**UNITED STATES****SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, DC 20549**

 

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**FORM 10-Q**

 
| **x**                                                  | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF   THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|
| ** **                                             | ** ** | ** **                                                                                                |
| **For the  quarterly period ended September 30, 2006** |
| ** **                                             | ** ** | ** **                                                                                                |
| **OR**                                                 |
| ** **                                             | ** ** | ** **                                                                                                |
| **o**                                                  | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from           to**

 

**Commission File Number:  333-114102**

 

**Merisant Worldwide, Inc.**

(Exact Name of Registrantas Specified in its Charter)

 

| **Delaware**                                                     |   | **52-2219000**                           |
|------------------------------------------------------------------|--------|------------------------------------------|
| (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 telephonenumber, including area code: **(312) 840-6000**

 

Former name, formeraddress and former fiscal year, if changed since last report:

**Not applicable.**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filing requirementsfor 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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o  No x

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

As of November 13, 2006,the registrant had outstanding 9,089,380 shares of common stock, par value$0.01 per share.

 

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**MERISANT WORLDWIDE, INC.**

** **

**INDEX TO REPORT**

** **

**FOR THE QUARTER ENDED SEPTEMBER30, 2006**

** **

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

**Item1. Financial Statements of Merisant Worldwide, Inc.**

**MERISANT WORLDWIDE, INC.Unaudited Consolidated Balance Sheets(Dollars In Thousands, Except Per Share Amounts)**
| ** **                                                                                                     | ** ** | **At December 31,** | ** ** | **At September 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                     | ** ** | **2005**                      | ** ** | **2006**                       | ** ** |
| **ASSETS**                                                                                                     | ** ** | ** **                    | ** ** | ** **                     | ** ** |
| Cash and cash  equivalents                                                                                     |       | $                             | 18,073     |                           | $          | 9,743 |   |
| 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                                                                             |       | 2,796                         |       | 3,511                          |       |
| Current portion of note  receivable from director                                                              |       | 970                           |       | 970                            |       |
| Deferred income taxes                                                                                          |       | 474                           |       | 773                            |       |
| Total current  assets                                                                                          |       | 128,630                       |       | 103,646                        |       |
| 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 $6,540 and $7,478, respectively                    |       | 16,172                        |       | 16,788                         |       |
| 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                                                                                                   |       | $                             | 500,225    |                           | $          | 445,052 |   |
|                                                                                                           |       |                          |       |                           |       |
| **LIABILITIES AND STOCKHOLDERS’  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                                                                        |       | 19,041                        |       | 17,588                         |       |
| Current maturities of  long-term obligations                                                                   |       | 25,750                        |       | 8,187                          |       |
| Total current  liabilities                                                                                     |       | 94,464                        |       | 59,850                         |       |
| Long-term obligations                                                                                          |       | 512,877                       |       | 536,009                        |       |
| Deferred income tax  liabilities                                                                               |       | 14,317                        |       | 17,998                         |       |
| Other liabilities                                                                                              |       | 14,257                        |       | 13,135                         |       |
| Total  liabilities                                                                                             |       | 635,915                       |       | 626,992                        |       |
| Commitments and  contingencies (Note 8)                                                                        |       |                          |       |                           |       |
| Stockholders’ Deficit:                                                                                    |       |                          |       |                           |       |
| Common stock, $0.01 par  value, 10,000,000 shares authorized, 9,169,552 issued and 9,089,380  outstanding      |       | 91                            |       | 91                             |       |
| Due for purchase of  common stock.                                                                             |       | (767                          | )          | (767                           | )          |
| Retained deficit                                                                                               |       | (126,262                      | )          | (172,791                       | )          |
| Accumulated other  comprehensive loss                                                                          |       | (7,031                        | )          | (6,752                         | )          |
|                                                                                                           |       | (133,969                      | )          | (180,219                       | )          |
| Less cost of treasury  stock (80,172 shares)                                                                   |       | (1,721                        | )          | (1,721                         | )          |
| Total  stockholders’ deficit                                                                              |       | (135,690                      | )          | (181,940                       | )          |
| Total liabilities and  stockholders’ deficit                                                              |       | $                             | 500,225    |                           | $          | 445,052 |   |

