**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

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**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe quarterly period ended September 30, 2006**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe transition period from              to              **

**CommissionFile Number:  333-114105**

**Merisant Company**

(Exact Name of Registrantas Specified in its Charter)

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

 

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

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

**Notapplicable.**

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x   Noo

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct.
| Large accelerated  filer o |   | Accelerated  filer o |   | Non-accelerated  filer x |
|---------------------------------|--------|---------------------------|--------|-------------------------------|

 

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

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

As of November 13, 2006,the registrant had 100 shares of common stock, par value $0.01 per share,outstanding, all of which were owned by Merisant Worldwide, Inc.

 

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**MERISANTCOMPANY**

**INDEX TOREPORT**

**FOR THEQUARTER ENDED SEPTEMBER 30, 2006**
| **PART I—FINANCIAL  INFORMATION** | ** ** |
|---------------------------------------------|------------|
|                                        |       |   |   |
| Item 1.                                     |       | Financial Statements of Merisant Company |   |
|                                        |       |   |   |
|                                        |       | Unaudited Consolidated Balance Sheets at  December 31, 2005 and September 30, 2006 |   |
|                                        |       |   |   |
|                                        |       | Unaudited Consolidated Statements of Operations and  Comprehensive Income (Loss) for the Three and Nine Months Ended September 30,  2005 and 2006 |   |
|                                        |       |   |   |
|                                        |       | Unaudited Consolidated Statement of Stockholder’s  Deficit for the Nine Months Ended September 30, 2006 |   |
|                                        |       |   |   |
|                                        |       | Unaudited Consolidated Statements of Cash Flows for  the Nine Months Ended September 30, 2005 and 2006 |   |
|                                        |       |   |   |
|                                        |       | 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 1A.                                    |       | Risk Factors |   |
|                                        |       |   |   |
| Item 4.                                     |       | Submission of Matters to a Vote of Security Holders |   |
|                                        |       |   |   |
| Item 6.                                     |       | Exhibits |   |

 

2

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**PART I**—**FINANCIAL INFORMATION**

**Item 1. Financial Statements ofMerisant Company**

**MERISANT COMPANYUnaudited Consolidated Balance Sheets(Dollars In Thousands, Except Per Share Amounts)**
| ** **                                                                                                     | ** ** | **At December 31,** | ** ** | **At September 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                     | ** ** | **2005**                      | ** ** | **2006**                       | ** ** |
| **ASSETS**                                                                                                     | ** ** | ** **                    | ** ** | ** **                     | ** ** |
| Cash and cash  equivalents                                                                                     |       | $                             | 18,064     |                           | $          | 9,692 |   |
| Trade accounts  receivable, net of allowances of $3,616 and $249, respectively                            |       | 66,323                        |       | 62,713                         |       |
| Other receivables                                                                                              |       | 10,793                        |       | 5,881                          |       |
| Inventories                                                                                                    |       | 29,201                        |       | 20,055                         |       |
| Prepaid expenses and  other assets                                                                             |       | 2,753                         |       | 3,498                          |       |
| Current portion of note  receivable from director                                                              |       | 970                           |       | 970                            |       |
| Deferred income taxes                                                                                          |       | 474                           |       | 773                            |       |
| Total current  assets                                                                                          |       | 128,578                       |       | 103,582                        |       |
| Property and equipment,  net                                                                                   |       | 29,681                        |       | 24,061                         |       |
| Trademarks and other  intangible assets, less accumulated amortization of $128,587 and $152,821,  respectively |       | 213,432                       |       | 189,198                        |       |
| Goodwill                                                                                                       |       | 107,209                       |       | 107,209                        |       |
| Deferred financing  costs, less accumulated amortization of $5,995 and $6,712, respectively                    |       | 13,705                        |       | 14,542                         |       |
| Non-current portion of  note receivable from director                                                          |       | 3,430                         |       | 2,596                          |       |
| Investment in equity  affiliate                                                                                |       | 362                           |       | 383                            |       |
| Other non-current  assets                                                                                      |       | 1,309                         |       | 1,171                          |       |
| Total assets                                                                                                   |       | $                             | 497,706    |                           | $          | 442,742 |   |
|                                                                                                           |       |                          |       |                           |       |
| **LIABILITIES AND STOCKHOLDER’S  DEFICIT**                                                                | ** ** | ** **                    | ** ** | ** **                     | ** ** |
| Accounts payable                                                                                               |       | $                             | 16,237     |                           | $          | 13,752 |   |
| Income taxes payable                                                                                           |       | 1,933                         |       | 1,055                          |       |
| Accrued interest  expense                                                                                      |       | 12,855                        |       | 6,269                          |       |
| Accrued trade and  consumer promotions                                                                         |       | 18,648                        |       | 12,999                         |       |
| Accrued expenses and  other liabilities                                                                        |       | 18,692                        |       | 17,588                         |       |
| Current maturities of  long-term obligations                                                                   |       | 25,750                        |       | 8,187                          |       |
| Total current  liabilities                                                                                     |       | 94,115                        |       | 59,850                         |       |
| Long-term obligations                                                                                          |       | 415,428                       |       | 429,472                        |       |
| Deferred income tax  liabilities                                                                               |       | 14,317                        |       | 17,998                         |       |
| Other liabilities                                                                                              |       | 14,257                        |       | 13,135                         |       |
| Total  liabilities                                                                                             |       | 538,117                       |       | 520,455                        |       |
| Commitments and  contingencies (Note 8)                                                                        |       |                          |       |                           |       |
| Stockholder’s Deficit:                                                                                    |       |                          |       |                           |       |
| Common stock, $0.01 par  value, 100 shares authorized, issued and outstanding                                  |       | —                        |       | —                         |       |
| Due for purchase of  shares in Merisant Worldwide, Inc.                                                   |       | (767                          | )          | (767                           | )          |
| Retained deficit                                                                                               |       | (32,613                       | )          | (70,194                        | )          |
| Accumulated other  comprehensive loss                                                                          |       | (7,031                        | )          | (6,752                         | )          |
| Total  stockholder’s deficit                                                                              |       | (40,411                       | )          | (77,713                        | )          |
| Total liabilities and  stockholder’s deficit                                                              |       | $                             | 497,706    |                           | $          | 442,742 |   |

 

The accompanying notes are an integral part ofthese unaudited consolidated financial statements.

3

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**MERISANTCOMPANY****Unaudited Consolidated Statementsof Operations and****Comprehensive Income (Loss)****(Dollars In Thousands)**
| ** **                         | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                         | ** ** | **2005**                                             | ** ** | **2006**                                            | ** ** | **2005** | ** ** | **2006** | ** ** |
| Net sales                          |       | $                                                    | 75,072     |                                                | $          | 68,430 |   | $ | 230,136 |   | $ | 216,726 |   |
| Cost of sales                      |       | 31,420                                               |       | 29,720                                              |       | 96,157 |   | 91,339 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Gross profit                       |       | 43,652                                               |       | 38,710                                              |       | 133,979 |   | 125,387 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Operating  expenses:               |       |                                                 |       |                                                |       |   |   |   |   |
| Marketing and selling expenses     |       | 17,113                                               |       | 17,025                                              |       | 57,987 |   | 56,134 |   |
| Administration expenses            |       | 9,514                                                |       | 9,062                                               |       | 31,495 |   | 31,543 |   |
| Amortization of intangible assets  |       | 5,554                                                |       | 5,553                                               |       | 16,662 |   | 16,661 |   |
| Transaction fees                   |       | —                                               |       | —                                              |       | (107 | ) | 3,300 |   |
| Net loss on long lived assets      |       | 301                                                  |       | 7,788                                               |       | 301 |   | 7,788 |   |
| Restructuring expenses             |       | 342                                                  |       | 1,441                                               |       | 2,254 |   | 5,037 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Total operating expenses           |       | 32,824                                               |       | 40,869                                              |       | 108,592 |   | 120,463 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Income (loss)  from operations     |       | 10,828                                               |       | (2,159                                              | )          | 25,387 |   | 4,924 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Other expense  (income):           |       |                                                 |       |                                                |       |   |   |   |   |
| Interest income                    |       | (137                                                 | )          | (104                                                | )          | (607 | ) | (468 | ) |
| Interest expense                   |       | 11,697                                               |       | 12,141                                              |       | 34,719 |   | 36,882 |   |
| Other expense (income), net        |       | (1,175                                               | )          | (1,094                                              | )          | (10,068 | ) | 444 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Total other expense                |       | 10,385                                               |       | 10,943                                              |       | 24,044 |   | 36,858 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Income (loss)  before income taxes |       | 443                                                  |       | (13,102                                             | )          | 1,343 |   | (31,934 | ) |
| Provision for  income taxes        |       | 1,376                                                |       | 2,206                                               |       | 5,306 |   | 5,147 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Net loss                           |       | $                                                    | (933       | )                                                   | $          | (15,308 | ) | $ | (3,963 | ) | $ | (37,081 | ) |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Net loss from  above               |       | $                                                    | (933       | )                                                   | $          | (15,308 | ) | $ | (3,963 | ) | $ | (37,081 | ) |
| Other  comprehensive income (loss) |       | 1,051                                                |       | (581                                                | )          | (2,121 | ) | 279 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Total comprehensive  income (loss) |       | $                                                    | 118        |                                                | $          | (15,889 | ) | $ | (6,084 | ) | $ | (36,802 | ) |

 

The accompanying notes are anintegral part of these unaudited consolidated financial statements.

4

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**MERISANTCOMPANY****Unaudited Consolidated Statementof Stockholder’s Deficit****(Dollars In Thousands)**
| ** **                                     | ** ** | **Common  Stock** | ** ** | **Due for Purchase  of Shares in  Merisant  Worldwide, Inc.** | ** ** | **Retained  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total** | ** ** |
|------------------------------------------------|------------|-------------------|------------|----------------------------------------------------------------------------------------|------------|-----------------------|------------|---------------------------------------------|------------|-----------|------------|
| Balance at  December 31, 2005             |       | $                 | —     |                                                                                   | $          | (767                  | )          | $                                           | (32,613    | )         | $          | (7,031 | ) | $ | (40,411 | ) |
| Foreign currency  translation adjustment       |       | —            |       | —                                                                                 |       | —                |       | 279                                         |       | 279       |       |
| Distribution to  Merisant Worldwide, Inc. |       | —            |       | —                                                                                 |       | (500                  | )          | —                                      |       | (500      | )          |
| Net loss                                       |       | —            |       | —                                                                                 |       | (37,081               | )          | —                                      |       | (37,081   | )          |
| Balance at September  30, 2006                 |       | $                 | —     |                                                                                   | $          | (767                  | )          | $                                           | (70,194    | )         | $          | (6,752 | ) | $ | (77,713 | ) |

 

The accompanying notes are anintegral part of these unaudited consolidated financial statements.

5

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**MERISANTCOMPANYUnaudited Consolidated Statements of Cash Flows(Dollars In Thousands)**
| ** **                                                                        | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                            | ** ** | **2006** | ** ** |
| **Operating  Activities**                                                         |       |                                                |       |   |   |
| Net loss                                                                          |       | $                                                   | (3,963     | ) | $ | (37,081 | ) |
| Adjustments to reconcile net loss to net cash provided  by operating activities:  |       |                                                |       |   |   |
| Depreciation                                                                      |       | 8,036                                               |       | 6,527 |   |
| Net loss on long lived assets                                                     |       | 301                                                 |       | 7,788 |   |
| Gain on liquidation or sale of subsidiary                                         |       | —                                              |       | (888 | ) |
| Amortization of intangible assets                                                 |       | 16,662                                              |       | 16,661 |   |
| Amortization of deferred financing costs                                          |       | 1,892                                               |       | 2,330 |   |
| Write off of deferred financing costs                                             |       | —                                              |       | 2,478 |   |
| Euro-denominated loan foreign exchange (gain) loss                                |       | (5,228                                              | )          | 2,169 |   |
| Unrealized gain on derivative instruments                                         |       | (4,782                                              | )          | — |   |
| Realized gain on derivative instruments                                           |       | —                                              |       | (694 | ) |
| Equity in income of affiliate                                                     |       | (93                                                 | )          | (21 | ) |
| Deferred income tax provision                                                     |       | 1,465                                               |       | 3,416 |   |
| Changes in operating assets and liabilities:                                      |       |                                                |       |   |   |
| Trade accounts receivable                                                         |       | 11,584                                              |       | 5,109 |   |
| Other receivables                                                                 |       | 4,999                                               |       | 5,768 |   |
| Inventories                                                                       |       | (10,517                                             | )          | 9,900 |   |
| Prepaid expenses and other assets                                                 |       | 690                                                 |       | (579 | ) |
| Accounts payable                                                                  |       | (7,866                                              | )          | (2,558 | ) |
| Accrued expenses and other                                                        |       | (8,090                                              | )          | (15,970 | ) |
| Net cash provided by operating activities                                         |       | 5,090                                               |       | 4,355 |   |
| **Investing  Activities**                                                         |       |                                                |       |   |   |
| Proceeds from sale of property and equipment                                      |       | 96                                                  |       | 207 |   |
| Purchases of property and equipment                                               |       | (3,116                                              | )          | (1,652 | ) |
| Net cash used in investing activities                                             |       | (3,020                                              | )          | (1,445 | ) |
| **Financing  Activities**                                                         |       |                                                |       |   |   |
| Net borrowings (payments) under revolving credit  facility                        |       | 12,000                                              |       | (16,000 | ) |
| Borrowings under long-term obligations                                            |       | —                                              |       | 85,095 |   |
| Principal payments on long-term obligations,  excluding revolving credit facility |       | (7,321                                              | )          | (74,517 | ) |
| Payment of deferred financing costs                                               |       | (1,399                                              | )          | (5,644 | ) |
| Distributions to stockholder                                                      |       | (1,023                                              | )          | (500 | ) |
| Net cash provided by (used in) financing activities                               |       | 2,257                                               |       | (11,566 | ) |
| Effect of  exchange rate on cash and cash equivalents                             |       | (394                                                | )          | 284 |   |
| Net increase in  cash and cash equivalents                                        |       | 3,933                                               |       | (8,372 | ) |
|                                                                              |       |                                                |       |   |   |
| Cash and cash  equivalents at beginning of period                                 |       | 9,096                                               |       | 18,064 |   |
| Cash and cash  equivalents at end of period                                       |       | $                                                   | 13,029     |   | $ | 9,692 |   |

 

The accompanying notes are anintegral part of these unaudited consolidated financial statements.

6

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** **

**MERISANTCOMPANY****Notes to Unaudited ConsolidatedFinancial Statements****(Dollars In Thousands)**

**1.**                        Principlesof Consolidation

Theconsolidated financial statements and notes do not contain certain informationincluded in the annual consolidated financial statements and notes of MerisantCompany and subsidiaries.  Unlessotherwise indicated or unless the context otherwise requires, all references tothe “Company” mean Merisant Company and its consolidated subsidiaries.  The consolidated balance sheet at December 31,2005 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 (“GAAP”). The remaining consolidatedfinancial statements are unaudited. In the opinion of management, all normal,recurring adjustments necessary for a fair presentation of such unauditedfinancial statements have been included therein. For interim reportingpurposes, certain marketing and advertising expenses are charged to results ofoperations as a percentage of sales. Interim results may not be indicative ofresults for a full year. These unaudited consolidated financial statements andnotes should be read in conjunction with the Company’s annual consolidatedfinancial 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 results could differ from those estimates.

TheCompany adopted FASB No. 123(R), “Share-Based Payment—An Amendment of FASBStatements No. 123 and 95” on January 1, 2006, which requires a fairvalue approach to expensing the cost of stock-based payments to employees.Adoption of this pronouncement had no impact on the Company’s consolidatedfinancial statements.  The Company is in theprocess of evaluating the impact, if any, that the adoption of FASBInterpretation No. 48, “Accounting for the Uncertainty in Income Taxes” (“FIN48”), will have on the Company’s consolidated financial statements.  The purpose of FIN 48 is to increase therelevance and comparability in financial reporting of income taxes throughclarification and consistent criteria in the accounting for uncertainty in incometaxes and to require more complete information for users of the financialstatements through expanded disclosures. Adoption of FIN 48 is required by the first interim reporting period in2007.  

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

TheCompany manufactures and markets primarily low-calorie tabletop sweetenersglobally. Therefore, the Company’s reportable segments are organized andmanaged principally by geographic region: North America; Europe/Africa/Middle East, referred to as EAME; LatinAmerica; and Asia/Pacific. The Company’s management reviews Operating EBITDA toevaluate segment performance and allocate resources. Operating EBITDA consistsof segment earnings before interest expense, income tax expense, depreciationand amortization as well as items such as expenses related to start up costs, restructuringcharges, certain significant charges related to new product development andlaunch costs, costs related to the transition to a new exclusive distributor inthe United States and certain other non-cash or excludable charges or losses.Other expense (income), net, as reported in the unaudited consolidatedfinancial statements, is included in Operating EBITDA of the respectivereportable segments, except for the portion of other expense (income), net thatrelates to the foreign currency transaction gains or losses associated with theCompany’s euro-denominated debt (see Note 6), unrealized gains or losses onderivative instruments and certain other non-recurring gains and non-cashlosses. Corporate expenses include corporate staff and related amounts.Corporate expenses, interest and other expenses and the provision for incometaxes are centrally managed and, accordingly, such items are not presented bysegment since they are excluded from the measure of segment performancereviewed by management. The Company launched a new product line in NorthAmerica in the first quarter of 2006 which management will be evaluating andmanaging separately from its other North American operations. As such, thisitem will also be excluded from the measure of segment performance reviewed bymanagement. The Company’s assets, which are principally in the United Statesand Europe, are also managed geographically. A summary of the Company’s resultsof operations by reportable segment for the three and nine months ended September30, 2005 and 2006 is as follows:

7

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**For theThree Months Ended September 30, 2005**
| ** **                                 | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| Total net sales  for reportable segments   |       | $                  | 29,482     |     | $          | 31,940             |       | $                  | 8,169      |             | $          | 5,481 |   | $ | 75,072 |   |
|                                       |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                           |       | $                  | 11,741     |     | $          | 10,327             |       | $                  | 2,173      |             | $          | 1,000 |   | $ | 25,241 |   |
| Less (plus):                               |       |               |       |     |       |               |       |               |       |             |       |
| Corporate  expenses                        |       |               |       |     |       |               |       |               |       | 5,497            |       |
| Restructuring  expense                     |       |               |       |     |       |               |       |               |       | 342              |       |
| Depreciation  expense                      |       |               |       |     |       |               |       |               |       | 2,758            |       |
| Net loss on long  lived assets             |       |               |       |     |       |               |       |               |       | 301              |       |
| Amortization  expense                      |       |               |       |     |       |               |       |               |       | 5,554            |       |
| Currency gain on  euro debt                |       |               |       |     |       |               |       |               |       | (428             | )          |
| Unrealized gain  on derivative instruments |       |               |       |     |       |               |       |               |       | (800             | )          |
| Other non-cash  expense                    |       |               |       |     |       |               |       |               |       | 14               |       |
| Other income,  net                         |       |               |       |     |       |               |       |               |       | 1,175            |       |
| Income from  operations                    |       |               |       |     |       |               |       |               |       | 10,828           |       |
| Interest  expense, net                     |       |               |       |     |       |               |       |               |       | 11,560           |       |
| Other income,  net                         |       |               |       |     |       |               |       |               |       | (1,175           | )          |
| Income before income  taxes                |       |               |       |     |       |               |       |               |       | $                | 443        |   |
|                                            |            |                    |            |          |            |                    |            |                    |            |                  |            |  |  |  |  |  |  |  |

