it willbe able to determine the aggregate value of the awards under either the 2000SAR Plan or the 2005 SAR Plan because its equity is privately held and there isno public market for the underlying securities.

 

Inaddition to the matters described above, the Company is subject to variousclaims pending and possible legal actions and other matters arising out of theconduct of the Company’s business, including tax uncertainties arising fromdoing business in various European jurisdictions.  The Company believes, based on currentknowledge, recorded accruals, and consultation with counsel, that the outcomeof such claims and actions will not have a material adverse effect on theCompany’s consolidated financial position or results of operations.

 

**8.****                        SubsequentEvents**

 

On October 24, 2005Merisant Company 2, Sarl, the Company’sSwiss subsidiary, entered into a Share Purchase Agreement for the sale of allof its shares of Merisant South Africa (Proprietary) Ltd. with a South Africandistributor of consumer goods.  Thepurchaser, through the newly acquired entity, will become the exclusivedistributor of *Canderel®* andother edible fast moving consumer good products of the Company that are sold inthe Republic of South Africa as well as certain neighboring countries.  Merisant Company 2, Sarl and its formersubsidiary will enter into a distribution agreement upon the closing of thesale transaction.  The sale transactionis scheduled to close in early December and is contingent on thesatisfaction or waiver of certain conditions, including the making of anyrequired filings with the South African Competition Commission.

 

14

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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 thisdocument.  Our discussion of results byreportable segment should be read in conjunction with Note 2 to ourunaudited consolidated financial statements included elsewhere in this document,which illustrates the reconciliation of Operating EBITDA to loss 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 Worldwide, Inc. andits consolidated subsidiaries.*

 

**Overview**

 

We area worldwide leader in the marketing of primarily low calorie tabletopsweeteners, with an estimated 26% dollar share as of December 31, 2004 ofa growing global retail 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.

 

Ourcompany was formed by an investor group led by an affiliate of Pegasus CapitalAdvisors, L.P. in 2000 to acquire certain assets of the tabletop sweetenerbusiness of Monsanto.  Monsanto enteredthe sweetener market in 1985 through its acquisition of G.D. Searle &Co., which discovered aspartame and founded the business over 20 years ago.

 

Wesell through multiple channels of distribution, including grocery and pharmacyretailers, food service distributors, mass merchandisers and club/warehouseretailers.  We use distributors andbrokers to distribute our products throughout the world and sell our productsdirectly to selected customers in our largest markets.  In 2004, $74.7 million, or 21% of our netsales, were made to Heinz U.S.A., which we refer to as Heinz, our primarydistributor to the grocery and food service customers in the UnitedStates.  Other than Heinz, no customer,including those serviced by Heinz, accounted for greater than 10% of our totalnet sales in 2004.  We have contractswith Heinz for the retail grocery and food service channels, both of whichagreements are year-to-year and are renegotiated at the end of each calendaryear.  From time to time, we reevaluateour strategy to determine whether it is more advantageous to maintain a directsales infrastructure or to use distributors and brokers within certain markets.

 

Ourreportable segments are organized and managed principally by geographicregion:  North America, Europe/Africa/MiddleEast, 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, incometax expense and depreciation and amortization as well as items such as expensesrelated to restructuring charges, certain significant charges related toobsolete 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**

 

Wecontinue to experience increased competition from McNeil Nutritionals LLC, asubsidiary of Johnson & Johnson, and our market share and net saleshave declined in the United States as consumers have switched from *Equal*® to McNeil’s artificial sweetenerproduct, *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

 

15

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in the UnitedStates.  We have successfully addressed *Splenda®*’s earlier attempts to enter theUK market, but we face some potential risk to European sales volumes unless wecontinue to effectively defend our premium *Canderel®*brand in Europe.  As a result of thedeclining net sales, Merisant has experienced declines in Bank EBITDA from$110.2 million in 2003 to $87.3 million in 2004 and $57.8 million to $52.7million for the nine months ended September 30, 2004 and 2005,respectively.  Further declines in Bank EBITDAcould result in the breach of maintenance covenants under Merisant’s seniorcredit facility, in which event, its bank lenders would be entitled toaccelerate all outstanding principal and due and unpaid interest under thesenior credit facility.  For adescription of Bank EBITDA, a reconciliation of Bank EBITDA to cash flow fromoperating activities and a description of Merisant’s maintenance covenantsunder its senior credit facility see “—Liquidity and Capital Resources”.

 

Merisantcontinues to implement its strategy to address these trends by reducingoperating costs, improving the efficiency of its organization and acceleratingnew product development and product launches. Merisant has engaged Booz Allen Hamilton, Inc. to assist with thiseffort.

 

We believe that McNeil’sgains in the United States are due in large part to its significant advertisingspending which, in turn, 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 aremade regarding the safety of aspartame consumption.  On July 14, 2005, the European RamazziniFoundation of Oncology and Environmental Sciences announced the preliminaryresults of a study that the institute claims indicates a possible link betweenthe daily consumption of aspartame by female laboratory rats and thedevelopment of lymphomas and leukemia.  Anumber of food safety regulatory agencies, including the European Food SafetyAuthority, have indicated that they will review the study and its findings buthave not suggested any change in consumer’s diets 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 of the thirdquarter.  We have now confirmed throughconsumer research that the decline in the category and our products in Franceis 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.

 

Wecontinue to believe that aspartame and our products that contain aspartame aresafe for human consumption.   Aspartameis one of the most thoroughly studied food ingredients.  More than 200 toxicological and clinicalstudies during the past 30 years have clearly confirmed the safety ofaspartame.  Nevertheless we cannot assureyou that the claims made by the Ramazzini Foundation with respect to aspartameor the reporting of the study in the press will not have a negative impact onour results of operations in the future.

 

Our contract manufacturerin Australia may cease operations 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 products fromour facilities in Manteno, Illinois or Zarate, Argentina.

 

16

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**Resultsof Operations**

 

For each of the periods described below, theinformation set forth under the caption “Consolidated Results” represents anoverview of our results of operations on a consolidated basis.  Additional detail regarding our results ofoperations can be found under the caption “—Segment Results” for each period described below.