 

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

3

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**MERISANTWORLDWIDE, INC.****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           |       | 9,547                                                |       | 9,080                                               |       | 31,574 |   | 31,653 |   |
| Amortization of  intangible assets |       | 5,554                                                |       | 5,553                                               |       | 16,662 |   | 16,661 |   |
| Transaction fees                   |       | —                                               |       | —                                              |       | (501 | ) | 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          |       | 32,857                                               |       | 40,887                                              |       | 108,277 |   | 120,573 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Income (loss) from  operations     |       | 10,795                                               |       | (2,177                                              | )          | 25,702 |   | 4,814 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Other expense (income):            |       |                                                 |       |                                                |       |   |   |   |   |
| Interest income                    |       | (137                                                 | )          | (104                                                | )          | (607 | ) | (468 | ) |
| Interest expense                   |       | 14,773                                               |       | 15,344                                              |       | 43,600 |   | 46,220 |   |
| Other expense  (income), net       |       | (1,175                                               | )          | (1,094                                              | )          | (10,068 | ) | 444 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Total other  expense               |       | 13,461                                               |       | 14,146                                              |       | 32,925 |   | 46,196 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Loss before income  taxes          |       | (2,666                                               | )          | (16,323                                             | )          | (7,223 | ) | (41,382 | ) |
| Provision for income  taxes        |       | 1,376                                                |       | 2,206                                               |       | 5,306 |   | 5,147 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Net loss                           |       | $                                                    | (4,042     | )                                                   | $          | (18,529 | ) | $ | (12,529 | ) | $ | (46,529 | ) |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Net loss from above                |       | $                                                    | (4,042     | )                                                   | $          | (18,529 | ) | $ | (12,529 | ) | $ | (46,529 | ) |
| Other comprehensive  income (loss) |       | 1,051                                                |       | (581                                                | )          | (2,121 | ) | 279 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Total comprehensive loss           |       | $                                                    | (2,991     | )                                                   | $          | (19,110 | ) | $ | (14,650 | ) | $ | (46,250 | ) |

 

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

4

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**MERISANTWORLDWIDE, INC.****Unaudited Consolidated Statementof Stockholders’ Deficit****(Dollars In Thousands)**
| ** **                               | ** ** | **Common  Stock** | ** ** | **Due for  Purchase of  Commom  Stock** | ** ** | **Retained  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Treasury  Stock, at Cost** | ** ** | **Total** | ** ** |
|------------------------------------------|------------|-------------------|------------|---------------------------------------------------|------------|-----------------------|------------|---------------------------------------------|------------|----------------------------------------|------------|-----------|------------|
| Balance at  December 31, 2005       |       | $                 | 91         |                                              | $          | (767                  | )          | $                                           | (126,262   | )                                      | $          | (7,031    | )          | $ | (1,721 | ) | $ | (135,690 | ) |
| Foreign currency  translation adjustment |       | —            |       | —                                            |       | —                |       | 279                                         |       | —                                 |       | 279       |       |
| Net loss                                 |       | —            |       | —                                            |       | (46,529               | )          | —                                      |       | —                                 |       | (46,529   | )          |
| Balance at September 30,  2006           |       | $                 | 91         |                                              | $          | (767                  | )          | $                                           | (172,791   | )                                      | $          | (6,752    | )          | $ | (1,721 | ) | $ | (181,940 | ) |

 

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

 