 

**For the Three Months Ended September30, 2006**
| ** **                                                           | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| Total net sales for  reportable segments                             |       | $                  | 25,854     |     | $          | 27,388             |       | $                  | 9,612      |             | $          | 5,566 |   | $ | 68,420 |   |
| Net sales related to  new product launch                             |       |               |       |     |       |               |       |               |       | 10               |       |
| Total consolidated net  sales                                        |       |               |       |     |       |               |       |               |       | $                | 68,430     |   |
|                                                                 |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                                     |       | $                  | 8,983      |     | $          | 8,097              |       | $                  | 3,093      |             | $          | 1,380 |   | $ | 21,553 |   |
| Less (plus):                                                         |       |               |       |     |       |               |       |               |       |             |       |
| Corporate expenses                                                   |       |               |       |     |       |               |       |               |       | 5,236            |       |
| Restructuring expense                                                |       |               |       |     |       |               |       |               |       | 1,441            |       |
| Depreciation expense                                                 |       |               |       |     |       |               |       |               |       | 2,151            |       |
| Net loss on long lived  assets                                       |       |               |       |     |       |               |       |               |       | 7,788            |       |
| Amortization expense                                                 |       |               |       |     |       |               |       |               |       | 5,553            |       |
| Currency loss on euro  debt                                          |       |               |       |     |       |               |       |               |       | 241              |       |
| Gain on liquidation or  sale of subsidiary                           |       |               |       |     |       |               |       |               |       | (1,119           | )          |
| Loss related to new  product launch                                  |       |               |       |     |       |               |       |               |       | 1,217            |       |
| Transition costs for  new exclusive distributor in the United States |       |               |       |     |       |               |       |               |       | 106              |       |
| Other non-cash expense                                               |       |               |       |     |       |               |       |               |       | 4                |       |
| Other income, net                                                    |       |               |       |     |       |               |       |               |       | 1,094            |       |
| Loss from operations                                                 |       |               |       |     |       |               |       |               |       | (2,159           | )          |
| Interest expense, net                                                |       |               |       |     |       |               |       |               |       | 12,037           |       |
| Other income, net                                                    |       |               |       |     |       |               |       |               |       | (1,094           | )          |
| Loss before income  taxes                                            |       |               |       |     |       |               |       |               |       | $                | (13,102    | ) |
|                                                                      |            |                    |            |          |            |                    |            |                    |            |                  |            |  |  |  |  |  |  |  |

 

8

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**For the Nine Months Ended September30, 2005**
| ** **                                                      | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| Total net sales  for reportable segments                        |       | $                  | 87,020     |     | $          | 103,751            |       | $                  | 23,800     |             | $          | 15,565 |   | $ | 230,136 |   |
|                                                            |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                                |       | $                  | 30,536     |     | $          | 29,907             |       | $                  | 6,122      |             | $          | 4,003 |   | $ | 70,568 |   |
| Less (plus):                                                    |       |               |       |     |       |               |       |               |       |             |       |
| Corporate  expenses                                             |       |               |       |     |       |               |       |               |       | 17,829           |       |
| Restructuring  expense                                          |       |               |       |     |       |               |       |               |       | 2,254            |       |
| Depreciation and  impairment expense                            |       |               |       |     |       |               |       |               |       | 8,036            |       |
| Net loss on long  lived assets                                  |       |               |       |     |       |               |       |               |       | 301              |       |
| Amortization  expense                                           |       |               |       |     |       |               |       |               |       | 16,662           |       |
| Currency gain on  euro debt                                     |       |               |       |     |       |               |       |               |       | (5,228           | )          |
| Unrealized gain  on derivative instruments                      |       |               |       |     |       |               |       |               |       | (4,783           | )          |
| Provision for  doubtful accounts excluded from Operating EBITDA |       |               |       |     |       |               |       |               |       | 141              |       |
| Transaction fees                                                |       |               |       |     |       |               |       |               |       | (107             | )          |
| Other non-cash  expense                                         |       |               |       |     |       |               |       |               |       | 8                |       |
| Other income,  net                                              |       |               |       |     |       |               |       |               |       | 10,068           |       |
| Income from  operations                                         |       |               |       |     |       |               |       |               |       | 25,387           |       |
| Interest  expense, net                                          |       |               |       |     |       |               |       |               |       | 34,112           |       |
| Other income,  net                                              |       |               |       |     |       |               |       |               |       | (10,068          | )          |
| Income before income  taxes                                     |       |               |       |     |       |               |       |               |       | $                | 1,343      |   |
|                                                                 |            |                    |            |          |            |                    |            |                    |            |                  |            |  |  |  |  |  |  |

 

**For the Nine Months Ended September30, 2006**
| ** **                                                           | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| Total net sales for  reportable segments                             |       | $                  | 88,770     |     | $          | 88,130             |       | $                  | 24,318     |             | $          | 15,471 |   | $ | 216,689 |   |
| Net sales related to  new product launch                             |       |               |       |     |       |               |       |               |       | 37               |       |
| Total consolidated net  sales                                        |       |               |       |     |       |               |       |               |       | $                | 216,726    |   |
|                                                                 |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                                     |       | $                  | 31,831     |     | $          | 23,816             |       | $                  | 6,719      |             | $          | 4,742 |   | $ | 67,108 |   |
| Less (plus):                                                         |       |               |       |     |       |               |       |               |       |             |       |
| Corporate expenses                                                   |       |               |       |     |       |               |       |               |       | 19,318           |       |
| Restructuring expense                                                |       |               |       |     |       |               |       |               |       | 5,037            |       |
| Depreciation expense                                                 |       |               |       |     |       |               |       |               |       | 6,527            |       |
| Net loss on long lived  assets                                       |       |               |       |     |       |               |       |               |       | 7,788            |       |
| Amortization expense                                                 |       |               |       |     |       |               |       |               |       | 16,661           |       |
| Currency loss on euro  debt                                          |       |               |       |     |       |               |       |               |       | 2,169            |       |
| Realized gain on  derivative instruments                             |       |               |       |     |       |               |       |               |       | (694             | )          |
| Gain on liquidation or  sale of subsidiary                           |       |               |       |     |       |               |       |               |       | (975             | )          |
| Loss related to new  product launch                                  |       |               |       |     |       |               |       |               |       | 2,704            |       |
| Transition costs for  new exclusive distributor in the United States |       |               |       |     |       |               |       |               |       | 779              |       |
| Transaction fees                                                     |       |               |       |     |       |               |       |               |       | 3,300            |       |
| Other non-cash expense                                               |       |               |       |     |       |               |       |               |       | 14               |       |
| Other expense, net                                                   |       |               |       |     |       |               |       |               |       | (444             | )          |
| Income from operations                                               |       |               |       |     |       |               |       |               |       | 4,924            |       |
| Interest expense, net                                                |       |               |       |     |       |               |       |               |       | 36,414           |       |
| Other expense, net                                                   |       |               |       |     |       |               |       |               |       | 444              |       |
| Loss before income  taxes                                            |       |               |       |     |       |               |       |               |       | $                | (31,934    | ) |
|                                                                      |            |                    |            |          |            |                    |            |                    |            |                  |            |  |  |  |  |  |  |  |

 

9

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**3.****                       ****Restructuring Expenses**

During the ninemonths ended September 30, 2006, the Company continued to evaluateopportunities to increase efficiency and reduce costs. This review resulted inthe continuation of workforce reductions and planned changes in the Company’sglobal business model. These actions are designed to improve both financialresults and the long-term value of the business. Restructuring expenses forworkforce reductions of $342 and $1,441 were recorded for the three monthsended September 30, 2005 and September 30, 2006, respectively, and $2,254 and $5,037were recorded for the nine months ended September 30, 2005 and 2006,respectively. The 2006 charges principally related to planned termination costsfor employees, including charges related to 73 additional personnel that werenotified of their termination during the nine months ended September 30, 2006and to continuing provisions for previously notified employees being recorded overtheir stay periods. Severance payments and benefits are scheduled to be madeover the next six months.

Reconciliationof the restructuring liability at September 30, 2006 is as follows: 

| Restructuring liability at  December 31, 2005                   |   | $      | 2,677  |   |
|----------------------------------------------------------------------|--------|--------|--------|--------|
| Restructuring  expenses for the nine months ended September 30, 2006 |   | 5,037  |   |
| Cash payments  for the nine months ended September 30, 2006          |   | (6,744 | )      |
| Restructuring liability  at September 30, 2006                       |   | $      | 970    |   |

 

The restructuring liability at December 31,2005 and September 30, 2006 is included in the line item “Accrued expenses andother liabilities” in the accompanying consolidated balance sheets.

The following table representsrestructuring expenses included in each segment and corporate expenses for thethree and nine months ended September 30, 2005 and 2006:

|               | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **    | ** ** | **2005**                                             | ** ** | **2006**                                            | ** ** | **2005** | ** ** | **2006** | ** ** |
| North America |       | $                                                    | —     |                                                | $          | 256 |   | $ | 139 |   | $ | 359 |   |
| EAME          |       | 170                                                  |       | 770                                                 |       | 1,236 |   | 2,637 |   |
| Latin America |       | 184                                                  |       | 20                                                  |       | 517 |   | 1,058 |   |
| Asia/Pacific  |       | —                                               |       | 78                                                  |       | 39 |   | 583 |   |
| Corporate     |       | (12                                                  | )          | 317                                                 |       | 323 |   | 400 |   |
| Total         |       | $                                                    | 342        |                                                | $          | 1,441 |   | $ | 2,254 |   | $ | 5,037 |   |

 

**4.**                        Inventories

Inventoriesconsisted of the following at December 31, 2005 and September 30, 2006:

|                                  | ** ** | **December 31, 2005** | ** ** | **September 30, 2006** | ** ** |
|----------------------------------|------------|---------------------------------|------------|----------------------------------|------------|
| Raw materials  and supplies      |       | $                               | 15,594     |                             | $          | 10,122 |   |
| Work in process                  |       | 1,822                           |       | 695                              |       |
| Finished goods                   |       | 16,221                          |       | 10,417                           |       |
| Inventory  obsolescence reserves |       | (4,436                          | )          | (1,179                           | )          |
|                             |       |                            |       |                             |       |
| Total                            |       | $                               | 29,201     |                             | $          | 20,055 |   |

 

In the nine months ended September 30,2006, the Company shipped certain fully reserved finished goods, with anoriginal cost of approximately $1,390, to Icon International, Inc. (“Icon”) inexchange for trade credits totaling $1,390. The trade credits could be used inthe future to reduce the Company’s cost of goods or services made availablethrough reasonable efforts by Icon. Goods or services available from Icon are not currently likely to berequired by the Company in sufficient volume to use most, if any, of thecredits, and as such they have been fully reserved and no revenues wererecorded for this transaction.

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**5.****                       ****Net Loss on Long Lived Assets**

The Company manufactures and sellsproduct using the *NutraSweet**®* trademark under a license agreement with TheNutraSweet Company.  The value of thislicense agreement is classified as an Intangible asset on the balance sheet andwas being amortized over a 15 year life commencing in March 2000.  The majority of the impairment lossreported for the three and nine months ended September 30, 2006 relates to thislicense agreement.  The license agreement requires thepurchase of an annual minimum volume of aspartame from The NutraSweet Companyto continue the use of the trademark.  Inthe third quarter of 2006, the Company determined that, as a result of theinitiation of a multi-supplier strategy for aspartame to substantially improvethe cost efficiency of its aspartame supply, it will not require the minimumpurchase volume needed in 2006 to maintain the license agreement.  The license agreement will not automaticallyterminate upon the Company’s failure to meet the minimum purchase requirement;instead, The NutraSweet Company must deliver written notice to the Company oftermination, which would be effective six months after such notice or whenstock on hand as of the date of the notice is depleted, whichever is later.  Although the Company cannot be certain if orwhen it will receive written notice of termination, it has determined that anadjustment was required to the estimated remaining useful life of the trademark andperformed an impairment analysis.  Aftera review of the undiscounted estimated future cash flows of this intangibleasset and its carrying value, the Company determined that an impairmentexisted.  The Company recorded animpairment loss relating to this intangible asset during the third quarter of$7,577.  The impairment loss wascalculated as the difference between the carrying value of the intangible assetand the estimated fair value of the license agreement using a traditional cashflow approach to present value. The impaired intangible asset is reported inthe North America and EAME segments. This non-cash accounting loss has no impact on the statement of cashflows or Operating EBITDA and the Company is implementing programs aimed atneutralizing any future cash flow impact from any discontinuation of the *NutraSweet®*product line.

**6.**                        Debt

The Company and its parent, Merisant Worldwide, Inc. (“MerisantWorldwide”), are highly leveraged. At September 30, 2006, Merisant Worldwideand its subsidiaries, including the Company, had $544,086 of long-term debtoutstanding, consisting of $106,537 aggregate principal amount of MerisantWorldwide’s 12 1⁄4% senior subordinated discount notes due 2014, $225,000aggregate principal amount of the Company’s 9 1⁄2% senior subordinated notes due2013 (the “Notes”), $127,549 aggregate principal amount outstanding under theCompany’s senior credit agreement (the “Senior Credit Agreement”) and $85,000aggregate principal amount outstanding under the Company’s second lien creditagreement (the “Second Lien Credit Agreement”), excluding capital leaseobligations of $110 and unused commitments on the revolving portion of theSenior Credit Agreement.

At September30, 2006, borrowings under the Senior Credit Agreement included $21,146 (“TermA”) aggregate principal amount of term loans bearing annual interest of 6.40%and $106,403 (“Term B”) aggregate principal amount of term loans bearing annualinterest of 8.74%. The Term A loans are euro-denominated and are translatedinto U.S. dollars at the spot rate as of September 30, 2006. At September 30,2006, all of the Company’s maximum $35,000 borrowing capacity was availableunder the revolving loan facility under the Senior Credit Agreement.

At September30, 2006, borrowings under the Second Lien Credit Agreement included $85,000aggregate principal amount of term loans bearing annual interest of 13.98%.

TheCompany paid interest on borrowings under the Senior Credit Agreement, theSecond Lien Credit Agreement and on the Notes totaling $36,904 and $38,568 forthe nine months ended September 30, 2005 and 2006, respectively.

On March 29, 2006, the lenders holding a majority of the aggregateprincipal amount of outstanding loans and revolver commitments under the SeniorCredit Agreement agreed to amend the terms of the Senior Credit Agreement (the“Fourth Amendment”) and waived a technical default related to the use ofproceeds from the repayment of the inter-company loan between the Company andits Swiss subsidiary. Among other things, the Fourth Amendment amended thefinancial covenants as of December 31, 2005, adjusted the financialcovenants through the maturity date of loans outstanding under the SeniorCredit Agreement, incorporated new financial covenants, adjusted the interestrate on borrowings under the Senior Credit Agreement, amended the definition ofBank EBITDA to provide additional “add backs” related to the Company’srestructuring and new product development efforts, and amended certain othercovenants. The Fourth Amendment also required the Company to refinance aportion of the loans outstanding with the proceeds of a borrowing secured by asecond lien on all of the assets securing the Company’s obligations under theSenior Credit Agreement or, in the alternative, refinance the Senior CreditAgreement in its entirety by January 2, 2007. The Fourth Amendment increasedthe interest rates of all term loans and revolver loans under the Senior CreditAgreement to euro-LIBOR or LIBOR plus 425 basis points commencing on the dateof the Fourth Amendment.

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On June 23, 2006, theCompany entered into the Second Lien Credit Agreement.  The Second Lien Credit Agreement consists ofan aggregate of $85,000 principal amount of term loans, the net proceeds ofwhich were used to prepay $9,540 of euro-denominated Term A loans, prepay$53,320 of Term B loans and to repay $15,000 of revolving loans, in each case,outstanding under the Senior Credit Agreement. The maturity date of the term loans outstanding under the Second LienCredit Agreement is June 11, 2010. The Second Lien Credit Agreement satisfiedthe Company’s refinancing obligation under the Fourth Amendment and theinterest rate on loans under the Senior Credit Agreement reverted to euro-LIBORor LIBOR plus 325 basis points upon the completion of the Second Lien CreditAgreement.  In conjunction with theSecond Lien Credit Agreement, the Company incurred fees of approximately $7,451,of which $4,151 are being amortized over the term of the loan and $3,300 wererecorded as transaction fees.  Theextinguishment of the debt under the Senior Credit Agreement resulted in awrite-off of existing deferred financing fees totaling $2,478. Depending on thetype of borrowing by the Company, the applicable interest rate under the SecondLien Credit Agreement is calculated as a per annum rate equal to (a) LIBOR plus850 basis points or (b) (i) the greater of (x) the prime rate or (y) thefederal funds effective rate plus 0.5% plus (ii) 750 basis points.

The Second LienCredit Agreement contains provisions for mandatory prepayments of outstandingloans with 100% of the net cash proceeds of asset sales, recovery events anddebt issuances and 50% of the net cash proceeds of equity issuances, subject tocertain exceptions. The Company may prepay the term loans under the Second LienCredit Agreement in whole or in part at any time. If the Company makes any suchprepayments during the first three years of the credit facility, it must pay apremium of 3%, 2% and 1% of the aggregate principal amount of term loansprepaid in the first, second and third years of the Second Lien CreditAgreement, respectively, except that these prepayment premiums will be reducedto 1.5%, 1% and 0.5%, respectively, on the first $25,500 aggregate principalamount of the term loans prepaid with the net cash proceeds from an equityissuance by Merisant Worldwide.

The obligationsunder the Second Lien Credit Agreement are guaranteed by Merisant Worldwide andthe Company’s domestic subsidiaries, and are secured by a lien on substantiallyall of the assets of the Company, Merisant Worldwide and each subsidiaryguarantor, including a pledge of 65% of the ownership interests in eachfirst-tier foreign subsidiary held by a guarantor, with certain exceptions.

On June 23, 2006, the Company entered into a Fifth Amendment to theSenior Credit Agreement (the “Fifth Amendment”) to accommodate the Second LienCredit Agreement and to effect certain other amendments that are intended tofacilitate transactions aimed at de-leveraging the Company’s capitalstructure.  No assurances can be madethat any such transactions will be initiated by the Company or, if initiated,will be successful in de-leveraging the Company.