 

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

 

Thefollowing table sets forth certain of our financial data for the three monthperiods ended September 30, 2004 and 2005 (totals may not foot due torounding).

 
| ** **                            | ** ** | **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               |       | 8.9                                        |       | 9.1                                        |       | 11 | % | 12 | % | (0.2 | ) | (2 | )% |
| 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                      |       | 3.0                                        |       | —                                     |       | 4 | % | — |   | 3.0 |   | 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              |       | 39.3                                       |       | 32.9                                       |       | 47 | % | 44 | % | 6.4 |   | 16 | % |
|                                  |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Income from operations                |       | 7.7                                        |       | 10.8                                       |       | 9 | % | 14 | % | 3.1 |   | 40 | % |
|                                  |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Other expenses (income):              |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Interest income                       |       | (0.2                                       | )          | (0.1                                       | )          | (0 | )% | (0 | )% | (0.0 | ) | (13 | )% |
| Interest expense                      |       | 13.8                                       |       | 14.8                                       |       | 17 | % | 20 | % | (1.0 | ) | (7 | )% |
| Other expense (income), net           |       | (0.7                                       | )          | (1.2                                       | )          | (1 | )% | (2 | )% | 0.5 |   | 68 | % |
| Total other expenses                  |       | 12.9                                       |       | 13.5                                       |       | 15 | % | 18 | % | (0.5 | ) | (4 | )% |
|                                  |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Loss before income taxes              |       | (5.2                                       | )          | (2.7                                       | )          | (6 | )% | (4 | )% | 2.5 |   | 49 | % |
|                                  |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Provision for income taxes            |       | 2.3                                        |       | 1.4                                        |       | 3 | % | 2 | % | 0.9 |   | 40 | % |
| Net loss                              |       | $                                          | (7.5       | )                                          | $          | (4.0 | ) | (9 | )% | (5 | )% | $ | 3.5 |   | 46 | % |

 

**ConsolidatedResults**

 

*Netsales.*  The decrease inconsolidated net sales was primarily attributable to lower sales in NorthAmerica and, to a lesser extent, in Latin America and Asia/Pacific.  In North America, sales were lower mainly dueto reduced sales volume in the grocery and food service channels, unfavorablesales mix in the club channel due to a shift to a new, but lower margin productconfiguration and higher trade marketing spend in the grocery and masschannels.  In Latin America, sales werelower across most of the region due to lower demand, as well as the expectedreduction in sales in Colombia due to a shift from a direct sales model to adistributor model.  In Asia/Pacific,sales declined primarily due to the elimination of sales related to contractmanufacturing as a result of the sale of our manufacturing facility inFairfield,

 

17

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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 ofsales.*  Cost of salesdecreased mainly due to lower sales volume, as well as costs related to thelaunch 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 in 2005.  These decreases were partially offset bycurrency translation and a volume-related penalty pursuant to a third partymanufacturing contract for the packaging of *Equal®Sugar Lite**Ô*recorded in the three months ended September 30, 2005.  Overall, gross profit increased from 56% forthe three months ended September 30, 2004 to 58% for the same period in2005.

 

*Operatingexpenses.*  Marketingand selling expenses decreased mainly due to lower advertising and promotionscosts in North America and Latin America, coupled with lower marketing andselling administrative expenses in EAME, Latin America and Asia/Pacific.  These reductions were partially offset byincreased advertising and promotions costs in the EAME and Asia/Pacificregions.  Administration expensesincreased slightly as higher corporate expenses, mainly related to increasedlitigation costs, were substantially offset by the partial reversal ofincentive accruals in the third quarter of 2005 that were recorded in the firstsix months of 2005 and restructuring savings. During the three months ended September 30, 2005, we continued ourplan designed to improve both financial results and the long-term value of ourbusiness.  As a result of these actions,we recorded restructuring charges for workforce reductions of $0.3 million inthe third quarter of 2005 as compared to $0.5 million in the third quarter of2004.  The restructuring charges incurredin the third quarter of 2005 relate to new employee termination costs mainly inthe EAME and Latin America segments and are expected to be substantially paidby the 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.

 

Transactionfees consisted of financing fees that were expected to be deferred andeventually amortized upon completion of the offering of income depositsecurities and professional fees related to the offering of income depositsecurities that were expensed as incurred. This offering was withdrawn on November 1, 2004, and the previouslydeferred financing fees were recorded in the statement of operations astransaction fees during the three months ended September 30, 2004.

 

Theimpairment loss in the third quarter of 2004 relates to the sale of ourFairfield, Australia manufacturing facility. In the third quarter of 2005, the impairment loss relates to the writedown of equipment that we are obligated to purchase from third party vendorsdue to the cancellation of a product launch in the EAME region and the writedown of assets at our vacated Clayton, Missouri location that is currentlybeing subleased, as well as the difference between our lease payment obligationand the 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 Discount Notes and Merisant’s Notes aswe did not register exchange notes prior to the agreed deadline.  As a result of the consummation of theexchange offer on October 5, 2005, the interest rates on the DiscountNotes and the Notes returned to the stated rates of 12.25% and 9.5% per annum,respectively.

 

*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 a loss before taxes of $2.7million.  The unusual relationship of ourtax provision to our pre-tax loss 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 $0.2 million in the third quarter of2005 to a total of $53.3 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

 

18

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of this note is notsubject 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 tax liability.  As of September 30, 2005, we hadestimated net operating loss, or NOL, carryforwards for United States federalincome tax purposes of approximately $97 million, which are available to offsetfuture United States federal taxable income. The full repayment of the promissory note from our Swiss subsidiary in theforeseeable future increases the likelihood that some portion of our NOLs forUnited States federal income tax purposes will be utilized.  We will continue to assess the valuationallowances, and, to the extent we determine that such allowances are no longerrequired, these deferred tax benefits will be recognized in the future.

 

**SegmentResults**

 

Thefollowing table presents net sales and Operating EBITDA expressedin millions of dollars for each of our reportable segments (totals may notfoot 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 loss before income taxes.  Operating EBITDA margin represents OperatingEBITDA as a percentage of net sales.

 

***North America***

 

*Netsales.*  The decrease innet sales in our North America segment as compared to the third quarter of 2004was principally attributable to reduced volumes in the grocery and food servicechannels due to lower consumer demand. In addition, unfavorable sales mix in the club channel, higher trademarketing expenses in the mass channel and lower sales in Canada negativelyimpacted sales in the third quarter of 2005 as compared to the third quarter of2004.  In the club channel, the unfavorablesales mix related to a shift to a new, but lower margin product configuration.These unfavorable impacts were only slightly offset by increased sales volumein the club and drug channels.

 

*OperatingEBITDA.*  Despite thesignificant reduction in sales, Operating EBITDA was down slightly.   The margin impact of lower sales and avolume-related penalty pursuant to a third party manufacturing contract for thepackaging 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.

 

19

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***EAME***

 

*Netsales.*  The net salesincrease in EAME resulted primarily from the favorable impact of currencytranslation.  Sales volume growth in theUK and Portugal was mostly offset by sales volume declines in a number of otherparts of the region, mainly France, Italy, South Africa and Hungary.  Sales in Portugal were significantly impactedby sales to a new distributor to establish appropriate starting inventorylevels.  Sales in France appear to havebeen negatively impacted by the media coverage of the Ramazzini Foundationstudy discussed earlier.

 

*OperatingEBITDA.*  OperatingEBITDA increased mainly due to lower product costs and lower marketing, sellingand general administrative costs primarily due to restructuring savings,infrastructure improvements and the partial reversal of incentive accruals thatwere initially recorded in the first six months of 2005.  These favorable impacts were partially offsetby increased brand support in France and at the regional level.  The increase in Operating EBITDA margin wasprimarily due to the improvement in gross margin percentage and loweradministrative costs as a percentage of sales previously described.