5

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**MERISANTWORLDWIDE, INC.Unaudited Consolidated Statements of Cash Flows(Dollars In Thousands)**
| ** **                                                                        | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                            | ** ** | **2006** | ** ** |
| **Operating Activities**                                                          | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Net loss                                                                          |       | $                                                   | (12,529    | ) | $ | (46,529 | ) |
| 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                                         |       | 2,101                                               |       | 2,551 |   |
| Interest  accretion on senior subordinated discount notes                         |       | 8,606                                               |       | 9,088 |   |
| 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                                                 |       | (550 | ) |
| Accounts payable                                                                  |       | (7,866                                              | )          | (2,558 | ) |
| Accrued expenses  and other                                                       |       | (9,077                                              | )          | (16,319 | ) |
| Net cash  provided by operating activities                                        |       | 4,352                                               |       | 3,896 |   |
| **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                                              |       | (1,681                                              | )          | (5,644 | ) |
| Net cash  provided by (used in) financing activities                              |       | 2,998                                               |       | (11,066 | ) |
| Effect of exchange rate  on cash and cash equivalents                             |       | (394                                                | )          | 284 |   |
| Net increase in cash  and cash equivalents                                        |       | 3,936                                               |       | (8,331 | ) |
|                                                                              |       |                                                |       |   |   |
| Cash and cash  equivalents at beginning of period                                 |       | 9,103                                               |       | 18,074 |   |
| Cash and cash equivalents at end of period                                        |       | $                                                   | 13,039     |   | $ | 9,743 |   |
|                                                                              |       |                                                |       |   |   |

 

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

 

6

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**MERISANTWORLDWIDE, INC.****Notes to Unaudited ConsolidatedFinancial Statements****(Dollars In Thousands)**

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

Theconsolidated financial statements and notes do not contain certain informationincluded in the annual consolidated financial statements and notes of MerisantWorldwide, Inc. and subsidiaries. Unless otherwise indicated or unless thecontext otherwise requires, all references to the “Company” mean MerisantWorldwide, Inc. and its consolidated subsidiaries. The consolidated balancesheet at December 31, 2005 was derived from the Company’s audited consolidatedfinancial statements, but does not include all disclosures required bygenerally accepted accounting principles in the United States of America (“GAAP”).The remaining consolidated financial statements are unaudited. In the opinionof management, all normal, recurring adjustments necessary for a fairpresentation of such unaudited financial statements have been included therein.For interim reporting purposes, certain marketing and advertising expenses arecharged to results of operations as a percentage of sales. Interim results maynot be indicative of results for a full year. These unaudited consolidatedfinancial statements and notes should be read in conjunction with the Company’sannual consolidated financial statements.

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

TheCompany adopted FASB No. 123(R), “Share-Based Payment—An Amendment ofFASB Statements No. 123 and 95” on January 1, 2006, which requires a fair valueapproach to expensing the cost of stock-based payments to employees. Adoptionof this pronouncement had no impact on the Company’s consolidated financialstatements. The Company is in the process of evaluating the impact, if any,that the adoption of FASB Interpretation No. 48, “Accounting for theUncertainty in Income Taxes” (“FIN 48”), will have on the Company’sconsolidated 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 inincome taxes and to require more complete information for users of thefinancial statements through expanded disclosures. Adoption of FIN 48 isrequired by the first interim reporting period in 2007.