The Senior Credit Agreement and the Second Lien Credit Agreementcontain covenants, including financial covenants that must be met on aquarterly basis. “Bank EBITDA” is the measure by which the financial covenantscontained in the Senior Credit Agreement and the Second Lien Credit Agreementare measured. However, Bank EBITDA is not a measure of liquidity under GAAP.Accordingly, while providing useful information with respect to an assessmentof liquidity as measured in accordance with the covenants in the Company’s primarydebt obligations, this measure should not be considered in isolation from, oras a substitute for, consolidated statement of cash flow data prepared inaccordance with GAAP as an indication of liquidity. In addition, the BankEBITDA measure presented may differ from, and may not be comparable to,similarly titled measures used by other companies. The Company was incompliance with its covenants under the Senior Credit Agreement, as amended,and the Second Lien Credit Agreement as of September 30, 2006.

**7.**                        Transactionswith Related Parties

The Company has adeferred compensation payable to Arnold Donald, its former Chairman and acurrent director, and a note receivable in the same amount fromMr. Donald. The Company recorded $67 and $55 of interest income on thenote receivable for the three months ended September 30, 2005 and 2006,respectively, and $201 and $166 of interest income on the note receivable forthe nine months ended September 30, 2005 and 2006, respectively, and an equalamount of interest expense in the respective periods.

The Company had been aparty to a sublease agreement with The Digital Home/Digital Office, LLC(“Digital Home”), pursuant to which the Company subleased office space locatedat One North Brentwood Boulevard in Clayton, Missouri to Digital Home for aterm that expired on March 31, 2006 at a rate of $9 per month. At the endof the term of the sublease agreement, Digital Home acquired the officefurniture and equipment at no cost. The underlying lease expired on March 31,2006 and the Company had leased the office space for $15 per month. Theacquisition value of 

12

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the furniture and equipment was $225 and the net book value of theseassets was zero, subsequent to a previously recorded impairment charge of $143.Digital Home is controlled by Mr. Donald.

The Company is party toan agreement with Brand Architecture International (“Brand Architecture”)pursuant to which Brand Architecture has agreed to provide consulting servicesrelating to the development of brand architecture for the Company’s brands. Ascompensation, the Company paid approximately $220 and $815 to BrandArchitecture for the three months and nine months ended September 30, 2006,respectively, including the reimbursement to Brand Architecture for expensesrelating to its work. Adam Stagliano, a member of the Company’s board ofdirectors, is a founding director and the President and Chief Strategic Officerof Brand Architecture.  

On March 28, 2006, the Companyacquired from Pegasus Partners II, L.P., which controls the principalstockholder of Merisant Worldwide, all of the issued and outstanding limitedliability interests of Whole Earth Sweetener Company LLC for $1. At the time ofthe acquisition, the only assets of Whole Earth Sweetener Company LLC weretrademark applications for the **Sweet Simplicity** trademark.

During the nine months ended September30, 2005 and 2006, the Company made distributions of $1,023 and $500,respectively, to its sole stockholder, Merisant Worldwide.

**8.**                        Commitmentsand Contingencies 

The Company has aninvestment in an affiliate located in the Philippines that is accounted forusing the equity method. The affiliate, a 50/50 joint venture, distributessugar substitute sweeteners for the international consumer food markets,primarily under the *Equal®* and *Nutrasweet®* brands. In addition to itsinvestment in the joint venture, the Company is committed to a 50% share in anynew borrowings of the joint venture. As of December 31, 2005 and September30, 2006, there were no additional joint venture borrowings.

Merisant Europe B.V.B.A., the Company’s Belgium subsidiary, enteredinto a co-branding agreement with Galleria Srl, a company through which theItalian designer Elio Fiorucci operates. Under this co-branding arrangement,Merisant Europe produced a line of *Canderel*®tablet dispensers that featured designs and trademarks from Mr. Fiorucci’s“Love Therapy by Elio Fiorucci” collection. The co-branding arrangementcontains a representation and warranty that Galleria owns all rights in thename “Love Therapy by Elio Fiorucci” and associated designs and furtherprovides that Galleria will indemnify and hold Merisant Europe and itsaffiliates harmless against damages resulting from or related to their use ofthe name and designs pursuant to the agreement. Beginning in 2005, MerisantEurope sold tablet dispensers with the “Love Therapy by Elio Fiorucci” designsin Italy. Edwin & Co. Ltd. has claimed that it owns all rights inMr. Fiorucci’s name and in the designs used by the Company and has filedsuit against Merisant Europe in Milan, Italy. On or about March 17, 2006,the court in Milan enjoined Merisant Europe from producing or selling thetablet dispensers after the date of the court order. The Company no longerproduces the dispensers and has stopped selling dispensers to its distributorin Italy and to customers through the Internet. Merisant Europe has filed anappeal and will vigorously oppose the court’s order. Merisant Europe will alsoenforce its indemnification rights under its co-branding arrangement withGalleria Srl.

H. J. Heinz Company(“Heinz”) and Merisant US, Inc. entered into a termination agreement datedMarch 31, 2006 pursuant to which the Heinz retail grocery and foodservicedistribution agreements were terminated effective May 4, 2006.  Inaccordance with the termination agreement, the Company placed $2,500 into anescrow account on May 3, 2006 for the purpose of reimbursing Heinz for expensesincurred by Heinz relating to trade promotion programs associated withproducts distributed by Heinz prior to May 4, 2006 and that had been approvedby the Company.  Unused funds and earned interest totaling $1,512 and$29, respectively, were remitted from the escrow account to the Company in thethird quarter of 2006 and the escrow account was closed as of September 30,2006.  At September 30, 2006, the Companybelieves that sufficient reserves are in place to address any remainingobligations to Heinz.  ACH FoodCompanies, Inc. became the Company’s exclusive distributor in the United Stateseffective May 5, 2006.

The Company has an obligation toindemnify Monsanto, the Company’s prior owner, for certain liabilities that mayarise out of the business or assets purchased on March 17, 2000. TheCompany does not believe that this indemnification obligation will have amaterial adverse effect on the Company’s consolidated financial position orresults of operations.

TheCompany is subject to various other claims, pending and possible legal actionsfor product liability and other damages, 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, basedon current knowledge, recorded accruals, 

13

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and consultation with counsel, thatthe outcome of such claims and actions will not have a material adverse effecton the Company’s consolidated financial position or results of operations.

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

The following tables set forth the consolidating statements ofoperations for the three and nine months ended September 30, 2005 and September30, 2006, the consolidating balance sheets at December 31, 2005 and September30, 2006 and the statements of cash flow for the nine months ended September 30,2005 and 2006. The following information is included herein as a result of theguarantee by certain of the Company’s wholly owned U.S. subsidiaries(“Guarantor Companies”) of the Notes. None of the Company’s other subsidiariesguarantee the Notes. Each of the guarantees is joint and several and full andunconditional.

**UnauditedConsolidating Statement of OperationsFor the Three Months Ended September 30, 2005**
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 29,983                       |       | $                               | 46,410     |             | $          | (1,321 | ) | $ | 75,072 |   |
| Cost of sales                                                              |       | —                |       | 13,727                   |       | 19,014                       |       | (1,321                          | )          | 31,420           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 16,256                   |       | 27,396                       |       | —                          |       | 43,652           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Operating  expenses:                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Marketing and selling expenses                                             |       | —                |       | 5,407                    |       | 11,706                       |       | —                          |       | 17,113           |       |
| Administration expenses                                                    |       | 7                     |       | 6,497                    |       | 3,010                        |       | —                          |       | 9,514            |       |
| Amortization of intangible assets                                          |       | 2,164                 |       | —                   |       | 3,390                        |       | —                          |       | 5,554            |       |
| Net loss on long lived assets                                              |       | —                |       | 143                      |       | 158                          |       | —                          |       | 301              |       |
| Restructuring expenses                                                     |       | —                |       | (15                      | )          | 357                          |       | —                          |       | 342              |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total operating expenses                                                   |       | 2,171                 |       | 12,032                   |       | 18,621                       |       | —                          |       | 32,824           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  from operations                                             |       | (2,171                | )          | 4,224                    |       | 8,775                        |       | —                          |       | 10,828           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Other expense  (income):                                                   |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Interest income                                                            |       | (3,678                | )          | (4                       | )          | (55                          | )          | 3,600                           |       | (137             | )          |
| Interest expense                                                           |       | 11,692                |       | 3,250                    |       | 355                          |       | (3,600                          | )          | 11,697           |       |
| Other expense (income), net                                                |       | (5,576                | )          | 4,336                    |       | 65                           |       | —                          |       | (1,175           | )          |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total other expense (income)                                               |       | 2,438                 |       | 7,582                    |       | 365                          |       | —                          |       | 10,385           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  before income taxes and equity in consolidated subsidiaries |       | (4,609                | )          | (3,358                   | )          | 8,410                        |       | —                          |       | 443              |       |
| Provision  (benefit) for income taxes                                      |       | (2,070                | )          | 676                      |       | 2,770                        |       | —                          |       | 1,376            |       |
| Equity in  consolidated subsidiaries                                       |       | 1,606                 |       | 5,640                    |       | —                       |       | (7,246                          | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (933       | )                        | $          | 1,606                        |       | $                               | 5,640      |             | $          | (7,246 | ) | $ | (933 | ) |

 

14

----

**UnauditedConsolidating Statement of OperationsFor the Three Months Ended September 30, 2006**
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 28,523                         |       | $                               | 41,428     |             | $          | (1,521 | ) | $ | 68,430 |   |
| Cost of sales                                                              |       | —                |       | 13,312                   |       | 17,929                         |       | (1,521                          | )          | 29,720           |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 15,211                   |       | 23,499                         |       | —                          |       | 38,710           |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Operating expenses:                                                        |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Marketing and  selling expenses                                            |       | —                |       | 6,778                    |       | 10,247                         |       | —                          |       | 17,025           |       |
| Administration  expenses                                                   |       | 10                    |       | 6,773                    |       | 2,279                          |       | —                          |       | 9,062            |       |
| Amortization of  intangible assets                                         |       | 2,164                 |       | —                   |       | 3,389                          |       | —                          |       | 5,553            |       |
| Net loss on long  lived assets                                             |       | 3,026                 |       | 194                      |       | 4,568                          |       | —                          |       | 7,788            |       |
| Restructuring  expenses                                                    |       | —                |       | 488                      |       | 953                            |       | —                          |       | 1,441            |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Total operating  expenses                                                  |       | 5,200                 |       | 14,233                   |       | 21,436                         |       | —                          |       | 40,869           |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Income (loss) from  operations                                             |       | (5,200                | )          | 978                      |       | 2,063                          |       | —                          |       | (2,159           | )          |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Other expense (income):                                                    |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Interest income                                                            |       | (66                   | )          | (36                      | )          | (344                           | )          | 342                             |       | (104             | )          |
| Interest expense                                                           |       | 12,453                |       | 7                        |       | 23                             |       | (342                            | )          | 12,141           |       |
| Other expense  (income), net                                               |       | 298                   |       | 27                       |       | (1,419                         | )          | —                          |       | (1,094           | )          |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Total other  expense (income)                                              |       | 12,685                |       | (2                       | )          | (1,740                         | )          | —                          |       | 10,943           |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Income (loss) before  income taxes and equity in consolidated subsidiaries |       | (17,885               | )          | 980                      |       | 3,803                          |       | —                          |       | (13,102          | )          |
| Provision for income  taxes                                                |       | 202                   |       | 996                      |       | 1,008                          |       | —                          |       | 2,206            |       |
| Equity in consolidated  subsidiaries                                       |       | 2,779                 |       | 2,795                    |       | —                         |       | (5,574                          | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (15,308    | )                        | $          | 2,779                          |       | $                               | 2,795      |             | $          | (5,574 | ) | $ | (15,308 | ) |

 

15

----

**UnauditedConsolidating Statement of OperationsFor the Nine Months Ended September 30, 2005**
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 88,580                         |       | $                               | 146,134    |             | $          | (4,578 | ) | $ | 230,136 |   |
| Cost of sales                                                              |       | —                |       | 41,640                   |       | 59,095                         |       | (4,578                          | )          | 96,157           |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 46,940                   |       | 87,039                         |       | —                          |       | 133,979          |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Operating  expenses:                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Marketing and selling expenses                                             |       | —                |       | 18,623                   |       | 39,364                         |       | —                          |       | 57,987           |       |
| Administration expenses                                                    |       | 97                    |       | 20,848                   |       | 10,550                         |       | —                          |       | 31,495           |       |
| Amortization of intangible assets                                          |       | 6,492                 |       | —                   |       | 10,170                         |       | —                          |       | 16,662           |       |
| Transaction fees                                                           |       | (107                  | )          | —                   |       | —                         |       | —                          |       | (107             | )          |
| Net loss on long lived assets                                              |       | —                |       | 143                      |       | 158                            |       | —                          |       | 301              |       |
| Restructuring expenses                                                     |       | —                |       | 354                      |       | 1,900                          |       | —                          |       | 2,254            |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Total operating expenses                                                   |       | 6,482                 |       | 39,968                   |       | 62,142                         |       | —                          |       | 108,592          |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Income (loss)  from operations                                             |       | (6,482                | )          | 6,972                    |       | 24,897                         |       | —                          |       | 25,387           |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Other expense  (income):                                                   |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Interest income                                                            |       | (10,336               | )          | (205                     | )          | (169                           | )          | 10,103                          |       | (607             | )          |
| Interest expense                                                           |       | 34,693                |       | 8,674                    |       | 1,455                          |       | (10,103                         | )          | 34,719           |       |
| Other expense (income), net                                                |       | (23,027               | )          | 12,979                   |       | (20                            | )          | —                          |       | (10,068          | )          |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Total other expense (income)                                               |       | 1,330                 |       | 21,448                   |       | 1,266                          |       | —                          |       | 24,044           |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Income (loss)  before income taxes and equity in consolidated subsidiaries |       | (7,812                | )          | (14,476                  | )          | 23,631                         |       | —                          |       | 1,343            |       |
| Provision  (benefit) for income taxes                                      |       | (2,070                | )          | 3,098                    |       | 4,278                          |       | —                          |       | 5,306            |       |
| Equity in  consolidated subsidiaries                                       |       | 1,779                 |       | 19,353                   |       | —                         |       | (21,132                         | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (3,963     | )                        | $          | 1,779                          |       | $                               | 19,353     |             | $          | (21,132 | ) | $ | (3,963 | ) |

** **

16

----

**UnauditedConsolidating Statement of OperationsFor the Nine Months Ended September 30, 2006**
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 95,040                         |       | $                               | 125,085    |             | $          | (3,399 | ) | $ | 216,726 |   |
| Cost of sales                                                              |       | —                |       | 42,132                   |       | 52,606                         |       | (3,399                          | )          | 91,339           |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 52,908                   |       | 72,479                         |       | —                          |       | 125,387          |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Operating  expenses:                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Marketing and selling expenses                                             |       | —                |       | 23,715                   |       | 32,419                         |       | —                          |       | 56,134           |       |
| Administration expenses                                                    |       | 145                   |       | 22,669                   |       | 8,729                          |       | —                          |       | 31,543           |       |
| Amortization of intangible assets                                          |       | 6,492                 |       | —                   |       | 10,169                         |       | —                          |       | 16,661           |       |
| Transaction fees                                                           |       | 3,300                 |       | —                   |       | —                         |       | —                          |       | 3,300            |       |
| Net loss on long lived assets                                              |       | 3,026                 |       | 194                      |       | 4,568                          |       | —                          |       | 7,788            |       |
| Restructuring expenses                                                     |       | —                |       | 673                      |       | 4,364                          |       | —                          |       | 5,037            |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Total operating expenses                                                   |       | 12,963                |       | 47,251                   |       | 60,249                         |       | —                          |       | 120,463          |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Income (loss)  from operations                                             |       | (12,963               | )          | 5,657                    |       | 12,230                         |       | —                          |       | 4,924            |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Other expense  (income):                                                   |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Interest income                                                            |       | (198                  | )          | (83                      | )          | (770                           | )          | 583                             |       | (468             | )          |
| Interest expense                                                           |       | 37,430                |       | 5                        |       | 30                             |       | (583                            | )          | 36,882           |       |
| Other expense (income), net                                                |       | 1,548                 |       | 399                      |       | (1,503                         | )          | —                          |       | 444              |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Total other expense (income)                                               |       | 38,780                |       | 321                      |       | (2,243                         | )          | —                          |       | 36,858           |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Income (loss)  before income taxes and equity in consolidated subsidiaries |       | (51,743               | )          | 5,336                    |       | 14,473                         |       | —                          |       | (31,934          | )          |
| Provision for  income taxes                                                |       | 1,546                 |       | 1,903                    |       | 1,698                          |       | —                          |       | 5,147            |       |
| Equity in  consolidated subsidiaries                                       |       | 16,208                |       | 12,775                   |       | —                         |       | (28,983                         | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (37,081    | )                        | $          | 16,208                         |       | $                               | 12,775     |             | $          | (28,983 | ) | $ | (37,081 | ) |

 

17

----

**CondensedConsolidating Balance SheetAt December 31, 2005**
| ** **                                                             | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| **Assets**                                                             | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Cash and cash equivalents                                              |       | $                     | 98         |                     | $          | 924                            |       | $                               | 17,042     |             | $          | — |   | $ | 18,064 |   |
| Trade accounts receivable, net of allowances                           |       | —                |       | 17,844                   |       | 48,479                         |       | —                          |       | 66,323           |       |
| Other receivables and intercompany receivables                         |       | 551                   |       | 5,523                    |       | 9,932                          |       | (5,213                          | )          | 10,793           |       |
| Inventories                                                            |       | —                |       | 19,336                   |       | 9,865                          |       | —                          |       | 29,201           |       |
| Other current assets                                                   |       | 533                   |       | 1,749                    |       | 1,915                          |       | —                          |       | 4,197            |       |
| Total current assets                                                   |       | 1,182                 |       | 45,376                   |       | 87,233                         |       | (5,213                          | )          | 128,578          |       |
| Property and equipment, net                                            |       | —                |       | 21,601                   |       | 8,080                          |       | —                          |       | 29,681           |       |
| Trademarks and other intangible assets, less  accumulated amortization |       | 79,712                |       | —                   |       | 133,720                        |       | —                          |       | 213,432          |       |
| Goodwill                                                               |       | —                |       | 107,209                  |       | —                         |       | —                          |       | 107,209          |       |
| Deferred financing costs, less accumulated  amortization               |       | 13,705                |       | —                   |       | —                         |       | —                          |       | 13,705           |       |
| Other non-current assets                                               |       | 3,897                 |       | 508                      |       | 334                            |       | —                          |       | 4,739            |       |
| Investment in subsidiary and intercompany debt                         |       | 321,754               |       | 203,625                  |       | 362                            |       | (525,379                        | )          | 362              |       |
| Total assets                                                           |       | $                     | 420,250    |                     | $          | 378,319                        |       | $                               | 229,729    |             | $          | (530,592 | ) | $ | 497,706 |   |
| **Liabilities**                                                        | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Accounts payable and intercompany payables                             |       | $                     | 2,704      |                     | $          | 10,319                         |       | $                               | 9,315      |             | $          | (6,101 | ) | $ | 16,237 |   |
| Income taxes payable                                                   |       | —                |       | —                   |       | 1,933                          |       | —                          |       | 1,933            |       |
| Accrued expenses and other liabilities                                 |       | 13,729                |       | 18,692                   |       | 17,774                         |       | —                          |       | 50,195           |       |
| Current maturities of long-term obligations                            |       | 25,535                |       | 215                      |       | —                         |       | —                          |       | 25,750           |       |
| Total current liabilities                                              |       | 41,968                |       | 29,226                   |       | 29,022                         |       | (6,101                          | )          | 94,115           |       |
| Long-term  obligations and intercompany debt                           |       | 415,264               |       | 191,913                  |       | —                         |       | (191,749                        | )          | 415,428          |       |
| Other  liabilities                                                     |       | 3,429                 |       | 25,203                   |       | (58                            | )          | —                          |       | 28,574           |       |
| Total liabilities                                                      |       | 460,661               |       | 246,342                  |       | 28,964                         |       | (197,850                        | )          | 538,117          |       |
| **Stockholder’s  Equity (Deficit)**                               | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Total stockholder’s equity (deficit)                              |       | (40,411               | )          | 131,977                  |       | 200,765                        |       | (332,742                        | )          | (40,411          | )          |
| Total  liabilities and stockholder’s equity (deficit)             |       | $                     | 420,250    |                     | $          | 378,319                        |       | $                               | 229,729    |             | $          | (530,592 | ) | $ | 497,706 |   |