 

***Latin America***

 

*Netsales.*  The decrease inLatin American sales was attributable to lower sales volume across the entireregion, with the exception of Argentina, due primarily to softer demand,increased competitive pressure, lower sales in Colombia due to a shift from adirect sales model to a distributor model and, in some countries, poordistributor 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***

 

*Netsales.*  Net sales inthe Asia/Pacific region decreased primarily due to the elimination of contractmanufacturing sales as a result of the sale of our manufacturing facility in July 2004and the discontinuation of certain low margin product lines in Australia/NewZealand.  These unfavorable impacts werepartially offset by favorable currency translation.

 

*OperatingEBITDA.*  OperatingEBITDA decreased due to higher freight costs in the third quarter of 2005relating to the new sourcing model subsequent to the sale of our localmanufacturing facility in Fairfield, Australia, improved product costs in thethird quarter of 2004 influenced by high volumes at our Fairfield facility andhigher brand support in Australia/New Zealand in the third quarter of2005.  These unfavorable impacts weresomewhat offset by the partial reversal of incentive accruals that wereinitially recorded in the first six months of 2005.  Operating EBITDA margin decreased due to alower gross margin percentage as the unfavorable items previously discussedmore than offset the improvement in gross margin related to the elimination oflow margin product lines.  Additionally,Operating EBITDA margin was negatively impacted by higher marketing and sellingcosts as a percentage of sales, also related to the impacts previouslydiscussed.

 

**Corporate Expenses**

 

Corporateexpenses increased from $4.7 million in the third quarter of 2004 to $5.5million in the third quarter of 2005, primarily due to higher litigation costs,which were partially offset by restructuring savings and the partial reversalof incentive accruals that were initially recorded in the first six months of2005.

 

 

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***Nine Months Ended September 30, 2004 Compared to Nine Months EndedSeptember 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               |       | 27.9                                      |       | 30.2                                      |       | 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                      |       | 3.4                                       |       | (0.5                                      | )          | 1 | % | (0 | )% | 3.9 |   | 115 | % |
| 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              |       | 124.5                                     |       | 108.3                                     |       | 50 | % | 47 | % | 16.2 |   | 13 | % |
|                                  |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Income from operations                |       | 24.5                                      |       | 25.7                                      |       | 10 | % | 11 | % | 1.2 |   | 5 | % |
|                                  |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Other expenses (income):              |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Interest income                       |       | (0.4                                      | )          | (0.6                                      | )          | (0 | )% | (0 | )% | 0.2 |   | 43 | % |
| Interest expense                      |       | 40.8                                      |       | 43.6                                      |       | 16 | % | 19 | % | (2.8 | ) | (7 | )% |
| Other expense (income), net           |       | (7.5                                      | )          | (10.1                                     | )          | (3 | )% | (4 | )% | 2.6 |   | 34 | % |
| Total other expenses                  |       | 32.8                                      |       | 32.9                                      |       | 13 | % | 14 | % | (0.1 | ) | (0 | )% |
|                                  |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Loss before income taxes              |       | (8.3                                      | )          | (7.2                                      | )          | (3 | )% | (3 | )% | 1.1 |   | 13 | % |
|                                  |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Provision for income taxes            |       | 4.4                                       |       | 5.3                                       |       | 2 | % | 2 | % | (0.9 | ) | (21 | )% |
| Net loss                              |       | $                                         | (12.7      | )                                         | $          | (12.5 | ) | (5 | )% | (5 | )% | $ | 0.2 |   | 1 | % |

 

**ConsolidatedResults**

 

*Netsales.*  The decrease inconsolidated net sales was primarily attributable to lower sales in North Americaand, to a lesser extent, in Latin America and Asia/Pacific.  In North America, sales were lower mainly dueto reduced volumes in the grocery, food service, club and mass channels.  In addition, 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. In Latin America, sales were lower in most regions due mainly to lowervolumes.  A shift from a direct salesmodel to a distributor model in Colombia resulted in lower revenues; however,the overall profitability of Colombia improved.   In Asia/Pacific, sales declined due to theelimination of contract manufacturing sales as a result of the sale of ourmanufacturing facility located in Fairfield, Australia in July 2004 andthe discontinuance of certain low margin product lines.  These unfavorable impacts were partiallyoffset by improved sales in the EAME region, improved sales volumes in Canada,contract manufacturing sales in the United States and the impact of slottingexpenses related to *Equal® Sugar Lite**Ô*in 2004 that did not repeat in 2005.   In the EAME region, stronger sales resultingfrom the strengthening of currencies and improved sales in the UK, Portugal,South Africa, the Middle East and Belgium were partially offset by lower salesin other markets.   Sales in Portugalwere significantly impacted by sales to a new distributor to establish appropriatestarting inventory levels.

 

21

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*Cost ofsales.*  Cost of salesdecreased mainly due to lower sales volume in the 2005 period, as well as costsin the 2004 period related to the launch of *Equal®Sugar Lite**Ô*and the transition to a new warehouse in the United States that did notrepeat in 2005.  These favorable impactswere partially offset by currency translation losses, increased distributioncosts, inventory adjustments, obsolescence reserves and a volume-relatedpenalty pursuant to a third party manufacturing contract for the packaging of *Equal® Sugar Lite**Ô*. Overall, gross profit decreased from 59% for the first nine months of2004 to 58% for the same period in 2005.

 

*Operatingexpenses.*  Marketingand selling expenses decreased mainly due to lower advertising and othermarketing costs in all segments, some of which relates to timing of brandsupport, coupled with lower marketing and selling administrative expenses inEAME, Latin America and Asia/Pacific. Administration expenses increased primarily due to a charge of $1.2million to increase the allowance against accounts receivable relating to theannouncement by Food Brokers LTD, a former distributor in the UK, that it wasgoing 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.

 

Transactionfees consisted of financing fees that were expected to be deferred andeventually amortized upon completion of the offering of income depositsecurities and professional fees related to the offering of income depositsecurities that were expensed as incurred. This offering was withdrawn on November 1, 2004, and the previouslydeferred financing fees were recorded in the statement of operations astransaction fees during the three months ended September 30, 2004.

 

Theimpairment loss in the nine months ended September 30, 2004 relates to thesale of our Fairfield, Australia manufacturing facility.  In the nine months ended September 30,2005, the impairment loss relates to the write down of equipment that we areobligated to purchase from third party vendors due to the cancellation of aproduct launch in the EAME region and write down of assets at our vacatedClayton, Missouri location that is currently being subleased, as well as thedifference between our lease payment obligation and the sublease rental incomethrough the end of the lease.  Additionalinformation regarding the charges in the nine months ended September 30,2005 can be found in Notes 6 and 7 to the unaudited consolidated financialstatements found elsewhere in this document.

 

*Interest.*  Net interest expense increased mainly due tohigher interest rates on the outstanding Discount Notes and Merisant’s Notes,as we did not register exchange notes prior to the agreed deadline.  As a result of the consummation of theexchange offer on October 5, 2005, the interest rates on the DiscountNotes and the Notes returned to the stated rates of 12.25% and 9.5% per annum,respectively.