**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/MiddleEast, referred to as EAME; Latin America; and Asia/Pacific. The Company’smanagement reviews Operating EBITDA to evaluate segment performance andallocate resources. Operating EBITDA consists of segment earnings beforeinterest expense, income tax expense, depreciation and amortization as well asitems such as expenses related to start up costs, restructuring charges,certain significant charges related to new product development and launchcosts, costs related to the transition to a new exclusive distributor in theUnited States and certain other non-cash or excludable charges or losses. Otherexpense (income), net, as reported in the unaudited consolidated financialstatements, is included in Operating EBITDA of the respective reportablesegments, except for the portion of other expense (income), net that relates tothe foreign currency transaction gains or losses associated with the Company’seuro-denominated debt (see Note 6); unrealized gains or losses on derivativeinstruments and certain other non-recurring gains and non-cash losses.Corporate expenses include corporate staff and related amounts. Corporateexpenses, interest and other expenses and the provision for income taxes arecentrally managed and, accordingly, such items are not presented by segmentsince they are excluded from the measure of segment performance reviewed bymanagement. The Company launched a new product line in North America in thefirst quarter of 2006 which management will be evaluating and managingseparately from its other North American operations. As such, this item willalso 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 endedSeptember 30, 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                         |       |               |       |     |       |               |       |               |       | 5,530            |       |
| 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                     |       |               |       |     |       |               |       |               |       | 10,795           |       |
| Interest expense, net                      |       |               |       |     |       |               |       |               |       | 14,636           |       |
| Other income, net                          |       |               |       |     |       |               |       |               |       | (1,175           | )          |
| Loss before income  taxes                  |       |               |       |     |       |               |       |               |       | $                | (2,666     | ) |

 

**For the Three Months EndedSeptember 30, 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                                                  |       |               |       |     |       |               |       |               |       | 5,254            |       |
| 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                                                |       |               |       |     |       |               |       |               |       | (2,177           | )          |
| Interest  expense, net                                               |       |               |       |     |       |               |       |               |       | 15,240           |       |
| Other income,  net                                                   |       |               |       |     |       |               |       |               |       | (1,094           | )          |
| Loss before income  taxes                                            |       |               |       |     |       |               |       |               |       | $                | (16,323    | ) |

 

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**For the Nine Months EndedSeptember 30, 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                                             |       |               |       |     |       |               |       |               |       | 17,908           |       |
| 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                                                |       |               |       |     |       |               |       |               |       | (501             | )          |
| Other non-cash  expense                                         |       |               |       |     |       |               |       |               |       | 8                |       |
| Other income,  net                                              |       |               |       |     |       |               |       |               |       | 10,068           |       |
| Income from  operations                                         |       |               |       |     |       |               |       |               |       | 25,702           |       |
| Interest  expense, net                                          |       |               |       |     |       |               |       |               |       | 42,993           |       |
| Other income,  net                                              |       |               |       |     |       |               |       |               |       | (10,068          | )          |
| Loss before  income taxes                                       |       |               |       |     |       |               |       |               |       | $                | (7,223     | ) |

 

**For the Nine Months EndedSeptember 30, 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                                                  |       |               |       |     |       |               |       |               |       | 19,428           |       |
| 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                                              |       |               |       |     |       |               |       |               |       | 4,814            |       |
| Interest  expense, net                                               |       |               |       |     |       |               |       |               |       | 45,752           |       |
| Other expense,  net                                                  |       |               |       |     |       |               |       |               |       | 444              |       |
| Loss before income  taxes                                            |       |               |       |     |       |               |       |               |       | $                | (41,382    | ) |

 

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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$5,037 were 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 recordedover their stay periods. Severance payments and benefits are scheduled to bemade over 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 atDecember 31, 2005 and September 30, 2006 is included in the line item “Accruedexpenses and other liabilities” in the accompanying consolidated balancesheets.

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 September30, 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 arenot currently likely to be required by the Company in sufficient volume to usemost, if any, of the credits, and as such they have been fully reserved and norevenues were recorded for this transaction.