 

18

----

**UnauditedCondensed Consolidating Balance Sheetat September 30, 2006**
| ** **                                                             | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
| **Assets**                                                             | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Cash and cash equivalents                                              |       | $                     | 68         |                     | $          | 1,088                          |       | $                               | 8,536      |             | $          | — |   | $ | 9,692 |   |
| Trade accounts receivable, net of allowances                           |       | —                |       | 12,717                   |       | 49,996                         |       | —                          |       | 62,713           |       |
| Other receivables and intercompany receivables                         |       | 151                   |       | 5,091                    |       | 5,537                          |       | (4,898                          | )          | 5,881            |       |
| Inventories                                                            |       | —                |       | 12,356                   |       | 7,699                          |       | —                          |       | 20,055           |       |
| Other current assets                                                   |       | 626                   |       | 2,794                    |       | 1,821                          |       | —                          |       | 5,241            |       |
| Total current assets                                                   |       | 845                   |       | 34,046                   |       | 73,589                         |       | (4,898                          | )          | 103,582          |       |
| Property and equipment, net                                            |       | —                |       | 17,688                   |       | 6,373                          |       | —                          |       | 24,061           |       |
| Trademarks and other intangible assets, less  accumulated amortization |       | 70,193                |       | —                   |       | 119,005                        |       | —                          |       | 189,198          |       |
| Goodwill                                                               |       | —                |       | 107,209                  |       | —                         |       | —                          |       | 107,209          |       |
| Deferred financing costs, less accumulated  amortization               |       | 14,542                |       | —                   |       | —                         |       | —                          |       | 14,542           |       |
| Other non-current assets                                               |       | 2,596                 |       | 515                      |       | 656                            |       | —                          |       | 3,767            |       |
| Investment in subsidiary and intercompany debt                         |       | 316,539               |       | 216,598                  |       | 383                            |       | (533,137                        | )          | 383              |       |
| Total assets                                                           |       | $                     | 404,715    |                     | $          | 376,056                        |       | $                               | 200,006    |             | $          | (538,035 | ) | $ | 442,742 |   |
|                                                                   |       |                  |       |                     |       |                           |       |                            |       |             |       |
| **Liabilities**                                                        | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Accounts payable and intercompany payable                              |       | $                     | 34,881     |                     | $          | 9,843                          |       | $                               | 6,879      |             | $          | (37,851 | ) | $ | 13,752 |   |
| Income taxes payable                                                   |       | —                |       | —                   |       | 1,055                          |       | —                          |       | 1,055            |       |
| Accrued expenses and other liabilities                                 |       | 6,322                 |       | 13,952                   |       | 16,582                         |       | —                          |       | 36,856           |       |
| Current maturities of long-term obligations                            |       | 8,146                 |       | 42                       |       | (1                             | )          | —                          |       | 8,187            |       |
| Total current liabilities                                              |       | 49,349                |       | 23,837                   |       | 24,515                         |       | (37,851                         | )          | 59,850           |       |
| Long-term obligations and intercompany debt                            |       | 429,404               |       | 176,610                  |       | —                         |       | (176,542                        | )          | 429,472          |       |
| Other liabilities                                                      |       | 3,675                 |       | 27,147                   |       | 311                            |       | —                          |       | 31,133           |       |
| Total liabilities                                                      |       | 482,428               |       | 227,594                  |       | 24,826                         |       | (214,393                        | )          | 520,455          |       |
| **Stockholder’s  Equity (Deficit)**                               | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Total stockholder’s equity (deficit)                              |       | (77,713               | )          | 148,462                  |       | 175,180                        |       | (323,642                        | )          | (77,713          | )          |
| Total  liabilities and stockholder’s equity (deficit)             |       | $                     | 404,715    |                     | $          | 376,056                        |       | $                               | 200,006    |             | $          | (538,035 | ) | $ | 442,742 |   |

 

19

----

**UnauditedConsolidating Statement of Cash Flows For the Nine Months Ended September 30, 2005**
| ** **                                            | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                  |       |                  |       |                     |       |                           |       |                            |       |             |       |
| **Operating  activities**                             | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Net cash provided by (used in) operating activities   |       | $                     | (14,357    | )                        | $          | (18,300                        | )          | $                               | 58,879     |             | $          | (21,132 | ) | $ | 5,090 |   |
|                                                  |       |                  |       |                     |       |                           |       |                            |       |             |       |
| **Investing  activities**                             | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Proceeds from sale of fixed assets                    |       | —                |       | —                   |       | 96                             |       | —                          |       | 96               |       |
| Purchases of property and equipment                   |       | —                |       | (1,302                   | )          | (1,814                         | )          | —                          |       | (3,116           | )          |
|                                                  |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Net cash used in investing activities                 |       | —                |       | (1,302                   | )          | (1,718                         | )          | —                          |       | (3,020           | )          |
|                                                  |       |                  |       |                     |       |                           |       |                            |       |             |       |
| **Financing  activities**                             | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Borrowings under revolving credit agreement           |       | 12,000                |       | —                   |       | —                         |       | —                          |       | 12,000           |       |
| Principal payments on long-term obligations           |       | (7,166                | )          | (155                     | )          | —                         |       | —                          |       | (7,321           | )          |
| Payment of deferred financing costs                   |       | (1,399                | )          | —                   |       | —                         |       | —                          |       | (1,399           | )          |
| Receivable/payable, parent company                    |       | 11,744                |       | 21,961                   |       | (54,837                        | )          | 21,132                          |       | —           |       |
| Distribution to stockholder                           |       | (1,023                | )          | —                   |       | —                         |       | —                          |       | (1,023           | )          |
|                                                  |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Net cash provided by (used in) financing activities   |       | 14,156                |       | 21,806                   |       | (54,837                        | )          | 21,132                          |       | 2,257            |       |
|                                                  |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Effect of  exchange rate on cash                      |       | —                |       | —                   |       | (394                           | )          | —                          |       | (394             | )          |
|                                                  |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Net (decrease)  increase in cash and cash equivalents |       | (201                  | )          | 2,204                    |       | 1,930                          |       | —                          |       | 3,933            |       |
|                                                  |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Cash and cash  equivalents at beginning of period     |       | 245                   |       | —                   |       | 8,851                          |       | —                          |       | 9,096            |       |
|                                                  |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Cash and cash  equivalents at end of period           |       | $                     | 44         |                     | $          | 2,204                          |       | $                               | 10,781     |             | $          | — |   | $ | 13,029 |   |

 

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**UnauditedConsolidating Statement of Cash Flows For the Nine Months Ended September 30, 2006**
| ** **                                                                        | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-  Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|--------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                              |       |                  |       |                     |       |                           |       |                            |       |             |       |
| **Operating  activities**                                                         | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Net cash provided by (used in) operating activities                               |       | $                     | (42,358    | )                        | $          | 16,793                         |       | $                               | 58,903     |             | $          | (28,983 | ) | $ | 4,355 |   |
|                                                                              |       |                  |       |                     |       |                           |       |                            |       |             |       |
| **Investing  activities**                                                         | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Proceeds from sale of property and equipment                                      |       | —                |       | —                   |       | 207                            |       | —                          |       | 207              |       |
| Purchases of property and equipment                                               |       | —                |       | (1,371                   | )          | (281                           | )          | —                          |       | (1,652           | )          |
|                                                                              |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Net cash used in investing activities                                             |       | —                |       | (1,371                   | )          | (74                            | )          | —                          |       | (1,445           | )          |
|                                                                              |       |                  |       |                     |       |                           |       |                            |       |             |       |
| **Financing  activities**                                                         | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                     | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Net payments under revolving credit agreement                                     |       | (16,000               | )          | —                   |       | —                         |       | —                          |       | (16,000          | )          |
| Borrowings under long-term obligations                                            |       | 85,000                |       | 95                       |       | —                         |       | —                          |       | 85,095           |       |
| Principal payments on long-term obligations,  excluding revolving credit facility |       | (74,408               | )          | (109                     | )          | —                         |       | —                          |       | (74,517          | )          |
| Payment of deferred financing costs                                               |       | (5,644                | )          | —                   |       | —                         |       | —                          |       | (5,644           | )          |
| Receivable/payable, parent company                                                |       | 53,880                |       | (15,244                  | )          | (67,619                        | )          | 28,983                          |       | —           |       |
| Distribution to stockholder                                                       |       | (500                  | )          | —                   |       | —                         |       | —                          |       | (500             | )          |
|                                                                              |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Net cash provided by (used in) financing activities                               |       | 42,328                |       | (15,258                  | )          | (67,619                        | )          | 28,983                          |       | (11,566          | )          |
|                                                                              |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Effect of exchange rate on cash                                                   |       | —                |       | —                   |       | 284                            |       | —                          |       | 284              |       |
|                                                                              |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Net increase  (decrease) in cash and cash equivalents                             |       | (30                   | )          | 164                      |       | (8,506                         | )          | —                          |       | (8,372           | )          |
|                                                                              |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Cash and cash  equivalents at beginning of period                                 |       | 98                    |       | 924                      |       | 17,042                         |       | —                          |       | 18,064           |       |
|                                                                              |       |                  |       |                     |       |                           |       |                            |       |             |       |
| Cash and cash  equivalents at end of period                                       |       | $                     | 68         |                     | $          | 1,088                          |       | $                               | 8,536      |             | $          | — |   | $ | 9,692 |   |

 

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**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

*The following discussion should be read in conjunction with theCompany’s unaudited consolidated financial statements and accompanying notesincluded elsewhere in this document. The Company’s discussion of results byreportable segment should be read in conjunction with Note 2 to theCompany’s unaudited consolidated financial statements included elsewhere inthis document, which illustrates the reconciliation of Operating EBITDA toincome (loss) before income taxes. Unless otherwise indicated or unless thecontext requires otherwise, all references in this discussion to “Merisant” or“the Company” mean Merisant Company and its consolidated subsidiaries.*

**Overview**

Merisant is a worldwide leader in the marketingof low-calorie tabletop sweeteners, with an estimated 24% dollar share as ofDecember 31, 2005 of a growing global retail market, which the Companyestimates at $1.5 billion. Merisant believes that it has the leading dollarmarket share as of December 31, 2005 in approximately half of what itestimates as the top 20 markets for low-calorie tabletop sweetener sales. TheCompany’s premium-priced brands, *Equal*®and *Canderel*®, are among the mostrecognized low-calorie tabletop sweetener products in the world, with aidedbrand awareness estimated at between 77% and 97% in the Company’s four topmarkets. In addition to *Equal*®and *Canderel*®, Merisant marketsits products under approximately 20 other regional brands that enjoysignificant brand recognition in their target markets. Merisant sells itsbrands in over 85 countries.

The Company’s business is the result ofover 25 years of history in the low-calorie tabletop sweetener industry, firstas a division of G.D. Searle & Co. (“Searle”) and later MonsantoCompany (“Monsanto”). Searle invented the key sweetening ingredient in theCompany’s products, aspartame, in 1965. Aspartame was first approved forconsumer use in France in 1979, where Searle marketed the product under the *Canderel*® brand. By the early 1980s, *Canderel*®was being marketed in much of Europe. In 1981, the U.S. Food and DrugAdministration approved the tabletop use of aspartame. The following year,Searle launched *Equal*® in the United States.Monsanto entered the sweetener market in 1985 through its acquisition ofSearle. Merisant Company is a Delaware corporation that was formed in 2000 byan investor group led by an affiliate of Pegasus Capital Advisors, L.P. toacquire Monsanto’s tabletop sweetener business.

This business legacy has providedMerisant with a global infrastructure dedicated to the manufacture, marketingand distribution of low-calorie tabletop sweeteners. The Company’s worldwideheadquarters are located in Chicago, Illinois, and its principal regionaloffices are located in Mexico City, Mexico, Neuchâtel, Switzerland, Paris,France and Sydney, Australia. The Company owns and operates manufacturingfacilities in Manteno, Illinois and Zarate, Argentina and owns processing linesthat are operated exclusively for it at plants located in Bergisch and Stendal,Germany. As of November 13, 2006, Merisant had twenty-three direct and indirectsubsidiaries, including three subsidiaries in the United States, ninesubsidiaries in European countries, six subsidiaries in Mexico, Central Americaand South America, and five subsidiaries in the Asia/Pacific region, includingAustralia and India. In addition, Merisant’s Swiss subsidiary holds a 50%interest in a joint venture in the Philippines.

The Company’s corebusiness continues to be products sweetened with aspartame, and the *Equal*® and *Canderel*® brands accounted for approximately 86% of theCompany’s net sales in 2005. The majority of the Company’s 20 other regionalbrands around the world are also sweetened with aspartame.

***Sales Trends and Strategy***

Merisant’s premium-pricedbrands had enjoyed a dominant market position among low-calorie sweeteners inmany of the Company’s key markets. In recent years, however, the Company hasfaced significant competition from McNeil Nutritionals LLC, a subsidiary ofJohnson & Johnson (“McNeil”), which markets and distributes theartificial sweetener*Splenda*®. *Splenda*® is sweetened with sucralose,which is produced by Tate & Lyle PLC through a complex chemicalprocess that converts sucrose molecules into a synthetic compound. BetweenDecember 2002 and December 2005, *Splenda*®’sdollar share of the United States retail grocery low-calorie sweetener markethas grown from approximately 15% to 60% and has surpassed that of *Equal* ® to become the number one premiumlow-calorie sweetener in the United States. While the Company believes that theintroduction of *Splenda*® hasincreased the size of the market for low-calorie sweeteners in general, theCompany’s net sales have declined during this period, particularly in NorthAmerica which had accounted for 46% and 37% of its net sales in 2003 and 2005,respectively. As a result of declining net sales, Merisant has experiencedsignificant declines in its Bank EBITDA from $110.2 million in 2003 to $68.0million in 2005. For a description of Bank EBITDA and a reconciliation of BankEBITDA to cash flow from operating activities, see “—Liquidity and CapitalResources”.

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Management believes thatthere are opportunities for future growth in the low-calorie tabletop sweetenerand sweetened food category and that the Company is positioned to pursue theseopportunities. Despite recent declines in net sales, the Company’s premiumbrands *Equal* ® and *Canderel*® are among the most recognized low-calorie tabletop sweetener products in theworld, with aided brand awareness estimated between 77% and 97% in its top fourmarkets.

Paul Block wasappointed Chief Executive Officer in November 2004 and has led aninitiative to strengthen the Company’s core brands, improve the efficiency ofthe its operations, reduce costs and transform the Company into a consumerfocused sweetener and sweetened food company. Mr. Block has recruited individuals from outside the Company andpromoted individuals from within the organization to form a new seniormanagement team with the goal of developing a culture of innovation with afocus on invasive marketing campaigns combined with the development and launchof new products designed to revitalize the existing consumer base and attractnew consumers.

The Company seeksto stabilize and then grow revenues through the following four strategicinitiatives:

·                  Promotenew usage among existing consumers and expand the *Equal*® and *Canderel* ® brand positioning to attractnew consumers through invasive marketing campaigns and improved salesexecution.

·                  Increasethe pace of product innovation to bring new aspartame sweetened products andbrand extensions to the market.  TheCompany plans to launch several new products in 2006 with numerous additionalproducts in the development pipeline.

·                  Dedicatesignificant resources to improving the efficiency of operations by, among otherthings, implementing supply chain-based programs to streamline manufacturingcapabilities and improving the efficiency of certain support services.   The Company has successfully reduced costsand made its business more efficient, which has resulted in a significant positivecontribution to Bank EBITDA in 2006.

·                  Developand test products that have the potential to transform the Company’s brandportfolio. The Company has developed an all-natural, zero-calorie sweetener,which can now be found on-shelf in all Wild Oats retail outlets in the UnitedStates.  Nearly all divisions of WholeFoods have also accepted the product with stores beginning to order inventoryrecently and this product has also been sold into approximately 100 independentorganic retail outlets across the United States.   This innovative product is being marketedunder the *Sweet Simplicity*TM brand for the WholeEarth Sweetener Company LLC, a newly formed entity and wholly owned subsidiaryof Merisant.

Managementbelieves that the development and introduction of new products under its *Equal* ® and *Canderel* ®brands may help to stabilize its core business while innovative, all-naturalsweeteners and sweetened food products under its *SweetSimplicity*TM brand for the Whole Earth Sweetener Company presentgrowth opportunities for the Company. However, the Company may be constrainedin its ability to realize fully the value of these new products as a result ofits current capital structure. The successful launch of new products andmarketing of its core brands requires capital, and Merisant must use asignificant portion of its cash flows from operations to service itsoutstanding debt. The Company had an aggregate of $437.6 million of long-termdebt outstanding at September 30, 2006 and paid $41.9 million in interest costsfor the year ended December 31, 2005, $23.0 million of which representedinterest payments on Merisant’s 9 1⁄2% senior subordinated notes due 2013 (the“Notes”). If the Company cannot generate cash flows from operationssignificantly in excess of its short-term debt obligations, it may not have theresources required to fully realize the value of its strategic initiatives.

***RecentFinancing Activities***

Merisant’sBank EBITDA declined from $110.2 million in 2003 to $68.0 million in 2005. As aresult of this decline, the Company faced an issue in the first quarter of 2006with a possible immediate default under its senior credit agreement (the“Senior Credit Agreement”).  Merisantsucceeded in negotiating amendments to the Senior Credit Agreement which mayafford the Company time to stabilize its core business, improve operatingefficiencies and provide more flexibility to address the Company’s capitalstructure and long-term capital needs.  Merisantalso refinanced a portion of loans outstanding under the Senior CreditAgreement with the proceeds of loans under a senior credit facility that issecured by a second lien on all the collateral that secures loans outstandingunder the Senior Credit Agreement (the “Second Lien Credit Agreement”).   For a description of Bank EBITDA and areconciliation of Bank EBITDA to cash flows from operating activities, see “—Liquidityand Capital Resources”.