 

*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 Merisant’s senior creditfacility, which we have marked to market through our statement of operationssince our debt refinancing in July 2003.

 

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*Taxes.*  For the nine months ended September 30,2005, we recorded a $5.3 million tax provision on a loss  before income taxes of $7.2 million.  The unusual relationship of our tax provisionto our pre-tax income in the first nine months of 2005 relates to increased taxloss carryforwards generated for which we have not recorded a tax benefit. Ourtax provision in the nine months ended September 30, 2004 was similarlyunusual.  For the nine months ended September 30,2005, we increased our total valuation allowance by $11.4 million to $53.3****million.  With regardto the deferred tax assets on the tax loss carryforwards, we determined that wehave not satisfied the “more likely than not” test in certainjurisdictions.  A promissory note fromour Swiss subsidiary is expected to be repaid as early as the fourth quarter of2005.  The repayment of the principal ofthis note is not subject to tax in the United States.  However, once the note is repaid in full, anycash repatriation from this subsidiary could result in a higher United Statesfederal tax liability.  As of September 30,2005, we had estimated net operating loss, or NOL, carryforwards for UnitedStates federal income tax purposes of approximately $97 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 berecognized in the future.

 

**SegmentResults**

 

Thefollowing table presents net sales and Operating EBITDA expressedin millions of dollars for each of our reportable segments (totals may notfoot 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 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, and certainother non-cash or excludable charges or losses. See Note 2 to the unaudited consolidated financial statements for adescription of Operating EBITDA and a reconciliation of Operating EBITDA toloss before income taxes.  OperatingEBITDA margin represents Operating EBITDA as a percentage of net sales.

 

***North America***

 

*Netsales.*  In NorthAmerica, net sales were lower due mainly to reduced volumes in the grocery,food service, club and mass channels primarily attributable to lower consumerdemand.  Additionally, unfavorable salesmix in the club channel due to a shift to a new, but lower margin productconfiguration and higher trade marketing expenses in the grocery, mass and foodservice channels also contributed to the sales decline.  These unfavorable impacts were partiallyoffset by increased sales in Canada due to an adverse inventory adjustment inthe first quarter of 2004 that did not occur in the first quarter of 2005,higher sales in the drug channel and increased 2005 sales related to contract manufacturingactivities.

 

*OperatingEBITDA.*  The decreasein Operating EBITDA was primarily related to the margin impact of lower salesvolumes, shift in sales mix, inventory adjustments and a volume-related penaltypursuant to a third party

 

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manufacturing contractfor 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.

 

***EAME***

 

*Netsales.*  The net salesincrease in EAME resulted primarily from the favorable impact of currencytranslation.  In addition, there wassales growth in the UK, Portugal, South Africa, the Middle East and Belgium,which was partially offset by a sales decline in a number of other parts of theregion, mainly France, Italy, Switzerland and Hungary.   Sales in Portugal were significantlyimpacted by sales to a new distributor to establish appropriate starting inventorylevels.

 

*OperatingEBITDA.*  OperatingEBITDA increased mainly due to the margin impact of increased sales, favorablecurrency impacts, decreased brand support in the UK, France and the MiddleEast, reduced infrastructure costs, a favorable capital tax ruling inSwitzerland resulting in the reduction of capital tax accruals and reducedincentive accruals.  These favorableitems were offset by the impact of the increase to the allowance against theFood Brokers, LTD accounts receivable and balance sheet remeasurementlosses.  The increase in Operating EBITDAmargin was primarily due to an increase in gross margin percentage and lowermarketing, selling and administrative costs as a percentage of sales.

 

***Latin America***

 

*Netsales.*  The decrease inLatin American sales was attributable to lower sales across the entire regiondue primarily to softer demand, increased competitive pressure and, in somecountries, poor distributor performance.

A shift from a directsales model 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 EBITDA marginincreased due to the reversal of the currency loss, partially offset by lowergross margin percentage and higher marketing expenses as a percentage of sales.

 

***Asia/Pacific***

 

*Netsales.*  Net sales inthe Asia/Pacific region decreased due to the elimination of contractmanufacturing sales as a result of the sale of our manufacturing facilitylocated in Fairfield, Australia in July 2004 and the discontinuation ofcertain low margin product lines in Australia/New Zealand.  These impacts were partially offset byfavorable currency impacts and increased sales in certain Asian markets.

 

*OperatingEBITDA.*  OperatingEBITDA increased despite the reduction in sales primarily due to significantpositive sales mix related to lower sales of negative or low margin products,reduced incentive accruals and lower brand support and marketing and sellingadministrative costs in Australia/New Zealand. Operating EBITDA margin increased significantly due to improved grossmargin percentage resulting from the reduction in negative and lower marginsales, lower product costs and improved operating costs as a percentage ofsales due to reductions in brand support and selling and marketingadministrative costs in Australia/New Zealand.

 

**Corporate Expenses**

 

Corporateexpenses increased from $16.5 million in the first nine months of 2004 to $17.9million in the first nine months of 2005, primarily due to higher litigation,human resources and consulting costs, which were partially offset by savingsrelated to restructuring activities and reduced incentive accruals.

 

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**Liquidityand Capital Resources**

 

Ourliquidity needs are primarily met through internally generated cash flow.  From time to time, we also borrow money underthe revolving line of credit under Merisant’s senior credit facility.  Our primary uses of cash are cost of sales,operating expenses, debt service, capital expenditures and dividends to ourshareholders.

 

Accountsreceivable levels, time to payment and inventory levels impact the amount ofinternally generated cash flow.  Thefollowing table shows information with respect to our accounts receivable andinventory as of December 31, 2004 and September 30, 2005.  Accounts receivable decreased in the ninemonths ended September 30, 2005 primarily due to significantly lower salesin the third quarter of 2005 as compared to the fourth quarter of 2004.  The increase in inventory was the result ofsignificant aspartame purchases in the first quarter that are being consumedthroughout 2005 and a portion 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 Ended September 30, 2005***

 

Forthe nine months ended September 30, 2005, net cash provided by operatingactivities was $4.4 million, whereas in the nine months ended September 30,2004, net cash provided by operating activities was $18.6 million.  Operating cash flows decreased $14.2 millionversus the nine months ended September 30, 2004, primarily due to reducednet income after adjusting for non-cash items and a decrease in thecontribution from working capital of $10.6 million.  The contribution from working capitaldecreased mainly due to changes in accounts payable and an increase inaspartame inventories that will continue to be consumed throughout the rest of2005 and a portion of 2006.

 

Netcash used in investing activities totaled $3.0 million for the nine monthsended September 30, 2005, compared to $8.1 million for the nine monthsended September 30, 2004.  Capitalexpenditures in the nine months ended September 30, 2005 were significantlylower than in the nine months ended September 30, 2004, primarily due toequipment upgrades at our Manteno and Zarate facilities, spending at our formerfacility in Fairfield, Australia and business system enhancements in the ninemonths ended September 30, 2004 that did not repeat in the comparableperiod in 2005.