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OnMarch 29, 2006, the lenders holding a majority of the aggregate principalamount of outstanding loans and revolver commitments under the Senior CreditAgreement agreed to amend the terms of the Senior Credit Agreement (the “FourthAmendment”) and waived a technical default related to the use of proceeds fromthe repayment of the inter-company loan between Merisant and its Swisssubsidiary. Among other things, the Fourth Amendment amended the financial covenantsas of December 31, 2005, adjusted the financial covenants through thematurity date of loans outstanding under the Senior Credit Agreement,incorporated new financial covenants, adjusted the interest rate on borrowingsunder the Senior Credit Agreement, amended the definition of Bank EBITDA toprovide additional “add backs” related to Merisant’s restructuring and newproduct development efforts, and amended certain other covenants.

TheFourth Amendment avoided a possible immediate default under the Senior CreditAgreement resulting from the decline in Merisant’s Bank EBITDA. The FourthAmendment required Merisant to raise approximately $85.0 million of newborrowings and use the proceeds to prepay loans currently outstanding under theSenior Credit Agreement by January 2, 2007. On June 23, 2006, Merisantentered into the Second Lien Credit Agreement with a syndicate of lenders,including Credit Suisse, as administrative agent, and Wells Fargo Bank,National Association, as collateral agent. The Second Lien Credit Agreement consists of an aggregate principalamount of $85.0 million in term loans, the net proceeds of which were used toprepay $9.5 million of euro-denominated term A loans, prepay $53.3 million ofterm B loans and to repay $15.0 million of revolving loans, in each case,outstanding under Merisant’s Senior Credit Agreement.   This refinancing transaction satisfiedMerisant’s obligation under the Fourth Amendment to refinance a portion of theloans outstanding under the Senior Credit Agreement.

Concurrentwith the closing of the Second Lien Credit Agreement, Merisant entered into aFifth Amendment to the Senior Credit Agreement (the “Fifth Amendment”) to amendcertain terms and conditions set forth in the Senior Credit Agreement. See“—Liquidity and Capital Resources—Financing” for a more detailed description ofthe Fifth Amendment and Second Lien Credit Agreement.

**Results ofOperations**

For each of the periodsdiscussed below, the information set forth under the caption “ConsolidatedResults” represents an overview of the Company’s results of operations on aconsolidated basis. Additional detail regarding the results of operations canbe found under the caption “—SegmentResults” for each period discussed below.

***Three Months Ended September30, 2006 Compared to Three Months Ended September 30, 2005***

The following table sets forth certain of the Company’sfinancial data for the three-month periods ended September 30, 2005 and 2006(totals may not foot due to rounding).

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| ** **                         | ** ** | **Three Months Ended  September 30,** | ** ** | **Three Months Ended  September 30,** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                         | ** ** | **2005**                                             | ** ** | **2006**                                             | ** ** | **2005** | ** ** | **2006** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **                         | ** ** | **(in millions)**                               | ** ** | **As% of Net Sales**                  | ** ** | **Dollars** | ** ** | **%** | ** ** |
| Net sales                          |       | $                                                    | 75.1       |                                                 | $          | 68.4 |   | 100 | % | 100 | % | $ | (6.6 | ) | (9 | )% |
| Cost of sales                      |       | 31.4                                                 |       | 29.7                                                 |       | 42 | % | 43 | % | 1.7 |   | 5 | % |
| Gross profit                       |       | 43.7                                                 |       | 38.7                                                 |       | 58 | % | 57 | % | (4.9 | ) | (11 | )% |
|                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Operating  expenses:               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Marketing and selling expenses     |       | 17.1                                                 |       | 17.0                                                 |       | 23 | % | 25 | % | 0.1 |   | 1 | % |
| Administration expenses            |       | 9.1                                                  |       | 8.5                                                  |       | 12 | % | 12 | % | 0.6 |   | 6 | % |
| Research and development expenses  |       | 0.4                                                  |       | 0.5                                                  |       | 1 | % | 1 | % | (0.1 | ) | (37 | )% |
| Amortization of intangibles        |       | 5.6                                                  |       | 5.6                                                  |       | 7 | % | 8 | % | 0.0 |   | 0 | % |
| Net loss on long lived assets      |       | 0.3                                                  |       | 7.8                                                  |       | 0 | % | 11 | % | (7.5 | ) | (2487 | )% |
| Restructuring expenses             |       | 0.3                                                  |       | 1.4                                                  |       | 0 | % | 2 | % | (1.1 | ) | (321 | )% |
| Total operating expenses           |       | 32.8                                                 |       | 40.9                                                 |       | 44 | % | 60 | % | (8.0 | ) | (25 | )% |
|                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Income (loss)  from operations     |       | 10.8                                                 |       | (2.2                                                 | )          | 14 | % | (3 | )% | (13.0 | ) | (120 | )% |
|                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Other expenses  (income):          |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Interest income                    |       | (0.1                                                 | )          | (0.1                                                 | )          | (0 | )% | (0 | )% | (0.0 | ) | (24 | )% |
| Interest expense                   |       | 11.7                                                 |       | 12.1                                                 |       | 16 | % | 18 | % | (0.4 | ) | (4 | )% |
| Other expense (income), net        |       | (1.2                                                 | )          | (1.1                                                 | )          | (2 | )% | (2 | )% | (0.1 | ) | (7 | )% |
| Total other expenses               |       | 10.4                                                 |       | 10.9                                                 |       | 14 | % | 16 | % | (0.6 | ) | (5 | )% |
|                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Income (loss)  before income taxes |       | 0.4                                                  |       | (13.1                                                | )          | 1 | % | (19 | )% | (13.5 | ) | (3058 | )% |
|                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Provision for  income taxes        |       | 1.4                                                  |       | 2.2                                                  |       | 2 | % | 3 | % | (0.8 | ) | (60 | )% |
| Net loss                           |       | $                                                    | (0.9       | )                                                    | $          | (15.3 | ) | (1 | )% | (22 | )% | $ | (14.4 | ) | (1541 | )% |

 

**Consolidated Results**

*Net sales.*Overall,net sales declined in the third quarter of 2006 compared to the third quarterof 2005.  The decline was related tolower sales in the North America and EAME regions.  In North America, increased trade marketingin the grocery and food service channels and unfavorable sales mix were theprimary contributors to the reduction in sales. In the grocery and food service channels, sales volumes also declineddue to lower consumer demand.  In theEAME region, the decline in net sales was driven primarily by the UK, SouthAfrica, France and Hungary.  In the UK, saleswere negatively impacted primarily by timing of shipments and aggressivepricing by major grocery retailers that forced higher discounting.  Despitethe higher discounting, Merisant maintained its volume and dollar share of themarket.  In France, lower chocolate saleswere the primary cause for the decline in net sales.  Changes in the business models for severalcountries in EAME caused unusual variations in net sales as well.  In South Africa and Hungary, lower net saleswere due mainly to the sale of the entities and shift to a distributor model toimprove overall profitability.  In thethird quarter of 2005, sales in Portugal were positively impacted by shipments toa new distributor to establish appropriate starting inventory levels, resultingin an unusually negative variance when comparing to sales in the third quarterof 2006.  In the third quarter of 2006,the opposite impact in Belgium and the Netherlands occurred as an unusuallypositive impact on sales compared to the same period in 2005 was created by theconversion to a buy/sell model with the distributor in those countries. InLatin America, sales increased in the third quarter of 2006 compared to the thirdquarter of 2005 due mainly to a shift in the timing of shipments in Colombia,improved distributor performance in Argentina and improved consumer demand inthe grocery channel in the Caribbean and Mexico.  A foreign currency translation gain of approximately$0.6 million, driven by the EAME region, also partially offset the decrease insales in the North America and EAME regions. 

*Cost of sales.* TheCompany realized some improved efficiencies in its cost of sales due mainly to headcount reductions and improved overhead absorptionthrough contract manufacturing activities. In addition, cost of sales improved due to reduced freight and distributioncosts relating to lower sales volumes and conversion of certain countries todistributor models and the impact of a volume-related penalty relating to *Equal® Sugar Lite**Ô*  recorded in the three months ended September30, 2005 that did not repeat in the three months ended September 30, 2006.Unfavorable currency translation partially offset these favorable impacts.  Overall, gross profit as a percentage of netsales declined from 58% for the three months ended September 30, 2005 to 57%for the three months ended September 30, 2006 as changes in sales mix anddiscounted pricing in the UK and countries converted to distributor models morethan offset the cost improvements previously discussed. 

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*Operating expenses.*Marketingand selling expenses increased slightly due to higher brand support in NorthAmerica and Latin America, marketing and selling costs associated with *Sweet Simplicity*TM andhigher selling costs in the United States related to commissions associatedwith the new distributor. These unfavorable impacts were partially offset bylower brand support and selling costs in the EAME region and lower overall marketingand selling administration costs due to savings from restructuringactions.  Administration expenses decreasedmainly due to lower corporate expenses resulting from reduced consulting andemployee related costs, lower information technology spending and savings fromrestructuring actions, partially offset by higher performance based incentiveexpense and litigation costs.  

The net loss on long lived assets in the third quarter of 2005 relatesto the write down of equipment that the Company was obligated to purchase fromthird party vendors due to the cancellation of a product launch in the EAMEregion and the write down of assets at the Company’s vacatedClayton, Missouri location that was being subleased.  The majority of the net loss reportedfor the three months ended September 30, 2006 relates to the license agreementwith The NutraSweet Company that allows the Company to manufacture and sellproducts using the *NutraSweet**®* trademark. The license agreement requires thepurchase of an annual minimum volume of aspartame from The NutraSweet Companyto continue the use of the trademark.  Inthe third quarter of 2006, the Company determined that, as a result of theinitiation of a multi-supplier strategy for aspartame to substantially improvethe cost efficiency of its aspartame supply, it will not require the minimumpurchase volume needed in 2006 to maintain the license agreement.  The license agreement will not automaticallyterminate upon the Company’s failure to meet the minimum purchase requirement;instead, The NutraSweet Company must deliver written notice to the Company oftermination, which would be effective six months after such notice or whenstock on hand as of the date of the notice is depleted, whichever is later.  Although the Company cannot be certain if orwhen it will receive written notice of termination, it has determined that anadjustment was required to the estimated remaining useful life of the trademark andperformed an impairment analysis, which resulted in an impairment loss of $7.6million.  The Audit Committee of theBoard of Directors reviewed and approved this impairment charge on November 7,2006.  This non-cash accounting loss hasno impact on the statement of cash flows or Operating EBITDA and the Company isimplementing programs aimed at neutralizing any future cash flow impact fromany discontinuation of the *NutraSweet®*productline. Additional information regarding the charges in the third quarter of 2006can be found in Note 5 to the unaudited consolidated financial statements foundelsewhere in this document.  

During the third quarter of 2006, the Company continuedits restructuring initiatives to improve both financial results and thelong-term value of the business. As a result of these actions, the Companyrecorded restructuring charges for workforce reductions of $1.4 million in the thirdquarter of 2006 as compared to $0.3 million in the third quarter of 2005. Therestructuring charges incurred in the third quarter of 2006 relate primarily tonew employee termination costs in the North America and EAME segments andcorporate headquarters and are expected to be substantially paid by the end of2006. Additional information regarding restructuring charges and the relatedliability can be found in Note 3 to the unaudited consolidated financialstatements located elsewhere in this document.

*Interest.*The Company’s interest expense increased asa net result of higher interest bearing loans under Merisant’s Second LienCredit Agreement and the use of proceeds from the Second Lien Credit Agreementto prepay lower interest bearing loans under Merisant’s Senior Credit Agreement,as well as overall increases in interest rates on variable interest debtinstruments. Loans outstanding under the Senior Credit Agreement had a weightedaverage interest rate of approximately 9.0% per annum prior to the closing ofthe Second Lien Credit Agreement.  Merisant’sborrowings under the Senior Credit Agreement and Second Lien Credit Agreementhad a weighted average interest rate of approximately 10.3% per annum upon theclosing of the Second Lien Credit Agreement. In addition, Merisant successfullyclosed the registered exchange offer of the Notes in October 2005 whichresulted in the discontinuation of penalty interest. The penalty interest wentinto effect as the Company had not consummated the registered exchange offerprior to the previously agreed deadline. The decrease in interest expense as aresult of the discontinuation of the penalty interest partially offsets theincrease in interest expense previously discussed. 

*Other income/expense, net*. Other income/expense, net for the third quarter of 2006 is essentiallyflat compared to the third quarter of 2005; however, there are significantoffsetting variances.  In the thirdquarter of 2005, a $0.4 million currency gain on the euro-denominated debt anda $0.8 million unrealized gain on interest rate derivatives that expired inMarch 2006 were recorded compared to a currency loss on the euro-denominateddebt of $0.2 million in the third quarter of 2006.   These impactswere partially offset by favorable balance sheet remeasurement impacts and again on the liquidation of the Italian subsidiary of $1.0 million recorded inthe third quarter of 2006. 

*Taxes.*For thethree months ended September 30, 2006, the Company recorded a $2.2 million taxprovision on a loss before income taxes of $13.1 million. The unusualrelationship of the Company’s tax provision to its pre-tax loss in the third quarterof 2006 relates to a combination of factors. These factors include increasedtax loss carryforwards, primarily generated in the United States, for which theCompany has not recorded a tax benefit, as well as **provisions for future tax costswhich may be incurred upon the potential repatriation of certain2006 foreign earnings that are not deemed to be permanentlyreinvested. **With

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regard to the deferred income tax assets on the tax loss carryforwards,the Company determined that it has not satisfied the “more likely than not”test and has increased its total valuation allowance by $5.0 million in the thirdquarter of 2006 to a total of $63.8 million. The Company will continue toassess the valuation allowances, and, to the extent the Company determines thatsuch allowances are no longer required, these deferred income tax assets willbe recognized in the future.  

**Segment Results**

Thefollowing table presents net sales and Operating EBITDA expressedin millions of dollars for each reportable segment (totals may not footdue 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** | ** ** |
| ** **               | ** ** | **2005**                                         | ** ** | **2006**                                      | ** ** | **$** | ** ** | **%** | ** ** | **2005** | ** ** | **2006** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **               | ** ** | **(in millions)**                           | ** ** | **(in millions)**                        | ** ** |
| ** **               | ** ** | ** **                                       | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| North America  (2)       |       | $                                                | 29.5       |                                          | $          | 25.9 |   | $ | (3.6 | ) | (12 | )% | $ | 11.7 |   | $ | 9.0 |   | $ | (2.8 | ) | (23 | )% |
| Operating EBITDA  Margin |       |                                             |       |                                          |       |   |   |   |   | 40 | % | 35 | % | (5 | )% |   |   |
| EAME                     |       | 31.9                                             |       | 27.4                                          |       | (4.6 | ) | (14 | )% | 10.3 |   | 8.1 |   | (2.2 | ) | (22 | )% |
| Operating EBITDA  Margin |       |                                             |       |                                          |       |   |   |   |   | 32 | % | 30 | % | (3 | )% |   |   |
| Latin America            |       | 8.2                                              |       | 9.6                                           |       | 1.4 |   | 18 | % | 2.2 |   | 3.1 |   | 1.0 |   | 44 | % |
| Operating EBITDA  Margin |       |                                             |       |                                          |       |   |   |   |   | 27 | % | 33 | % | 6 | % |   |   |
| Asia/Pacific             |       | 5.5                                              |       | 5.6                                           |       | 0.1 |   | 2 | % | 1.0 |   | 1.4 |   | 0.4 |   | 38 | % |
| Operating EBITDA Margin  |       |                                             |       |                                          |       |   |   |   |   | 18 | % | 25 | % | 7 | % |   |   |
|                          |            |                                                  |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)             “OperatingEBITDA” as used with respect to the Company’s operating segments is a measureupon which management assesses the financial performance of these segments.Operating EBITDA excludes interest expense, income tax expense and depreciationand amortization, as well as items such as start-up expenses, restructuringexpenses, certain significant charges related to new product development andlaunch costs, cost related to the transition to a new exclusive distributor inthe United States and certain other non-cash items. See Note 2 to the unauditedconsolidated financial statements for a description of Operating EBITDA and areconciliation of Operating EBITDA to income (loss) before income taxes.Operating EBITDA margin represents Operating EBITDA as a percentage of netsales.

(2)             NorthAmerica segment results exclude immaterial sales and $1.2 million of negativeOperating EBITDA related to a new product launch which management evaluatesseparately from this geographical segment.

***North America***

*Net sales.*In North America, net sales declined primarily dueto unfavorable sales mix and trade marketing across all  channels, as well as reductions in salesvolumes in the grocery, food service, club and mass channels.  Lower consumer demand negatively impacted thegrocery and food service channels. Sales volumes were slightly lower in the cluband mass channels, but consumer demand improved.  Increased contract manufacturing activity partiallyoffset the decreases in sales previously discussed.  

*Operating EBITDA.*The decrease in Operating EBITDA was primarilyrelated to the margin impact of the unfavorable sales mix and increased trademarketing costs, higher brand support and higher selling costs associated withthe new distributor.  These unfavorableimpacts were partially offset by improved overhead absorption costs related toincreased contract manufacturing activities, lower freight and distributioncosts relating to lower sales volumes and inventory levels and the impact of avolume related penalty recorded in the third quarter of 2005 that did notrepeat in 2006.  Operating EBITDA margin decreaseddue primarily to the unfavorable sales mix and increased trade marketing costs,as well as the impacts previously discussed.

***EAME***

*Net sales.*In the EAME region, the decline in net sales wasdriven primarily by the UK, South Africa, France and Hungary.  In the UK, sales were negatively impacted primarilyby timing of shipments and aggressive pricing by major grocery retailers that forcedhigher discounting.  Despite the higher discounting, Merisant maintainedits volume and dollar share of the market. In France, lower chocolate sales were the primary cause for the declinein net sales.  Changes in the businessmodels for several countries in EAME caused unusual variations in net sales aswell.  In 

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South Africa and Hungary, lower net sales were due mainlyto the sale of the entities and shift to a distributor model to improveinfrastructure costs.  In the thirdquarter of 2005, sales in Portugal were positively impacted by shipments to anew distributor to establish appropriate starting inventory levels, resultingin an unusually negative variance when comparing to sales in the third quarterof 2006.  In the third quarter of 2006,the opposite impact in Belgium and the Netherlands occurred as an unusuallypositive impact on sales compared to the same period in 2005 was created by theconversion to a buy/sell model with the distributor in those countries.  Favorable currency translation of $0.8million positively impacted sales in the third quarter of 2006 compared to thethird quarter of 2005.

*Operating EBITDA.* OperatingEBITDA decreased mainly due to lower sales, partially offset by reduced marketingand infrastructure costs due to savings from restructuring actions and changesin business models in several markets.  Thedecrease in Operating EBITDA margin was primarily due to a decrease in gross profitas a percentage of sales, mainly related to changes in sales mix and discountedpricing in the UK. 

***Latin America***

*Net sales.* Theincrease in Latin American sales was mainly due to a shift in the timing ofshipments in Colombia, improved distributor performance in Argentina and improvedconsumer demand in the grocery channel in the Caribbean and Mexico.  

*Operating EBITDA.*The increase in Operating EBITDA was mainlyrelated to the margin impact of higher sales, as well as reduced cost of goodssold and marketing and selling administrative costs due to savings fromrestructuring actions, partially offset by increased brand support inMexico.  Operating EBITDA marginincreased primarily due to higher gross profit and lower operating expenses asa percentage of sales.

***Asia/Pacific***

*Net sales.*Net sales in the Asia/Pacific region increasedprimarily due to improved sales in Australia/New Zealand and India, partiallyoffset by lower sales in Malaysia.

*Operating EBITDA.*Operating EBITDA and Operating EBITDA margin increasedprimarily due to the increased sales coupled with lower inventory obsolescencecharges and reduced selling and general administrative costs related torestructuring actions.  

**Corporate Expenses**

Corporate expenses decreased from $5.5 million in the thirdquarter of 2005 to $5.2 million in the third quarter of 2006, primarily due to reducedconsulting and employee related costs, lower information technology spendingand savings from restructuring actions, partially offset by higher performancebased incentive expense and litigation costs. 

***Nine Months Ended September 30, 2006 Compared to NineMonths Ended September 30, 2005***

The following table sets forth certain of the Company’s financial datafor the nine-month periods ended September 30, 2005 and 2006 (totals may notfoot due to rounding).

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| ** **                         | ** ** | **Nine Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                         | ** ** | **2005**                                            | ** ** | **2006**                                            | ** ** | **2005** | ** ** | **2006** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **                         | ** ** | **(in millions)**                              | ** ** | **as% of Net Sales**                 | ** ** | **Dollars** | ** ** | **%** | ** ** |
| Net sales                          |       | $                                                   | 230.1      |                                                | $          | 216.7 |   | 100 | % | 100 | % | $ | (13.4 | ) | (6 | )% |
| Cost of sales                      |       | 96.2                                                |       | 91.3                                                |       | 42 | % | 42 | % | 4.8 |   | 5 | % |
| Gross profit                       |       | 134.0                                               |       | 125.4                                               |       | 58 | % | 58 | % | (8.6 | ) | (6 | )% |
|                               |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Operating  expenses:               |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Marketing and selling expenses     |       | 58.0                                                |       | 56.1                                                |       | 25 | % | 26 | % | 1.9 |   | 3 | % |
| Administration expenses            |       | 30.2                                                |       | 30.1                                                |       | 13 | % | 14 | % | 0.1 |   | 0 | % |
| Research and development expenses  |       | 1.3                                                 |       | 1.5                                                 |       | 1 | % | 1 | % | (0.2 | ) | (11 | )% |
| Amortization of intangibles        |       | 16.7                                                |       | 16.7                                                |       | 7 | % | 8 | % | 0.0 |   | 0 | % |
| Transaction fees                   |       | (0.1                                                | )          | 3.3                                                 |       | (0 | )% | 2 | % | (3.4 | ) | (3184 | )% |
| Net loss on long lived assets      |       | 0.3                                                 |       | 7.8                                                 |       | 0 | % | 4 | % | (7.5 | ) | (2487 | )% |
| Restructuring expenses             |       | 2.3                                                 |       | 5.0                                                 |       | 1 | % | 2 | % | (2.8 | ) | (123 | )% |
| Total operating expenses           |       | 108.6                                               |       | 120.5                                               |       | 47 | % | 56 | % | (11.9 | ) | (11 | )% |
|                               |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Income from  operations            |       | 25.4                                                |       | 4.9                                                 |       | 11 | % | 2 | % | (20.5 | ) | (81 | )% |
|                               |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Other expenses  (income):          |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Interest income                    |       | (0.6                                                | )          | (0.5                                                | )          | (0 | )% | (0 | )% | (0.1 | ) | (23 | )% |
| Interest expense                   |       | 34.7                                                |       | 36.9                                                |       | 15 | % | 17 | % | (2.2 | ) | (6 | )% |
| Other expense (income), net        |       | (10.1                                               | )          | 0.4                                                 |       | (4 | )% | 0 | % | (10.5 | ) | (104 | )% |
| Total other expenses               |       | 24.0                                                |       | 36.9                                                |       | 10 | % | 17 | % | (12.8 | ) | (53 | )% |
|                               |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Income (loss)  before income taxes |       | 1.3                                                 |       | (31.9                                               | )          | 1 | % | (15 | )% | (33.3 | ) | (2478 | )% |
|                               |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |
| Provision for income  taxes        |       | 5.3                                                 |       | 5.1                                                 |       | 2 | % | 2 | % | 0.2 |   | 3 | % |
| Net loss                           |       | $                                                   | (4.0       | )                                                   | $          | (37.1 | ) | (2 | )% | (17 | )% | $ | (33.1 | ) | (836 | )% |

 

**Consolidated Results**

*Net sales.*Overall,net sales declined in the nine-month period ended September 30, 2006 comparedto the nine-month period ended September 30, 2005.  The decline was primarily related to lowersales in the EAME region, led by France, the UK, Portugal, South Africa, andItaly, as well as a foreign currency translation loss of approximately $2.4million, most of which occurred in the EAME region.  In France and Italy, weakenedeconomies depressed sales, and the decreased revenues for the nine months endedSeptember 30, 2006 also reflected the loss of consumers resulting from thepublication in July 2005 of a now widely discredited study on the safety ofaspartame. In France, these factors, as wellas increased health consciousness, negatively affected the low-caloriesweetener category in general as well as the sugar category.  In the UK, sales were negatively impacted primarilyby timing of shipments and aggressive pricing by major grocery retailers that forcedhigher discounting.  Despite the higher discounting, Merisantmaintained its volume and dollar share of the market. Sales declined inPortugal as the new distributor purchased more inventory than required to be onhand as of December 31, 2005.  Alsoin Portugal, as well as South Africa and Hungary, the conversion from a directsales model to a distributor model caused declines in net sales, but this planneddecline in revenue was offset by reduced infrastructure costs.  Sales also declined in Hungary, Ireland, Greeceand Germany, primarily as a result of lower consumer demand, weak economies andhealth concerns.  In Asia/Pacific, salesdeclined slightly as increased sales in Australia/New Zealand and Thailand weremore than offset by lower sales in Malaysia and foreign currency translationlosses.  In North America, despitereduced consumer demand, net sales improved in the grocery/drug channel as anadverse inventory adjustment in the nine months ended September 30, 2005 didnot repeat in the same period in 2006 and trade marketing expensesdeclined.  Increased contractmanufacturing activity also favorably impacted sales.  Lower food service sales related to increasedcompetition, unfavorable sales mix and increased trade marketing partiallyoffset the improved sales in North America. In Latin America, the sales increase primarily related to improvedgrocery sales in the Caribbean and improved distributor performance in Argentinaand Chile, partially offset by lower food service sales in Mexico andunfavorable currency translation. 

*Cost of sales.* TheCompany realized some improved efficiencies in its manufacturing conversioncosts due to lower spending and headcount reductions and improved overheadabsorption through contract manufacturing activities.  Favorable currency translation, lowerinventory obsolescence costs and reduced freight and distribution costsrelating to lower sales volumes and conversion of certain countries todistributor models also contributed to lower cost of sales.  In addition, cost of 

29

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salesimproved as a volume-related penalty relating to *Equal® Sugar Lite**Ô*  recordedin the nine months ended September 30, 2005 did not repeat in the nine months endedSeptember 30, 2006.  Overall, the grossprofit as a percentage of net sales remained stable at 58% for the nine monthsended September 30, 2006 and September 30, 2005 as changes in sales mix,discounted pricing in the UK and the impact of converting countries todistributor models offset these improvements in cost of sales.

*Operating expenses.*Marketingand selling expenses decreased mainly due to lower brand support in allsegments except North America, reduced selling costs in the EAME region, lower overallmarketing and selling administration costs due to savings from restructuringactions and favorable foreign currency translation.  These favorable impacts were partially offsetby termination costs and higher commissions relating to the transition from H.J. Heinz Company to ACH as the Company’s exclusive distributor in the UnitedStates and marketing and selling costs associated with *Sweet Simplicity*TM.Administration expenses improved due to the non-recurring $1.4 million chargerelated to the Food Brokers, LTD receivable that was incurred in the periodended September 30, 2005 after Food Brokers, LTD went into receivership. Lowerconsulting and information technology costs and savings related torestructuring actions also reduced administration expenses.  These favorable impacts were more than offsetby an increase in corporate expenses related to higher performance basedincentive expense and an increase in litigation costs. Transaction feesincreased as a result of $3.3 million in expenses incurred in conjunction withthe Second Lien Credit Agreement. 

The net loss on long lived assets in the nine months ended September 30,2005 relates to the write down of equipment that the Company was obligated topurchase from third party vendors due to the cancellation of a product launchin the EAME region and the write down of assets at theCompany’s vacated Clayton, Missouri location that was being subleased.  The majority of the loss reported forthe nine months ended September 30, 2006 relates to the license agreement withThe NutraSweet Company that allows the Company to manufacture and sell productsusing the *NutraSweet**®* trademark. The license agreement requires thepurchase of an annual minimum volume of aspartame from The NutraSweet Companyto continue the use of the trademark.  Inthe third quarter of 2006, the Company determined that, as a result of theinitiation of a multi-supplier strategy for aspartame to substantially improvethe cost efficiency of its aspartame supply, it will not require the minimumpurchase volume needed in 2006 to maintain the license agreement.  The license agreement will not automaticallyterminate upon the Company’s failure to meet the minimum purchase requirement;instead, The NutraSweet Company must deliver written notice to the Company oftermination, which would be effective six months after such notice or whenstock on hand as of the date of the notice is depleted, whichever is later.Although the Company cannot be certain if or when it will receive writtennotice of termination, it has determined that an adjustment was required to theestimated remaining useful life of the trademark and performed animpairment analysis, which resulted in an impairment loss of $7.6 million.  The Audit Committee of the Board of Directorsreviewed and approved this impairment charge on November 7, 2006.   Thisnon-cash accounting loss has no impact on the statement of cash flows orOperating EBITDA and the Company is implementing programs aimed at neutralizingany future cash flow impact from any discontinuation of the *NutraSweet®*product line. Additional information regarding the charges in the third quarter of 2006can be found in Note 5 to the unaudited consolidated financial statements foundelsewhere in this document.  

During the nine months ended September 30, 2006, the Company continuedits restructuring initiatives to improve both financial results and thelong-term value of the business. As a result of these actions, the Companyrecorded restructuring charges for workforce reductions of $5.0 million in the ninemonths ended September 30, 2006 as compared to $2.3 million in the same periodin 2005. The restructuring charges incurred in the nine months ended September30, 2006 relate primarily to new employee termination costs across all segmentsand the corporate headquarters and are expected to be substantially paid by theend of 2006. Additional information regarding restructuring charges and therelated liability can be found in Note 3 to the unaudited consolidatedfinancial statements.

*Interest.*On June23, 2006, the Company entered into the Second Lien Credit Agreement. TheSecond Lien Credit Agreement consists of an $85.0 million term loan, the netproceeds of which were used to prepay $77.9 million in borrowings outstandingunder the Senior Credit Agreement.  Theextinguishment of indebtedness under the Senior Credit Agreement resulted in anincrease in interest expense due to the write-off of related deferred financingfees totaling $2.5 million.  In addition,the Company’s interest expense increased as a result of higher interest bearingloans under the Second Lien Credit Agreement and the use of proceeds from theSecond Lien Credit Agreement to prepay lower interest bearing loans under theSenior Credit Agreement, as well as overall increases in interest rates onvariable interest rate debt instruments. Loans outstanding under the SeniorCredit Agreement had a weighted average interest rate of approximately 9.0% perannum prior to the closing of the Second Lien Credit Agreement.  The Company’s borrowings under the SeniorCredit Agreement and Second Lien Credit Agreement had a weighted averageinterest rate of approximately 10.3% per annum upon the closing of the SecondLien Credit Agreement.  Lastly, the Company successfully closed the registeredexchange offer of the Notes in October  2005 which resulted in thediscontinuation of penalty interest. The penalty interest went into effect asthe Company had not consummated the registered exchange offer prior to thepreviously agreed deadline. The decrease in interest expense as a result of thediscontinuation of the penalty interest partially offset the increases ininterest expense previously discussed. 

30

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*Other income/expense, net*. The unfavorable variance of $10.5 million is mainly attributable to a$5.2 million currency gain on the euro-denominated debt for the nine monthsended September 30, 2005 as compared to a $2.2 million currency loss on theeuro-denominated debt for the nine month period ended September 30, 2006, aswell as a $4.8 million unrealized gain on derivative instruments for the ninemonth period ended September 30, 2005 as compared to a $0.7 million realizedgain on derivative instruments for the nine month period ended September 30,2006.  In addition, the impact of a $1.3million reversal of a currency loss in Latin America, occurring in the periodended September 30, 2005 and not repeating in the period ended September 30,2006, also contributed to the unfavorable variance.  These items were partially offset byfavorable balance sheet remeasurement impacts and a gain on the liquidation ofthe Italian subsidiary of $1.0 million recorded in the third quarter of2006.   

*Taxes.* For the ninemonths ended September 30, 2006, the Company recorded a $5.1 million taxprovision on a loss before income taxes of $31.9 million. The unusualrelationship of the Company’s tax provision to its pre-tax loss in the ninemonths ended September 30, 2006 relates to a combination of factors.  These factors include increased tax losscarryforwards, primarily generated in the United States, for which the Companyhas not recorded a tax benefit, as well as provisions for future tax costs which may be incurred upon thepotential repatriation of certain 2006 foreign earnings that are notdeemed to be permanently reinvested.* *  Withregard to the deferred income tax assets on the tax loss carryforwards, theCompany determined that it has not satisfied the “more likely than not” testand has increased its total valuation allowance by $13.2 million in the ninemonths ended September 30, 2006 to a total of $63.8 million. The Company willcontinue to assess the valuation allowances, and, to the extent the Companydetermines that such allowances are no longer required, these deferred incometax assets will be recognized in the future. 

**Segment Results**

The following table presents net sales and Operating EBITDA expressedin millions of dollars for each reportable segment (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** | ** ** |
| ** **               | ** ** | **2005**                                        | ** ** | **2006**                                      | ** ** | **$** | ** ** | **%** | ** ** | **2005** | ** ** | **2006** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **               | ** ** | **(in millions)**                          | ** ** | **(in millions)**                        | ** ** |
|                     |       |                                            |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| North America  (2)       |       | $                                               | 87.0       |                                          | $          | 88.8 |   | $ | 1.8 |   | 2 | % | $ | 30.5 |   | $ | 31.8 |   | $ | 1.3 |   | 4 | % |
| Operating EBITDA  Margin |       |                                            |       |                                          |       |   |   |   |   | 35 | % | 36 | % | 1 | % |   |   |
| EAME                     |       | 103.8                                           |       | 88.1                                          |       | (15.6 | ) | (15 | )% | 29.9 |   | 23.9 |   | (6.0 | ) | (20 | )% |
| Operating EBITDA  Margin |       |                                            |       |                                          |       |   |   |   |   | 29 | % | 27 | % | (2 | )% |   |   |
| Latin America            |       | 23.8                                            |       | 24.3                                          |       | 0.5 |   | 2 | % | 6.1 |   | 6.8 |   | 0.6 |   | 10 | % |
| Operating EBITDA  Margin |       |                                            |       |                                          |       |   |   |   |   | 26 | % | 28 | % | 2 | % |   |   |
| Asia/Pacific             |       | 15.6                                            |       | 15.5                                          |       | (0.1 | ) | (1 | )% | 4.0 |   | 4.7 |   | 0.7 |   | 18 | % |
| Operating EBITDA Margin  |       |                                            |       |                                          |       |   |   |   |   | 26 | % | 31 | % | 5 | % |   |   |
|                          |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)             “OperatingEBITDA” as used with respect to the Company’s operating segments is a measureupon which management assesses the financial performance of these segments.Operating EBITDA excludes interest expense, income tax expense and depreciationand amortization, as well as items such as start-up expenses, restructuringexpenses, certain significant charges related to new product development andlaunch costs, cost related to the transition to a new exclusive distributor inthe United States and certain other non-cash items. See Note 2 to the unauditedconsolidated financial statements for a description of Operating EBITDA and areconciliation of Operating EBITDA to income (loss) before income taxes.Operating EBITDA margin represents Operating EBITDA as a percentage of netsales.

(2)             NorthAmerica segment results exclude immaterial sales and $2.7 million of negativeOperating EBITDA results related to a new product launch which managementevaluates separately from this geographical segment.

***North America***

*Net sales.*InNorth America, despite reduced consumer demand, net sales improved in thegrocery/drug channel as an adverse inventory adjustment in the nine monthsended September 30, 2005 did not repeat in the same period in 2006.  Increased contract manufacturing activityalso favorably impacted sales.  Lowerfood service sales related to increased competition, sales declines in the clubchannel related to changes in inventory levels and lower consumer demand, unfavorablesales mix and increased trade marketing partially offset the sales improvementpreviously discussed.

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*Operating EBITDA.*Theincrease in Operating EBITDA was primarily related to the margin impact of theimproved sales, lower conversion costs related to reduced spending, headcountreductions, improved overhead absorption costs related to increased contractmanufacturing activities and the impact of a volume related penalty recorded inthe third quarter of 2005 that did not repeat in 2006.  These favorable impacts were partially offsetby higher selling costs due to increased sales volumes and commissions to thenew distributor and unfavorable sales mix. Operating EBITDA margin increaseddue primarily to the favorable conversion costs and overhead absorptionpreviously discussed.

***EAME***

*Net sales.*InEAME, sales declined primarily as a result of a $2.0 million unfavorablecurrency translation and lower sales across most of the region, led by France, theUK, South Africa, Portugal and Italy.  InFrance and Italy, weakened economies continued to depress sales, and thedecreased revenues for the nine months ended September 30, 2006 also reflectedthe loss of consumers resulting from the publication in July 2005 of a nowwidely discredited study on the safety of aspartame.  In France, these factors, as wellas increased health consciousness, negatively affected the low-caloriesweetener category in general as well as the sugar category.  In the UK, sales were negatively impacted primarilyby timing of shipments and aggressive pricing by major grocery retailers that forcedhigher discounting.  Despite the higher discounting, Merisantmaintained its volume and value share of the market. In Portugal, South Africaand Hungary, the conversion from a direct sales model to a distributor modelcaused declines in net sales, but this planned decline in revenue was offset byreduced infrastructure costs.  In Portugal,the Company closed its office and converted its proprietary distributionoperation into a third party distributor operation at the end of 2005. The newdistributor acquired more inventory than normally required as part of itsstart-up of the distributorship, which caused unusually low sales to thatdistributor thus far in 2006.  Sales alsodeclined in Hungary, Ireland, Greece and Germany, primarily as a result oflower consumer demand, weak economies and health concerns.  These negative variances were partiallyoffset by increased sales in Belgium and the Netherlands where an unusuallypositive impact on sales compared to the same period in 2005 was created by theconversion to a buy/sell model with the distributor in those countries. 