 

Forthe nine months ended September 30, 2005, financing activities provided$3.0 million in cash, an $9.0 million increase as compared to the nine monthsended September 30, 2004, when cash used in financing activities totaled$6.0 million.  As of September 30,2005, cash was provided from borrowings of $12.0 million under Merisant’srevolving loan facility, as compared to no borrowings under Merisant’srevolving loan facility as of September 30, 2004.  For the nine months ended September 30,2005, we used cash mainly to pay Merisant’s scheduled principal payments of$7.3 million under its 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 toMerisant’s senior credit facility in the first quarter of 2005.

 

***Capital Expenditures***

 

Capitalexpenditures in 2005 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 underMerisant’s senior credit facility, will be sufficient to fund our operationsover the next 12 months.

 

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***Financing***

 

On November 12,2003, we issued $136.0 million stated aggregate principal amount at maturity ofour 12.25% Discount Notes due 2014.  Aportion of the proceeds of the Discount Notes was used to pay a dividend to ourshareholders.  The Discount Notes areunsecured obligations and are subordinated in right of payment to all of ourexisting and future senior indebtedness. The Discount Notes had an initial accreted value of principal of $.551per $1 fully accreted stated principal amount at maturity.  The accreted value of principal of eachDiscount Note increases from the date of issuance until November 15, 2008at the rate equal to the interest rate then in effect.   The initial annual rate of accretion was12.25%, which increased as described below. Cash interest will accrue and will be payable semiannually in arrears onMay 15th and November 15th, commencing on May 15,2009.  The Discount Notes mature on May 15,2014.

 

CommencingJuly 19, 2004, the interest rate increased 0.25% over the stated rate forthe Discount Notes due to our failure to register our Exchange notes prior tothe agreed deadline, and commencing on each of October 19, 2004, January 19,2005 and April 19, 2005, the interest rate on the Discount Notes increasedan additional 0.25% for a total increase of 1.0%.  The cumulative impact of the 1.0% additionalinterest is approximately $0.1 million per month.  As a result of the consummation of theexchange offer on October 5, 2005, the interest rate returned to itsstated rate of 12.25% per annum.   Totalexchange offer related fees of $0.4 million are classified as deferredfinancing fees and will be amortized over the remaining life of our ExchangeNotes.

 

Aspart of the refinancing in 2003, we incurred significant financing costs thatare being amortized in accordance with the terms of the respective debtinstruments.  As of September 30,2005, our deferred financing cost balance relating to the issuance of theDiscount Notes was approximately $2.1 million.

 

On July 11,2003, Merisant issued $225.0 million principal amount of its Notes andrefinanced its credit facility with a new senior credit facility.  A portion of the proceeds of the Notes andthe new senior credit facility were used to pay a dividend.  Merisant’s senior credit facility providesfor aggregate commitments of up to $310.0 million, consisting of a revolvingloan facility of $35.0 million, of which a portion is available at Merisant’soption in euro or dollars or in the form of letters of credit denominated indollars or euro, as well as term loan facilities of $275.0 million, consistingof a Euro Term Loan A of $50.0 million, and a Term Loan B of $225.0 million,denominated in dollars.  The seniorcredit facility is guaranteed by us and each of Merisant’s domesticsubsidiaries.  The senior credit facilityand the guarantees of the guarantors are secured by a first-priority securityinterest in substantially all of Merisant’s assets and the assets of theguarantors.

 

CommencingJuly 5, 2004, the interest rate on the Notes increased 0.25% over thestated rate as Merisant did not register its exchange notes prior to the agreeddeadline, 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 $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 Merisant’sExchange Notes.

 

Aspart of Merisant’s refinancing in 2003, Merisant incurred significant financingcosts that are being amortized in accordance with the terms of the respectivedebt instruments.  As of September 30,2005, Merisant’s  deferred financing costbalance related to the refinancing of its senior credit facility and theissuance of the Notes in July 2003 and the execution of any subsequentamendments to its credit facility was approximately $13.4 million.

 

Borrowingsunder Merisant’s senior credit facility bear interest, at Merisant’s option, ateither adjusted LIBOR or, in the case of dollar-denominated loans, at thealternate base rate plus, in each case, a spread.   Outstanding letters of credit under therevolving loan facility will be subject to a per annum fee equal to theapplicable spread over adjusted LIBOR for revolving loans.  The Euro Term Loan A and the revolving loanfacility have a maturity of five and one-half years while the Term Loan B has amaturity of six and one-half years.

 

Theindenture governing our Discount Notes, Merisant’s Notes and Merisant’s seniorcredit facility contain covenants that limit, among other things, our abilityto:

 

•                  pay dividends,

 

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•                  incur additional debt,

 

•                  create liens,

 

•                  engage in transactions with affiliates,or

 

•                  sell or purchase property andequipment and take certain other actions with respect to the business.

 

Inaddition, the senior credit facility contains covenants that require Merisantto maintain a specified maximum leverage ratio and senior debt ratio and aminimum fixed charge ratio and interest coverage ratio.  These ratios are measured on the basis ofBank EBITDA for the four fiscal quarters ending at least 45 days prior to thepayment date. Bank EBITDA as originally defined in the senior credit facilityexcludes interest expense, income tax expense and depreciation andamortization, as well as items such as expenses related to restructuringexpenses and other non-cash items. On October 20, 2004, Merisant enteredinto an amendment to the senior credit facility.  Pursuant to the amendment, fees related toour withdrawn offering of income deposit securities of up to a maximum of $4.5million are excludable from Merisant’s Bank EBITDA calculation and Merisant isallowed to pay dividends to us 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 Merisant’s Bank EBITDA calculation wasincreased by $2.0 million.  On March 11,2005, Merisant again amended its senior credit facility.  Pursuant to this amendment, Merisant’sexisting financial condition covenant ratios were revised and an additionalfinancial condition covenant ratio, consolidated senior leverage ratio, wasadded.   In addition, charges related toobsolete or slow-moving inventory or uncollectible receivables or indebtedness,up to a maximum of $5.0 million since September 30, 2004, and transactionfees related to the execution of this amendment are excludable from Merisant’sBank EBITDA calculation and the existing limit on restructuring costsexcludable from Merisant’s Bank EBITDA calculation has been increased by $4.0million.  Fees of approximately $0.9million were incurred in the first quarter of 2005 to execute this amendment.  These fees are classified as deferredfinancing fees and are being amortized over the remaining life of the relateddebt.  Bank EBITDA is presented becausewe believe that it is a useful supplement to cash flow from operatingactivities in understanding cash flows generated from operations that areavailable for tax, debt service and capital expenditures and because it is themeasure upon which the covenants contained in Merisant’s senior credit facilityare measured. However, Bank EBITDA is not a measure of liquidity under GAAP.Accordingly, while providing useful information with respect to an assessmentof Merisant’s liquidity as impacted by the covenants in its primary debtobligations, this measure should not be considered in isolation from, or as asubstitute for, consolidated statement of cash flow data prepared in accordancewith GAAP as an indication of Merisant’s liquidity. In addition, the BankEBITDA measure presented may differ from, and may not be comparable to,similarly titled measures used by other companies.  Bank EBITDA for the nine months ended September 30,2005 was $52.7 million.  Merisant was incompliance with its obligations under 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                        |       | $                                          | 4.4        |   |
| 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                                        |       | (0.5                                       | )          |
| Restructuring  expenses (a)                                       |       | 2.3                                        |       |
| Other items (b)                                                   |       | 0.2                                        |       |
| Equity in  (income) loss of affiliates                            |       | 0.1                                        |       |
| Net change in  operating assets and liabilities                   |       | 10.2                                       |       |
| 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 ofeach period 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 inMerisant’s definition of Bank EBITDA.

 

Merisanthas experienced continued declines in its Bank EBITDA from $110.2 million in2003 to $87.3 million in 2004 and $57.8 million to $52.7 million for the ninemonths ended September 30, 2004 and 2005, respectively.  Further declines in Merisant’s Bank EBITDAcould result in the breach of maintenance covenants under its senior creditfacility, in which event, Merisant’s bank lenders would be entitled toaccelerate all outstanding principal and due and unpaid interest under thesenior credit facility.  Merisant iscontinuing to implement its strategy to address these trends by reducingoperating costs, improving the efficiency of its organization and acceleratingnew product development and product launches. Merisant has engaged Booz Allen Hamilton, Inc. to assist with thiseffort.

 

Includingthe impact of our open interest rate protection agreements described under “Quantitativeand Qualitative Disclosure About Market Risk - Foreign Currency and InterestRate Risks”, the effective cash interest rate on all borrowings under Merisant’ssenior credit facility was approximately 8% as of September 30, 2005.

 

Ourability to make scheduled payments of principal of, or to pay the interest on,or to refinance our indebtedness, including the senior subordinated notes andMerisant’s senior credit facility, or to fund planned capital expenditures willdepend on our ability to generate cash in the future.  This ability, to a certain extent, is subjectto general economic, financial, competitive, legislative, regulatory, and otherfactors beyond our control.

 

**RisksRelated to Our Business and Discount Notes**

 

***Changes in consumer preferences could decrease our revenues and cashflow***.

 

We aresubject to the risks of evolving consumer preferences and nutritional andhealth-related concerns.  Substantiallyall of our revenues are derived from the sale of low calorie tabletopsweeteners in which aspartame is the primary ingredient.  To the extent that consumer preferencesevolve away from low calorie tabletop sweeteners, and aspartame-based lowcalorie tabletop sweeteners in particular, there will be a decreased demand forour products.  Consumer perception thatthere are low calorie tabletop sweetener alternatives that are healthier ormore natural than aspartame 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.

 

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

 

Weoperate in a highly competitive industry. We compete with companies that have greater capital resources,facilities and diversity of product lines than ours.  Increased competition for our products couldresult in reduced volumes and/or prices, both of which would reduce our salesand margins.

 

Ourcompetitors may also introduce new low-calorie sweeteners, such as has occurredwith the sucralose-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.

 

Ourmargins are also under pressure from consolidation in the retail food industryin many regions of the world.  In theUnited States, we have experienced a shift in the channels where consumerspurchase our products from the higher margin retail to the lower margin cluband mass merchandisers.  Suchconsolidation may significantly increase our costs of doing business and mayfurther result in lower sales of our products and/or lower

 

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margins on sales.  In addition, increased competition fromprivate label manufacturers of low calorie tabletop sweeteners may have a negativeimpact on our sales and/or margins.

 

***We are a holding company with nooperations of our own and depend on our subsidiaries for cash.  We are limited in our ability to access fundsfrom these subsidiaries.***

 

Wehave no operations of our own and derive substantially all of our revenue andcash flow from our subsidiaries. Although we have no operations, we incur certain expenses relating tomaintaining our corporate existence and complying with our obligations underthe Discount Notes and applicable laws. In addition, our Discount Notes will accrue cash interest after November 15,2008.  None of our subsidiaries isobligated to make funds available to us. Accordingly, our ability to obtain funds is dependent on the earningsand the distribution of funds from our subsidiaries.  The ability of our subsidiaries to paydividends or make cash distributions to us may be restricted by applicable lawsor contractual provisions.  As a resultof these restrictions, we cannot assure you that our subsidiaries will be ableto pay dividends or make cash distributions to us in order to allow us to meetour obligations.

 

Theterms of Merisant’s senior credit ability prohibit our subsidiaries from payingdividends or otherwise distributing funds to us, with limited exceptions fordividends to permit the payment of certain of our ongoing expenses.  In addition, the indenture governing Merisant’ssenior subordinated notes restricts the ability of our subsidiaries to paydividends or otherwise distribute funds to us if we do not meet certainfinancial requirements or if a default or event of default has occurred and iscontinuing under the indenture. Furthermore, our subsidiaries will be permitted under the terms of thesenior credit facility and other indebtedness to incur additional indebtednessthat may severally restrict or prohibit the making of distributions, thepayment of dividends or the making of loans by such subsidiaries to us.  In order to comply with the terms of the DiscountNotes to pay cash interest after May 15, 2009, we will be required to seekthe consent of the lenders under Merisant’s senior credit facility and thecreditors under the other debt instruments that limit the payment of dividendsto us or refinance that debt.  We cannotassure you that we will be able to do so or that any refinancing indebtednesswill be on terms as favorable as the existing debt.

 

***Our substantial indebtedness couldadversely affect our financial condition.***

 

Wehave a significant amount of indebtedness. As of September 30, 2005, our total debt was $534.1 million,excluding unused revolving loan commitments under Merisant’s senior creditfacility and its capital lease obligation of $0.2 million, $158.6 million ofwhich is currently scheduled to become due in January 2010.  Our substantial indebtedness 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;

 

•                                          limitour ability to borrow additional funds;

 

•                                          restrictus from making strategic acquisitions or necessary divestitures, introducingnew brands and/or 

 

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productsor exploiting business opportunities; and

 

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

 

***Our business may be adversely affected by our dependence upon oursuppliers.***

 

Werely on a limited number of suppliers for our raw materials.  Currently, we are committed to a minimumpurchase requirement at a fixed price for aspartame, our primary rawingredient, from The NutraSweet Company, which we refer to as NutraSweet,pursuant to an aspartame supply agreement that expires on December 31,2005.  Contractual restrictions preventuse of this aspartame in some foreign countries, and therefore it is usedprimarily in the United States and in other markets sourced from our UnitedStates manufacturing facility.  Theremaining minimum purchase requirement significantly exceeds our projectedusage for these markets in 2005. Nevertheless, we also purchase aspartame from other suppliers for use inour European markets and in other markets sourced from our Europeanmanufacturing facilities.  If for anyreason, NutraSweet is unable to fulfill its obligations under the aspartamesupply agreement, we may be unable to meet our aspartame supply needs on termsas 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.