*Operating EBITDA.* Operating EBITDA decreased mainly due to themargin impact of lower sales.  Thisnegative impact was partially offset by reduced brand support at the regionallevel, lower variable selling costs and freight and distribution costs due toreduced sales, reduced supply chain, marketing and selling administration costsdue to savings from restructuring actions, lower inventory obsolescence costsand the $1.3 million charge related to the Food Brokers, LTD receivable thatwas incurred in the period ended September 30, 2005 that did not recur in thecorresponding period in 2006. The decrease in Operating EBITDA margin wasprimarily due to higher marketing costs as a percentage of sales and a decreasein gross profit as a percentage of sales, mainly related to changes in salesmix and discounted pricing in the UK. 

***Latin America***

*Net sales.* The increasein Latin American sales was mainly due to improved consumer demand in theCaribbean grocery channel and improved distributor performance in Argentina,Central America and Chile.  Thesefavorable impacts were partially offset by lower sales in Mexico due to the terminationof a food service distributor contract, as well as unfavorable currencytranslation.  

*Operating EBITDA.*The increase in Operating EBITDA was mainly related to lower brand support andreduced cost of goods sold and marketing, selling and general administrativecosts due to savings from restructuring actions and business modelchanges.  The reduction in brand supportoccurred primarily in Mexico due to the absence of a product launch in the periodended September 30, 2006 as compared the presence of a product launch in thesame period in 2005.  These impacts werepartially offset by increased manufacturing costs and the impact of a $1.3million reversal of a currency loss in the period ended September 20, 2005 thatdid not repeat in the corresponding period in 2006. Operating EBITDA margin increasedprimarily due to lower operating expenses as a percentage of sales.

***Asia/Pacific***

*Net sales.* Netsales in the Asia/Pacific region decreased primarily due to foreign currencytranslation losses.  Sales increases inAustralia/New Zealand, Thailand and India were nearly offset by sales decreasesin Malaysia, Hong Kong and Indonesia.

*Operating EBITDA.*Operating EBITDA and Operating EBITDA margin increased due to reductions in inventoryobsolescence charges and selling and general administrative costs due tosavings from restructuring actions, mainly in Australia.

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**Corporate Expenses**

Corporate expenses increased from $17.8 million for the nine months endedSeptember 30, 2005 to $19.3 million for the nine months ended September 30, 2006,primarily due to higher performance based incentive expense and litigationcosts, partially offset by lower consulting costs, information technology costsand savings related to restructuring actions.

**Liquidityand Capital Resources**

The Company’s liquidity needs are primarily met through internallygenerated cash flow. From time to time, the Company borrows money under itsrevolving line of credit under the Senior Credit Agreement. The Company’sprimary uses of cash are cost of sales, operating expenses, debt service,capital expenditures and distributions to its stockholder. The Company’sforeign subsidiaries generated approximately 60% of its consolidated net salesduring the nine months ended September 30, 2006, and it has relied upon therepatriation of cash from its foreign subsidiaries to satisfy many of its cashrequirements. Historically, the Company had received a vast majority of fundsfrom its foreign subsidiaries through its Swiss subsidiary in the form ofpayments pursuant to a promissory note. This promissory note was repaid in fullin January 2006. On March 30, 2006, Merisant issued a revolver noteto its Swiss subsidiary, which will mature in 2011. Merisant may borrow up to$200 million from its Swiss subsidiary during the term of the revolver note,and Merisant expects to repatriate cash to the United States through borrowingsunder this revolver note. The balance relating to this revolving note as ofSeptember 30, 2006 was $31.4 million, consisting of $30.8 million inoutstanding borrowings and $0.6 million in accrued interest.  

Accounts receivable levels, time to payment and inventory levels impactthe amount of internally generated cash flow. The following table showsinformation with respect to the Company’s accounts receivable and inventory atDecember 31, 2005 and September 30, 2006. Accounts receivable decreased inthe nine months ended September 30, 2006 primarily due to the transition to anew distributor in the United States with improved terms and collections ascompared to the previous distributor and lower sales in the third quarter of2006 compared to the fourth quarter of 2005. The decrease in inventory resulted from the purchase of excess aspartameinventory in 2005 to satisfy a minimum volume commitment that is being consumedduring 2006.
| ** **                         | ** ** | **December 31, 2005** | ** ** | **September 30, 2006** | ** ** |
|------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|
|                               |       |                            |       |                             |       |
| Accounts  receivable (in millions) |       | $                               | 66.3       |                             | $          | 62.7 |   |
| Days sales  outstanding            |       | 78                              |       | 77                               |       |
| Inventory (in  millions)           |       | $                               | 29.2       |                             | $          | 20.1 |   |
| Days sales in inventory            |       | 81                              |       | 58                               |       |

 

***Nine Months Ended September 30, 2006 Compared to NineMonths Ended September 30, 2005***

For the nine months ended September 30, 2006, net cash provided byoperating activities was $4.4 million compared to $5.1 million for the ninemonths ended September 30, 2005. Operating cash flows decreased $0.7 millionversus the nine months ended September 30, 2005, due to decreased net incomeafter adjusting for non-cash items, nearly offset by an increase in thecontribution from working capital of $10.9 million. The contribution fromworking capital increased mainly due to a significant decrease in accountsreceivable primarily related to improved terms with a key distributor and lowersales, reduction in other receivables due mainly to the collection of fundsrelated to the sale of the South African subsidiary and lower aspartameinventories as the Company consumes excess quantities purchased in 2005 tosatisfy a minimum volume commitment.

Net cash used in investing activities totaled $1.4 million for the ninemonths ended September 30, 2006 compared to $3.0 million for the nine monthsended September 30, 2005 due to reduced spending on capital expenditures.

For the nine months ended September 30, 2006, financing activities used$11.6 million in cash as compared to providing $2.3 million in cash for the ninemonths ended September 30, 2005.  In the ninemonths ended September 30, 2006, cash was provided from borrowings of $85.0million under Merisant’s Second Lien Credit Agreement, but the proceeds wereused fully to prepay borrowings under Merisant’s Senior Credit Agreement andfor costs relating to the Second Lien Credit Agreement.  Additional funds obtained from Merisant’s saleof its South African and Hungarian subsidiaries were used to prepay existingdebt obligations under the Term A and Term B loans in accordance with the termsof the Senior Credit Agreement.  For the ninemonths ended September 30, 2006, the Company also used cash to pay Merisant’sscheduled principal payments under the Senior Credit Agreement and to pay feesrelated to amendments to the Senior Credit Agreement, as was also the case forthe same period ended September 30, 2005. In addition, distributions of $0.5 million and $1.0 million were made to

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theCompany’s sole stockholder in the nine-month periods ended September 30, 2006and 2005, respectively, for the purpose of paying financing fees and otheradministrative expenses.

***Capital Expenditures***

Capital expenditures in 2006 are expected to be in the range of$3.0 million to $5.0 million. The Company believes that internallygenerated cash flow, together with borrowing available under the Senior CreditAgreement, will be sufficient to fund capital expenditures over the next 12months.

***Financing***

The Senior Credit Agreement provides for aggregate commitments of up to$310.0 million, consisting of a revolving loan facility of $35.0 million, ofwhich a portion is available at Merisant’s option in euro or dollars or in theform of letters of credit denominated in dollars or euro, as well as term loanfacilities of $275.0 million, consisting of a Euro Term Loan A of $50.0million, and a Term Loan B of $225.0 million, denominated in dollars. The EuroTerm Loan A and the revolving loan facility have a maturity of five andone-half years while the Term Loan B has a maturity of six and one-half years.The Senior Credit Agreement is guaranteed by Merisant’s sole stockholder andeach of Merisant’s domestic subsidiaries. The Senior Credit Agreement and theguarantees of the guarantors are secured by a first-priority securityinterest in substantially all of Merisant’s assets and the assets of theguarantors.

As of September 30, 2006, deferred financing costrelated to entering into the Senior Credit Agreement, the issuance of the Notesin July 2003, the 2005 registered exchange offer with respect to the Notesand the execution of any subsequent amendments to the Senior Credit Agreementwas approximately $10.7 million and is being amortized in accordance with theterms of the respective debt instruments.

Merisant has sought and obtained amendments to theSenior Credit Agreement from time to time. The Company faced an issue in the first quarter of 2006 with a possibleimmediate default under the Senior Credit Agreement as a result of continueddeclines in Bank EBITDA.  Merisantsuccessfully completed the Fourth Amendment to the Senior Credit Agreement onMarch 29, 2006, which amended the financial covenants as of December 31, 2005,adjusted the financial covenants through the maturity date of loans outstandingunder the Senior Credit Agreement, incorporated new financial covenants,adjusted the interest rate on borrowings under the Senior Credit Agreement,amended the definition of Bank EBITDA to provide additional “add backs” relatedto Merisant’s restructuring and new product development efforts, and amendedcertain other covenants.  The FourthAmendment also required Merisant to raise approximately $85.0 million of newborrowings under the Senior Credit Agreement before January 2, 2007, includingpursuant to loans secured by a second lien on all of the assets that secureloans outstanding under the Senior Credit Agreement.

On June 23, 2006, Merisant completed the FifthAmendment to the Senior Credit Agreement concurrent with the closing of theSecond Lien Credit Agreement.  The FifthAmendment amended the Senior Credit Agreement to accommodate the Second LienCredit Agreement and to effect certain other amendments that were intended tofacilitate a de-leveraging of the Company capital structure.  The amendments include exceptions to therestrictive covenants to permit, subject to certain limitations and subject tothe restrictions contained in the indenture governing the Notes and MerisantWorldwide’s 121⁄4% Senior Subordinated Discount Notes due 2014 (the “SeniorSubordinated Discount Notes”):

·                                          theissuance of certain preferred stock by Merisant Worldwide;

·                                          theissuance of up to an aggregate of $100.0 million of payment-in-kind (“PIK”)notes and additional secured indebtedness;

·                                          additionalrestricted payments up to $10.0 million each fiscal year;

·                                          theexchange by Merisant Worldwide or Merisant of capital stock of MerisantWorldwide, PIK notes or additional secured PIK indebtedness for the SeniorSubordinated Discount Notes or the Notes or the repurchase of the Notes orSenior Subordinated Discount Notes with the net cash proceeds from the issuanceof such capital stock, PIK notes or additional secured PIK indebtedness so longas the Notes and the Senior Subordinated Discount Notes are cancelled inconnection with any such transaction; and

·                                          theacquisition by Merisant Worldwide and Merisant of the Notes or SeniorSubordinated Discount Notes in transactions permitted under the restrictedpayment covenant.

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Inaddition, the beneficial owners of the Notes and the Senior SubordinatedDiscount Notes may acquire the common stock of Merisant Worldwide withouttriggering a change of control event of default so long as the originalinvestors in Merisant Worldwide continue to control of record and beneficially,directly or indirectly, at least 51% of the outstanding common stock ofMerisant Worldwide.

 

Merisantconsummated the Second Lien Credit Agreement on June 23, 2006. The Second LienCredit Agreement provides for an $85.0 million term loan facility, which wasdrawn in a single draw at closing. The maturity date of the term loan is June11, 2010.

 

Dependingon the type of borrowing by Merisant, the applicable interest rate under theSecond Lien Credit Agreement is calculated as a per annum rate equal to (a)LIBOR plus 850 basis points or (b) (i) the greater of (x) the prime rate or (y)the federal funds effective rate plus 0.5% plus (ii) 750 basis points. As ofSeptember 30, 2006, there were $85.0 million in term loans outstanding underthe Second Lien Credit Agreement at an interest rate of 13.98%.

 

TheSecond Lien Credit Agreement contains provisions for mandatory prepayments from100% of the net cash proceeds of asset sales, recovery events and debtissuances and 50% of the net cash proceeds of equity issuances, subject tocertain exceptions. Merisant may prepay the terms loans under the Second LienCredit Agreement in whole or in part at any time. If Merisant makes any suchpayments during the first three years of the credit facility, Merisant must paya premium of 3%, 2% and 1% of the aggregate principal amount of term loansprepaid in the first, second and third years of the Second Lien CreditAgreement, respectively, except that these prepayment premiums will be reducedto 1.5%, 1% and 0.5%, respectively on the first $25.5 million aggregateprincipal amount of the term loans prepaid with the net cash proceeds from anequity issuance by Merisant Worldwide.

 

Theobligations under the Second Lien Credit Agreement are guaranteed by MerisantWorldwide and Merisant’s domestic subsidiaries, and are secured by a lien onsubstantially all of the assets of Merisant, Merisant Worldwide and eachsubsidiary guarantor, including a pledge of 65% of the ownership interests in eachfirst-tier foreign subsidiary held by a guarantor, with certain exceptions.

 

TheSecond Lien Credit Agreement increased the aggregate principal amount ofMerisant’s indebtedness by $7.2 million, and Merisant’s interest expense willincrease as a result of the transaction. Merisant’s loans outstanding under theSenior Credit Agreement had a weighted average interest rate of approximately9.0% per annum prior to the closing of the Second Lien Credit Agreement.Merisant’s borrowings under the Senior Credit Agreement and Second Lien CreditAgreement had a weighted average interest rate of approximately 10.3% per annumupon the closing of the Second Lien Credit Agreement. The interest rates onloans outstanding under the Senior Credit Agreement reverted to Euro-LIBOR plus325 basis points on Euro-denominated term A loans and LIBOR plus 325 basispoints on term B loans and revolving loans upon the closing of the Second LienCredit Agreement.

 

As ofSeptember 30, 2006, deferred financing cost related to entering into the SecondLien Credit Agreement was approximately $3.9 million and is being amortized inaccordance with the terms of the Second Lien Credit Agreement.

 

**IntercreditorArrangements**. The loans outstanding under the Second LienCredit Agreement are secured by a second lien on all of the assets that secureloans outstanding under the Senior Credit Agreement. In connection with theclosing of the Second Lien Credit Agreement, Merisant, Merisant Worldwide,lenders under the Senior Credit Agreement (the “First Lien Lenders”), thelenders under the Second Lien Credit Agreement (the “Second Lien Lenders”),Credit Suisse, as agent to the first lien lenders, and Wells Fargo Bank,National Association, as agent for the second lien lenders, entered into anIntercreditor Agreement. The Intercreditor Agreement subordinates the lienssecuring the obligations under the Second Lien Credit Agreement to the lienssecuring the obligations under the Senior Credit Agreement. The IntercreditorAgreement restricts amendments to the Senior Credit Agreement and the SecondLien Credit Agreement. Certain amendments to the Senior Credit Agreement or theSecond Lien Credit Agreement require the prior consent of the administrativeagent for the other credit facility acting at the direction of the requisitelenders for that facility. The aggregate principal of loans under the SeniorCredit Agreement may not exceed $175.0 million plus interest that has beencapitalized under the Senior Credit Agreement that does not exceed theapplicable base rate plus a margin of 6% per annum, exclusive of any defaultinterest. This limitation will be further reduced by any permanent repaymentsof principal and reductions or eliminations of commitments under the SeniorCredit Agreement. The aggregate principal amount of loans outstanding under theSecond Lien Credit Agreement may not be increased. In addition, neither theSenior Credit Agreement nor the Second Lien Credit Agreement may be amended toprovide for covenants, representations or warranties, events of default, rightsor remedies which are, in the aggregate, on terms less favorable to the lendersunder the other credit facility or increase the amount of interest by anapplicable margin of more than 6% with no more than 4% of any such increase payablein cash, exclusive, in each case, of default interest.

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**RestrictiveCovenants and Bank EBITDA**. The indenture governing the Notes,the Senior Credit Agreement and the Second Lien Credit Agreement containcertain covenants that limit or restrict the incurrence of liens, investments(including acquisitions), sales of assets, indebtedness, restricted payments(including dividends) and mergers and consolidations, subject to certainexceptions. In addition, the Senior Credit Agreement and the Second Lien CreditAgreement require Merisant to maintain compliance with a consolidatedfirst-lien leverage ratio covenant, a consolidated senior leverage ratiocovenant, a consolidated leverage ratio covenant, a consolidated interestcoverage ratio covenant, and a consolidated fixed charge coverage ratiocovenant. The representations, warranties, covenants and defaults in the SecondLien Credit Agreement are substantially similar to the representations,warranties, covenants and defaults in the Senior Credit Agreement in allmaterial respects, except that certain negative covenants are less restrictiveon Merisant and its subsidiaries’ business and operations and the financialcovenant ratios are less restrictive, in each case, than those set forth in theSenior Credit Agreement.

 

Asnoted above, the Senior Credit Agreement and the Second Lien Credit Agreementcontain financial covenants that require Merisant to maintain certain ratios.These ratios are measured on the basis of Bank EBITDA for the four fiscalquarters ending at least 45 days prior to the payment date. Bank EBITDA isdiscussed here because it is the measure upon which the covenants contained inthe Senior Credit Agreement are measured. However, Bank EBITDA is not a measureof liquidity under GAAP. Accordingly, while providing useful information withrespect to assessing Merisant’s compliance with covenants under its primarydebt obligations, this measure should not be considered in isolation from, oras a substitute for, consolidated statement of cash flow data prepared inaccordance with GAAP as an indication of liquidity. In addition, the BankEBITDA measure presented may differ from, and may not be comparable to,similarly titled measures used by other companies.

 

BankEBITDA as defined under the Senior Credit Agreement and the Second Lien CreditAgreement excludes interest expense, income tax expense, depreciation andamortization as well as the certain other expenses and non-cash items,including:

 

·                                          anyextraordinary, unusual or non-recurring non-cash expenses or losses (includingnon-cash losses on sales of assets outside of the ordinary course of business);

 

·                                          non-cashcontributions and other non-cash compensation expense;

 

·                                          non-cashlosses attributable to equity in non-consolidated subsidiaries;

 

·                                          transactioncosts associated with the 2003 recapitalization transaction which are expensedand not amortized;

 

·                                          any non-cashforeign currency translation adjustments;

 

·                                          anyextraordinary or non-recurring cash losses or expenses arising fromrestructuring not to exceed in the aggregate (A) if such period ends prior toJanuary 1, 2004 (for Senior Credit Agreement), (B) if such period ends prior toJanuary 1, 2006, $14,600,000, (C) if such period begins on or after January 1,2006, (x) $11,000,000 with respect to any such non-recurring cash losses orexpenses arising from the implementation of Merisant’s plan known as “ProjectArrow” and related restructuring, (y) $4,000,000 with respect to any suchnon-recurring cash losses or expenses arising from the transition from H.J.Heinz Company to ACH Food Companies, Inc. as exclusive distributor to Merisantand its subsidiaries in the United States; and (z) any cash expenses incurredin connection with (i) any waiver of a default or event of default and anyamendment to the Senior Credit Agreement including the fees and expenses of anyattorneys and financial advisers retained by the administrative agent pursuantthereto with respect to any such waiver or amendment and (ii) the negotiation,execution and closing of the Second Lien Credit Agreement and any waiver of adefault or event of default and any amendment to the Second Lien CreditAgreement including the fees and expenses of any attorneys and financialadvisers retained by the administrative agent with respect to any such waiveror amendment; and

 

·                                          expensesincurred by Merisant or any subsidiary prior to January 1, 2007 in connectionwith the development and commercialization of the all-natural, zero-caloriesweetener to be marketed under the *Sweet Simplicity*TMtrademark, in an amount not to exceed in the aggregate $3,000,000.