 

***Inability to protect our trademarks and other proprietary rights coulddamage our competitive position.***

 

Anyinfringement or misappropriation of our intellectual property could damage itsvalue and limit our ability to compete. We rely on copyrights, trademarks, trade secrets, confidentialityprovisions and licensing arrangements to establish and protect our intellectualproperty.  We own no patents relating toaspartame or otherwise.  We may have toengage in litigation to protect our rights to our intellectual property, whichcould result in significant litigation costs and require significant amounts ofmanagement’s time.

 

In alimited number of cases, 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 andour affiliates have worldwide, royalty-free, exclusive licenses to the *NutraSweet*® mark in the tabletop sweetener category forproducts which contain aspartame sourced from NutraSweet.  The licenses are in effect during the term ofour aspartame supply agreement with NutraSweet and thereafter, subject tocertain minimum purchase obligations. NutraSweet has the option to terminate the licenses upon six months’notice if we do not purchase at least 200 metric tons of aspartame from it inthe calendar year then expired.  Upontermination of our rights to the *NutraSweet*®mark, there is no guarantee that a third party, including NutraSweet, will notintroduce a tabletop sweetener product under the *NutraSweet*®brand which competes with our products.

 

Webelieve that the formulas 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 suchdissemination or misappropriation of this information could deprive us of thevalue of our proprietary information.

 

***Health-related allegations could damage consumer confidence in ourproducts.***

 

Periodically,claims are made regarding the safety of aspartame consumption.  Past claims include allegations thataspartame leads to neurological illnesses and other health problems.  Current claims include the Ramazzini studydiscussed above.  Although we believethat we have been successful in presenting scientific evidence to dispute pastclaims and restore consumer confidence in our products that contain aspartame,there can be

 

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no assurance that we willbe similarly 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.

 

***Product liability claims or product recalls could adversely affect ourbusiness reputation.***

 

Thesale of food products for human consumption involves the risk of injury toconsumers.  Such hazards could resultfrom:

 

•                  tampering by unauthorized thirdparties;

 

•                  product contamination;

 

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

 

•                  residues introduced during themanufacturing, packaging, storage, handling or transportation phases.

 

Someof the products we sell are produced for us by third parties and such thirdparties may not have adequate quality control standards to ensure that suchproducts are not adulterated, 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.

 

Consumptionof adulterated products may cause serious health-related illnesses and we maybe subject 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 claims orliabilities may not be covered by our insurance or by any rights of indemnityor 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 publicity surroundingany assertion that our products caused illness or injury could have a materialadverse effect on our reputation with existing and potential consumers and onour brand image, all of which could negatively impact our earnings and cashflows.

 

Additionally,our former facility in Fairfield, Australia manufactured certain pharmaceuticalproducts for third parties.  Our currentinsurance coverage excludes liabilities resulting from pharmaceuticalmanufacturing.  A claim related to apharmaceutical product which we produced could have a significant negativeimpact on our earnings and cash flows. We are currently defending one such claim in the District Court ofWestern Australia, as discussed further in Note 7 to our unaudited consolidatedfinancial statements found elsewhere in this document.

 

***Our international operations involve the use of foreign currencies,which subjects us to exchange rate fluctuations and other currency risks.***

 

Therevenues and expenses of our international operations generally are denominatedin local currencies, which subject us to exchange rate fluctuations betweensuch local currencies and the U.S. dollar. These exchange rate fluctuations subject us to currency translation riskwith respect to the reported results of our international operations, as wellas to other risks sometimes 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 orotherwise, to reduce the currency risks associated with our internationaloperations.

 

***If we do not manage costs in the highly competitive tabletop sweetenerindustry, our profitability could decrease.***

 

Oursuccess depends in part on our ability to manage costs and be efficient in thehighly competitive tabletop sweetener industry. If we do not continue to manage costs and achieve additionalefficiencies, our profitability could decrease. In addition, following our cost reduction activities, we will have fewerinternal

 

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resources with which toeffectively compete against companies with greater resources than ours.

 

***If we fail to comply with the many laws applicable to our business, wemay incur significant fines and penalties.***

 

Ourfacilities and products are subject to laws and regulations administered by theFederal Food and Drug Administration, and other federal, state, local, andforeign governmental agencies 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 our products.  Our operations are also subject toregulations administered by the Environmental Protection Agency and otherstate, local and foreign governmental agencies. Failure to comply with these regulations can have serious consequences,including civil and administrative penalties and negative publicity.

 

Inaddition to the possible fines and penalties discussed above, changes in lawsand regulations in domestic and foreign jurisdictions, including changes infood and drug laws, accounting standards, taxation requirements (including taxrate changes, new tax laws and revised tax law interpretations) andenvironmental laws could have a significant adverse effect on our results ofoperations.

 

***There is no assurance that our senior management team or other keyemployees will remain with us.***

 

Webelieve that our ability to successfully implement our business strategy and tooperate profitably depends on the continued employment of our senior managementteam and other key employees.  If membersof the 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 rely on a major distributor in our largest market.***

 

Wehave an agreement with Heinz to purchase and distribute our products to groceryand food service customers in the United States.  In 2004, purchases by Heinz represented 21%of our consolidated net sales. Currently, we are dependent on Heinz to sell our products to grocerystores, certain food wholesalers and food service distributors andoperators.  We do not have a significantsales force or sales organization to support the sale of products in the UnitedStates.  If Heinz becomes unwilling orunable to continue to fulfill its obligations under our agreement with them, oris not in the financial position to purchase or market our products, we may berequired to find alternative means to sell our products and our financialperformance 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.

 

***The loss of agency arrangements in France could increase our sellingexpenses.***

 

Our sales force in Franceprovides merchandising and account management services to other unaffiliatedcompanies pursuant to agency agreements. By providing these services, 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.

 

***Our business may be adversely affected by conditions in the countrieswhere we operate.***

 

Weoperate in many countries throughout the world. Economic and political changes in the countries where we market andproduce our products, such as inflation rates, recession, foreign ownershiprestrictions, restrictions on transfer of funds into or out of a country andsimilar factors may adversely affect our results of operations.

 

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***Our taxes may increase.***

 

In2000, our Swiss subsidiary purchased all of our foreign intangibles, includingtrademarks, from us in exchange for a promissory note in the amount of$168.0 million.  The repayment ofthe principal of this note is not subject to tax in the United States.  However, once the note is repaid in full,which may occur as soon as the fourth quarter of 2005, any cash repatriationfrom this 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 $97 million which areavailable to offset future United States federal taxable income, if any,through 2021, subject to any limitations under Section 382 of the InternalRevenue Code of 1986 which might apply. We have not recorded any deferred tax benefits related to these NOLs inour consolidated financial statements.   As a result, it is difficult to predict theimpact on our effective tax rate of the combination of increased taxable incomefrom repatriation of foreign earnings to the United States and the recognitionin our financial statement of the benefit of our NOL carryforwards.

 

**Quantitativeand Qualitative Disclosures About Market Risk**

 

***Foreign Operations***

 

Withapproximately 64% of our consolidated total net sales generated by oursubsidiaries outside of the United States in the nine months ended September 30,2005, our ability to obtain funds necessary to meet our obligations is subjectto applicable laws, foreign taxes and intercompany pricing laws, includingthose relating to the flow of funds between our foreign affiliates pursuant to,for example, purchase agreements, licensing agreements or otherarrangements.  Currently, we receive avast majority of funds from our foreign affiliates through our Swiss subsidiaryin the form of payments pursuant to a promissory note.  Once the note is repaid in full, which mayoccur as early as the fourth quarter of 2005, we will receive funds from thissubsidiary, as well as other foreign affiliates, in the form of a dividend orother type of payment.  Such paymentswill be subject to any applicable laws or restrictions.  Regulators in the United States and otherforeign countries where we operate may closely monitor our corporate structureand how we effect intercompany fund transfers.

 

Netsales outside of the United States aggregated 59% and 64% of our total netsales for the nine months ended 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.

 

***Foreign Currency and Interest Rate Risks***

 

Inherentin our operations are certain risks related to changes in foreign currencyexchange rates and interest rates.  Webear foreign exchange risk because a majority of our financing was obtained inU.S. dollars although a significant portion of our revenues are earned in thevarious currencies of our foreign subsidiaries’ operations.  Under Merisant’s senior credit facility, aportion of 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.

 

Amajority of our debt bears interest at a fixed rate.  Interest rate exposure results from ourfloating rate borrowings.  The interestrate risk on nearly all of our outstanding debt with variable interest rateshas been managed 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

 

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an unfavorable $2.1million.  Any fair value mark to marketof our interest rate derivatives would impact our balance sheet and statementsof operations.

 

In thenormal course of business, we identify risks relating to foreign currencyexchange rates and interest rates and mitigate their financial impact throughour corporate policies and hedging activities. Our hedging activities include the use of derivative financialinstruments.  We use derivatives onlywhere there is an underlying exposure and do not use them for trading orspeculative purposes.  The counterparties to the hedging activities 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.

 

Thetable below provides information about our current derivative financialinstruments and other financial instruments that are sensitive to changes ininterest 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             | )          |
|                                                  |            |                                        |            |                |            |                  |            |                  |            |  |  |  |  |

 

Basedon our current portfolio of interest rate swaps and collars, we do not believewe have material interest rate risk.

 

***Inflation Risk***

 

Inflationis not expected to have a material impact on our business, financial conditionor results of operations.  In marketsoutside the United States in countries with higher inflation, we generally havebeen able to offset the impact of inflation through a combination ofcost-cutting measures and price increases.

 

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Item 3.  Quantitative and Qualitative Disclosure AboutMarket Risk

 

Theinformation required hereunder is set forth starting on page 33 of thisReport under the caption “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Quantitative and Qualitative DisclosureAbout Market Risk.”

 

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 by December 31, 2007. We continue to take further steps with regard to these matters.

 

In a letter to us dated September 24,2004 related to our former auditor’s audit of our financial statements for theyear ended December 31, 2003 and through discussions with management andthe audit committee of our board of directors on April 14, 2005 related tothe former 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:

 

•                  We did not have proper documentationrelated to the effectiveness calculation of a derivative instrument causing theinstrument to not qualify for hedge accounting in accordance with Statement ofFinancial Accounting Standard 133 *Accounting**for Derivative Instruments and Hedging Activities* (“FAS 133”).  As a result, we made a material adjustment tothe financial statements that was not initially identified by our internalcontrol over financial reporting.

 

•                  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 abovereferenced matters, our current auditors have identified a weakness surroundingthe timeliness for resolving customer deductions from amounts invoiced to themand recording the related impacts.

 

We have reviewed thematters identified by our former and current auditor and initiated an effort toaddress the issues, some of which we now believe to be resolved.  This process is ongoing, and during theperiod covered by this report, we continued to make material changes in thefollowing areas:

 

•                  In accordance with FAS 133, changes in the fair valueof our interest rate derivative instruments are consistently marked to marketon a monthly basis, impacting our balance sheet and statement of operations.

 

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•                  We have continued to ensure that key accounts arereconciled and reviewed on a monthly basis and obsolete inventory is identifiedand 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 ofapproximately 1% of total inventory.  Theinventory was observed by our internal and external auditors who validated thatthe inventory taking and reconciliation procedures surrounding this physicalinventory were well controlled.

 

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

 

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

 

We believe that thechanges we have implemented are sufficient to remediate the material weaknessesdescribed; however, while we have designed and implemented additional controlsover inventories, we have not had the opportunity to test these controls toensure that they are adequate and effective. In addition to the on-going efforts described above, we have made significantprogress in documenting, testing and remediating our system of internalcontrols in preparation for compliance with the requirements of Section 404of the Sarbanes-Oxley Act and the rules and regulations of the SECpromulgated thereunder, with which we must be in compliance by December 31,2007.  We have hired an internal auditdepartment, continue to evaluate the effectiveness of our internal controls andprocedures on an ongoing basis and will implement actions to enhance ourresources and training in the area of financial reporting and disclosureresponsibilities in light of this deadline.

 

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**PART II- OTHER INFORMATION**

 

Item 1.  Legal Proceedings

 

Fromtime to time, we are involved in litigation concerning our business operations.

 

On May 6,2004, Merisant Manufacturing Australia Pty. Ltd. was served with a complaint inthe District Court of Western Australia by an individual alleging that shesuffered adverse symptoms after consuming Travacalm brand of motion sicknessprevention drug manufactured in 2001 for a pharmaceutical client under acontract manufacturing agreement. Although we sold our entire interest in Merisant Manufacturing AustraliaPty. Ltd. in July 2004, pursuant to the sale agreement, we have retainedliability for this action.  We have filedan answer denying the plaintiff’s allegations.

 

In October 2004,we requested the National Advertising Division of the Council of BetterBusiness Bureaus, referred to as the NAD, to review advertising by McNeilNutritionals, LLC, or McNeil, for its *Splenda®*brand tabletop sweetener.  Webelieved 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, we filed a complaint against McNeil in the United States District Courtfor the Eastern District of Pennsylvania alleging the same issues as wereaddressed 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 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.

 

Managementbelieves that the litigation in which we are currently involved is notreasonably likely to be material to our financial condition or the results ofour operations.

 

Item 5.  Other Information

 

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.

 

Thesestatements are based on assumptions and assessments made by our management inlight of their experience and their perception of historical trends, currentconditions, 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 andnutritional and health-related concerns; increased competition; changes in theterms on which we may obtain aspartame; damaged consumer confidence in ourproducts as a result of health-related allegations; product liability claims;fluctuations in exchange rates and other currency risks; disruptions in ourbusiness as a result of strikes or work stoppages; changes in our relationshipwith our largest distributor; and changes in economic and political conditionsin the countries in which we market 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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*  Incorporatedby reference to the identically numbered exhibit to Merisant Worldwide, Inc.’sCurrent Report on Form 8-K filed on September 23, 2005.

 

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### **SIGNATURES**

### ** **

Pursuantto the requirements 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 WORLDWIDE, INC. |
|------------------------------|--------------------------|
|                         |                     |
|                         |                     |
| 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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