 

BankEBITDA for the nine months ended September 30, 2006 was $47.8 million. Merisantwas in compliance with its

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covenants under theSenior Credit Agreement, as amended, and the Second Lien Credit Agreement atSeptember 30, 2006.

 

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, 2006** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                        | ** ** | **(in millions)**                                    | ** ** |
| Net cash  provided by operating activities                        |       | $                                                         | 4.4        |   |
| Provision for  income taxes, net of deferred income tax provision |       | 1.7                                                       |       |
| Interest  expense, net of non-cash interest expense               |       | 34.1                                                      |       |
| Cash costs of  refinancing                                        |       | 0.8                                                       |       |
| Restructuring  expenses (a)                                       |       | 5.0                                                       |       |
| Other items (b)                                                   |       | 3.5                                                       |       |
| Equity in  (income) loss of affiliates                            |       | 0.0                                                       |       |
| Net change in  operating assets and liabilities                   |       | (1.7                                                      | )          |
| Bank EBITDA                                                       |       | $                                                         | 47.8       |   |

 

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

 

(b)                                 Otheritems consist mainly of certain non-cash expenses (income) and charges relatedto certain new product development and launch expenses that are excluded fromthe definition of Bank EBITDA.

 

***ForwardLooking Statements***

 

Certain informationincluded or incorporated in this report may be deemed to be “forward-lookingstatements” within the meaning of Section 27A of the Securities Act andSection 21E of the Exchange Act. All statements, other than statements ofhistorical facts, included or incorporated in this report, are forward-lookingstatements. In particular, statements made under the heading “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,”relating to overall volume trends, pricing trends and industry forces,anticipated results, expectations for funding capital expenditures andoperations and increased market share and the sufficiency of capital to meetworking capital, capital expenditures requirements and strategies areforward-looking statements. When used in this document, the words “anticipate,”“estimate,” “project” and similar expressions are intended to identifyforward-looking statements.

 

These statements arebased on assumptions and assessments made by management in light of theirexperience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Any forward-looking statements are not guarantees of future performance and aresubject to risks and uncertainties that could cause actual results,developments and business decisions to differ materially from thosecontemplated by such forward-looking statements. The Company disclaims any dutyto update any forward-looking statements. Some of the factors that may causeactual results, developments and business decisions to differ materially fromthose contemplated by such forward-looking statements include thefollowing:  changes in consumerpreferences and nutritional and health-related concerns; increased competition;changes in the terms on which the Company may obtain aspartame; damagedconsumer confidence in the Company’s products as a result of health-relatedallegations; product liability claims; fluctuations in exchange rates and othercurrency risks; disruptions in the Company’s business as a result of strikes orwork stoppages; changes in the Company’s relationship with its largestdistributor; and changes in economic and political conditions in the countriesin which the Company markets and produces its products.

 

**Item 3.Quantitative and Qualitative Disclosures About Market Risk**

 

***ForeignOperations***

 

With approximately 64%and 60% of Merisant’s consolidated total net sales generated by itssubsidiaries outside of the United States in the nine months ended September30, 2005 and 2006, respectively, Merisant’s ability to obtain funds necessaryto meet its obligations is subject to applicable laws, foreign taxes andintercompany pricing laws, including those relating to the flow of fundsbetween Merisant’s foreign affiliates pursuant to, for example, purchase agreements,licensing

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agreements or otherarrangements. Historically, Merisant received a vast majority of funds from itsforeign affiliates through its Swiss subsidiary in the form of paymentspursuant to a promissory note. The note was repaid in full in January 2006.On March 30, 2006, Merisant issued a revolver note to its Swisssubsidiary, which will mature in 2011. Merisant may borrow up to $200 millionfrom its Swiss subsidiary during the term of the revolver note. The Company isrepatriating cash to the United States through borrowings under this revolvernote, which total $30.8 million as of September 30, 2006. Regulators in theUnited States and other foreign countries where Merisant operates may closelymonitor its corporate structure and how it effects intercompany fund transfers.

 

In addition, as of September30, 2006, foreign affiliates comprised approximately 45% of Merisant’sconsolidated total assets. Accordingly, the Company has been, and will continueto be, exposed to foreign exchange risk.

 

***ForeignCurrency and Interest Rate Risks***

 

Inherent in Merisant’soperations are certain risks related to changes in foreign currency exchangerates and interest rates. The Company bears foreign exchange risk because amajority of its financing was obtained in U.S. dollars although a significantportion of its revenues are earned in the various currencies of its foreignsubsidiaries’ operations. Under Merisant’s Senior Credit Agreement, a portionof its financing was obtained in euros. This euro-denominated loan decreasesMerisant’s transactional exposure to euro exchange fluctuations until the europrincipal 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 the euro denominateddebt obligations (i.e., foreign currency transaction gain) and interest expensethat also results from such a decrease in exchange rate. Likewise, any increasein sales and earnings from the euro denominated countries that results from astrengthening euro against the U.S. dollar partially offsets the increase inthe euro denominated debt obligations (i.e., foreign currency transaction loss)and interest expense that results from such an exchange rate increase.

 

A significant portion of theCompany’s debt bears interest at a fixed rate. Interest rate exposure resultsfrom Merisant’s floating rate borrowings. For the nine month period endedSeptember 30, 2006, a 1.0% per annum increase or decrease in interest rateswould have resulted in an increase or decrease in cash interest costs forMerisant’s Term A and Term B loans of approximately $1.7 million, excluding theimpact from the interest rate derivatives that were still in place for the majorityof the three month period ended March 31, 2006.

 

In the normal course of business, Merisant identifies risks relating toforeign currency exchange rates and interest rates and mitigates theirfinancial impact through corporate policies and, at times, through the use ofderivative financial instruments. Merisant uses derivatives only where there isan underlying exposure and does not use them for trading or speculativepurposes. The counter parties to the hedging activities are highly ratedfinancial institutions. The Company did not have any foreign currency forwardexchange contracts or interest rate derivatives outstanding at September 30,2006.

 

***InflationRisk***

 

Inflation is not expected tohave a material impact on the Company’s business, financial condition orresults of operations. In markets outside the United States in countries withhigher inflation, Merisant generally has been able to offset the impact ofinflation through a combination of cost-cutting measures and price increases.

 

**Item 4. Controlsand Procedures**

# ***Evaluation ofDisclosure Controls and Procedures***

#  

The Company conducted anevaluation, under the supervision of the Chief Executive Officer and ChiefFinancial Officer, of the effectiveness as of December 31, 2005 of theCompany’s disclosure controls and procedures (as defined in Exchange ActRule 15d-15(e)). Based on this evaluation, the Chief Executive Officer andChief Financial Officer had concluded that, as of December 31, 2005, theCompany’s disclosure controls and procedures needed improvement and were noteffective to provide reasonable assurance that information required to bedisclosed by the Company in reports that it files with the SEC or submits underthe Exchange Act is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms. In making thisconclusion, the Chief Executive Officer and Chief Financial Officer consideredthe material weaknesses in the Company’s internal controls over financialreporting and the status of the corrective actions to remedy those materialweaknesses described below. In its reevaluation of the Company’s disclosurecontrols and procedures as of September 30, 2006, the Chief Executive Officerand the Chief Financial Officer noted certain incremental improvements duringthe year. However, the Company has not formally documented and tested all ofits

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potentially remediated controls to affirmativelyconclude that such controls are operating effectively.

 

The certifications of theChief Executive Officer and Chief Financial Officer required in accordance withSection 302 of the Sarbanes-Oxley Act of 2002 appear as exhibits to thisreport. The disclosures set forth in this Item 4 contain information concerningthe evaluation of the Company’s disclosure controls and procedures, and changesin internal controls over financial reporting, referred to in paragraphs4(b) and (c) of the certifications. The certifications should be readin conjunction with this Item 4 for a more complete understanding of the topicspresented.

 

***MaterialWeaknesses Identified***

##  

In a letter to theCompany dated September 24, 2004 related to the audit of the Company’sfinancial statements for the year ended December 31, 2003 and throughdiscussions with management and the audit committee of its board of directorson April 14, 2005 related to the former auditor’s audit of its financialstatements for the year ended December 31, 2004, the former auditoridentified certain matters involving the Company’s system of internal controland its operation that the auditor considered to be material weaknesses asdefined in the Public Company Accounting Oversight Board’s, or PCAOB’s,Auditing Standard No. 2, *An Audit ofInternal Control Over Financial Reporting Performed in Conjunction with anAudit of Financial Statements* (the PCAOB’s final standard will applyto the Company’s audit for the year ended December 31, 2007). TheCompany’s former auditor noted the balance sheet accounts for income taxes,fixed assets, inventory, and accrued trade promotions were not reconciled, ornot reconciled in a timely manner. As a result, the Company made materialadjustments to the financial statements that were not initially identified byits internal controls over financial reporting.

 

## ***Corrective Actions***

##  

There have been someimprovements, as described more fully below, in the Company’s internal controlover financial reporting that occurred during the period covered by this reportthat have materially affected, or are reasonably likely to materially affect,its internal control over financial reporting. During the period covered bythis report, the Company has taken steps to improve its internal controlstructure and procedures regarding disclosures in its financial reporting,including those contemplated by Section 404 of the Sarbanes-Oxley Act andthe rules and regulations of the SEC promulgated thereunder, with whichthe Company is required to be in compliance as of December 31, 2007. TheCompany continues to take further steps with regard to these matters.

 

During and prior to theperiods covered by this report, the Company has taken steps to improve itscontrol activities and procedures over financial reporting. The Companycontinues to make further enhancements with regards to its entity leveldisclosure controls. These actions include the following enhancements.

 

·                  TheCompany’s disclosure committee has been expanded to include management at thecorporate, regional and local levels to discuss operational and financialissues for the reporting period. At a minimum, the committee meets once aquarter, just prior to releasing results for the quarter then ended. Thecommittee meetings provide the necessary forum to give reasonable assurancethat the information required to be disclosed in the reports filed pursuant tothe Exchange Act is analyzed, reviewed and included where relevant.

 

·                  A monthly regional resultsreview is held between corporate and regional financial management to discusseach region’s financial results, including explanations of significant variancesbetween the actual results as compared to projections and prior year. For thequarter, additional corporate financial personnel attend the meeting toparticipate in the financial review and to discuss the quarterly financialclose process and any pending issues.

 

·                  Aquarter-end review checklist which documents that key controls in the financialclose process were performed is sent to financial personnel at both theregional and headquarter levels. The checklists are now submitted on a timelybasis and are reviewed by corporate and regional financial personnel during theregional results review for the quarter.

 

The Company reviewed thematters identified by its former auditor and initiated an effort to implementcontrols to mitigate the identified control weaknesses and implement plans tofully remediate these weaknesses. This process is ongoing, and during theperiod covered by this report, the Company continued to make material changesin the following areas.

 

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*Income Taxes*. The income tax accounts werereconciled at year-end and quarter-end. The Company continues to use an outsideadviser to assist with its taxes and reconciliations on a regular basis as wellas to assist with training finance personnel on tax accounting matters. Inaddition, the Company hired an internal tax manager to further build its corecompetencies in the tax area.

 

*Inventory*. The inventory accounts weresubstantially reconciled at year-end and quarter-end. While the entireinventory process, from acquiring raw materials to shipping finished goods,requires frequent manual intervention, the Company has implemented criticalmonthly and annual controls to ensure that the inventory accounts presented inthe financial statements are fairly stated. Specifically, the following actionsare taken:

 

·                  The Company reconciles thethird-party warehouse inventory system to the Company’s inventory system,monthly.

 

·                  The Company conducted its annualphysical inventory at its largest inventory location at year-end, whichrepresented approximately 59% of the consolidated inventory value, excludinginventory reserves. The resulting adjustment was less than 1% of totalinventory value. Internal and external auditors observed and validated that theinventory taking procedures surrounding the physical inventory were wellcontrolled.

 

·                  In 2006, the Company continuesto reassess its analytical procedures to ensure that each inventory account andthe post physical inventory adjustment is thoroughly analyzed and reviewed.

 

*Fixed Assets*. The North America fixedasset accounts were reconciled at year-end and quarter-end. Prior to 2004,certain fixed assets were accounted for on a manual spreadsheet, which led toerrors. In 2004, the fixed asset spreadsheet was reviewed and corrected. Thecorrected asset values and depreciable lives were uploaded into the SAP fixedasset module, automating the process. In the EAME region, the manual fixedasset process mentioned above is currently used. During 2005, the Companyperformed a physical inventory and reconciliation of fixed assets, includingreviewing each asset’s depreciable life. The Company intends to implement theSAP fixed asset module for the region. All fixed asset accounts were reconciledat year-end and quarter-end.

 

*Accrued Trade Promotions*. The accrued tradepromotion account was reconciled at year-end and quarter-ends. Throughout 2005and the nine months ended September 30, 2006, the Company has continued torefine its detailed methodology for estimating and accruing trade marketingexpenses.

 

The Company believes thatthe changes it has implemented are sufficient to mitigate the materialweaknesses described above. However, while the Company has enhanced the designof the current controls and implemented additional controls, there are stillopportunities for additional improvements in certain areas. Additionally, theCompany has not yet formally tested the on-going effectiveness of the newcontrols. In addition to the continuing efforts described above, the Companyhas made significant progress in documenting, testing and remediating itssystem of internal controls in preparation for compliance with the requirementsof Section 404 of the Sarbanes-Oxley Act and the rules andregulations of the SEC promulgated thereunder, with which it must be in complianceby December 31, 2007.

 

# ***Changes in InternalControl Over Financial Reporting***

#  

Exceptas otherwise described above, there have been no changes in the Company’sinternal control over financial reporting during the most recently completedfiscal quarter that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

**PART II**—**OTHER INFORMATION**

 

**Item 1.Legal Proceedings**

 

From time to time, theCompany is involved in litigation concerning its business operations.

 

In October 2004,Merisant requested the National Advertising Division of the Council of BetterBusiness Bureaus, referred to as the NAD, to review advertising and otherclaims made by McNeil Nutritionals, LLC (“McNeil”) in connection with itsSplenda® brand sweetener. Merisant believed and continues to believe McNeil’sSplenda® advertising to be false and misleading. Despite McNeil’s previous useof the NAD for such disputes and the NAD’s industry-wide, self-regulatorynature, McNeil refused to allow their advertising claims to be judged by theNAD and instead sought to have the issue

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considered by the UnitedStates District Court for the District of Puerto Rico. Under NAD rules,McNeil’s filing in Puerto Rico precluded the NAD from reviewing the matter orreferring McNeil’s advertising to the Federal Trade Commission. In order tohave McNeil’s advertising addressed by a jury and court in the continentalUnited States familiar with McNeil’s claims, on November 26, 2004,Merisant filed a federal and state false advertising complaint against McNeilin the United States District Court for the Eastern District of Pennsylvania.That suit continues today and seeks to have McNeil’s Splenda® campaign stoppedbecause of its misleading nature and seeks significant damages resulting fromthe impact McNeil’s false advertising has had on Merisant’s sales. OnJanuary 13, 2005, McNeil voluntarily dismissed its action in Puerto Ricoand in April 2005 McNeil amended its answer to the Company’s complaint inthe Pennsylvania action to add a counterclaim against the Company alleging thatits Equal® Sugar LiteTM packaging and advertising were misleading. McNeil hasdismissed its counterclaim relating to Equal® Sugar LiteTM packaging andadvertising and on July 7, 2006, the court entered a dismissal with prejudiceof those claims.

 

On October 23, 2006, Merisant France SAS, theCompany’s French subsidiary, commenced legal actions in the Commercial Court ofParis against McNeil and McNeil Nutritionals Ltd., McNeil’s French and UKsubsidiaries respectively, related to McNeil’s advertising campaign for *Splenda*® in France. Specifically, theCompany is seeking injunctive relief and unspecified monetary damages for whatit believes to be misleading advertising and violations of food labeling laws.

 

Merisant EuropeB.V.B.A., the Company’s Belgium subsidiary, entered into a co-brandingagreement with Galleria Srl, a company through which the Italian designer ElioFiorucci operates. Under this co-branding arrangement, Merisant Europe produceda line of *Canderel*® tabletdispensers that featured designs and trademarks from Mr. Fiorucci’s “LoveTherapy by Elio Fiorucci” collection. The co-branding arrangement contains arepresentation and warranty that Galleria owns all rights in the name “LoveTherapy by Elio Fiorucci” and associated designs and further provides thatGalleria will indemnify and hold Merisant Europe and its affiliates harmlessagainst damages resulting from or related to their use of the name and designspursuant to the agreement. Beginning in 2005, Merisant Europe sold tabletdispensers with the “Love Therapy by Elio Fiorucci” designs in Italy.Edwin & Co. Ltd. has claimed that it owns all rights inMr. Fiorucci’s name and in the designs used by the Company and has filedsuit against Merisant Europe in Milan, Italy. On or about March 17, 2006,the court in Milan enjoined Merisant Europe from producing or selling thetablet dispensers after the date of the court order. The Company no longerproduces the dispensers and has stopped selling dispensers to its distributorin Italy and to customers through the Internet. Merisant Europe has filed anappeal and will vigorously oppose the court’s order. Merisant Europe will alsoenforce its indemnification rights under its co-branding arrangement withGalleria Srl.

 

The Company is subject tovarious other claims, pending and possible legal actions for product liabilityand other damages, and other matters arising out of the conduct of theCompany’s business, including tax uncertainties arising from doing business invarious European jurisdictions. Some on-going legal proceedings have beendisclosed in previous reports, but are not required to be disclosed in thisreport because no material changes in those proceedings occurred during theperiod covered by this report. 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.

 

**Item 1A.Risks Related to Our Business**

 

The most significant risk factors applicable to theCompany are described in Part I, Item 1A “Risk Factors” of theCompany’s Annual Report on Form 10-K for the year ended December 31, 2005.There have been no material changes from the risk factors previously disclosedin the Company’s report on Form 10-K.

 

**Item 4.    Submission of Matters to a Vote of SecurityHolders.**

 

On July 20, 2006, thesole stockholder of Merisant took action by written consent to elect Mr. DavidHouse as a director. The terms of office of Paul Block, Robert Albus, ArnoldDonald, Alec Machiels and Adam Stagliano continued after such action.

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**Item 6.    Exhibits**
| Exhibit No. | ** ** | **Description**                                                                                              |
|-------------|------------|--------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                         |
| 31.1        |       | Certificate of Paul R. Block pursuant to  Rule 15d-14 under the Securities Exchange Act of 1934.        |
|        |       |                                                                                                         |
| 31.2        |       | Certificate of Anthony J. Nocchiero pursuant to  Rule 15d-14 under the Securities Exchange Act of 1934. |
|        |       |                                                                                                         |
| 32.1        |       | Certificate of Paul R. 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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SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                         | MERISANT COMPANY |
|-------------------------|------------------|
|                    |             |   |
|                    |             |   |
| Date: November 13, 2006 | 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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