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

TheCompany manufactures and sells product using the *NutraSweet®*trademark under a license agreement with The NutraSweet Company. The value ofthis license agreement is classified as an Intangible asset on the balancesheet and was being amortized over a 15 year life commencing in March 2000. Themajority of the impairment loss reported for the three and nine months endedSeptember 30, 2006 relates to this license agreement. The license agreementrequires the purchase of an annual minimum volume of aspartame from TheNutraSweet Company to continue the use of the trademark. In the third quarterof 2006, the Company determined that, as a result of the initiation of amulti-supplier strategy for aspartame to substantially improve the costefficiency of its aspartame supply, it will not require the minimum purchasevolume needed in 2006 to maintain the license agreement. The license agreementwill not automatically terminate upon the Company’s failure to meet the minimumpurchase requirement; instead, The NutraSweet Company must deliver writtennotice to the Company of termination, which would be effective six months aftersuch notice or when stock on hand as of the date of the notice is depleted,whichever is later. Although the Company cannot be certain if or when it willreceive written notice of termination, it has determined that an adjustment wasrequired to the estimated remaining useful life of the trademark and performed animpairment analysis. After a review of the undiscounted estimated future cashflows of this intangible asset and its carrying value, the Company determinedthat an impairment existed. The Company recorded an impairment loss relating tothis intangible asset during the third quarter of $7,577. The impairment losswas calculated as the difference between the carrying value of the intangibleasset and the estimated fair value of the license agreement using a traditionalcash flow approach to present value. The impaired intangible asset is reportedin the North America and EAME segments. This non-cash accounting loss has noimpact 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.

**6.****                       ****Debt**

The Company is highly leveraged. At September 30, 2006, MerisantWorldwide and its subsidiaries, including Merisant Company (“Merisant”), had$544,086 of long-term debt outstanding, consisting of $106,537 aggregateprincipal amount of the Company’s 12 1⁄4% senior subordinated discount notes due2014 (the “Discount Notes”), $225,000 aggregate principal amount of Merisant’s9 1⁄2% senior subordinated notes due 2013 (the “Notes”), $127,549 aggregateprincipal amount outstanding under Merisant’s senior credit agreement (the “SeniorCredit Agreement”) and $85,000 aggregate principal amount outstanding underMerisant’s second lien credit agreement (the “Second Lien Credit Agreement”),excluding capital lease obligations of $110 and unused commitments on therevolving portion of the Senior Credit Agreement.

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

AtSeptember 30, 2006, borrowings under the Second Lien Credit Agreement included$85,000 aggregate principal amount of term loans bearing annual interest of13.98%.

Merisantpaid interest on borrowings under the Senior Credit Agreement, the Second LienCredit Agreement and on the Notes totaling $36,904 and $38,568 for the ninemonths 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 “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 financialcovenants as 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. The FourthAmendment also required Merisant to refinance a portion of the loansoutstanding with the proceeds of a borrowing secured by a second lien on all ofthe assets securing Merisant’s obligations under the Senior Credit Agreementor, in the alternative, refinance the Senior Credit Agreement in its entiretyby January 2, 2007. The Fourth Amendment increased the interest rates of allterm loans and revolver loans under the Senior Credit Agreement to euro-LIBORor LIBOR plus 425 basis points commencing on the date of the Fourth Amendment.

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On June 23, 2006, Merisant entered into the Second Lien CreditAgreement. The Second Lien Credit Agreement consists of an aggregate of $85,000principal amount of term loans, the net proceeds of which were used to prepay$9,540 of euro-denominated Term A loans, prepay $53,320 of Term B loans and torepay $15,000 of revolving loans, in each case, outstanding under the SeniorCredit Agreement. The maturity date of the term loans outstanding under theSecond Lien Credit Agreement is June 11, 2010. The Second Lien Credit Agreementsatisfied Merisant’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 the Second Lien Credit Agreement, Merisantincurred fees of approximately $7,451, of which $4,151 are being amortized overthe term of the loan and $3,300 were recorded 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 Merisant, 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. Merisant may prepay the term loans under the Second LienCredit Agreement in whole or in part at any time. If Merisant 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 the Company.

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

On June 23, 2006, Merisant entered into a Fifth Amendment to the SeniorCredit Agreement (the “Fifth Amendment”) to accommodate the Second Lien CreditAgreement and to effect certain other amendments that are intended tofacilitate transactions aimed at de-leveraging the Company’s capital structure.No assurances can be made that any such transactions will be initiated by theCompany 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 Merisant’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. Merisant was in compliancewith its covenants under the Senior Credit Agreement, as amended, and the SecondLien Credit Agreement as of September 30, 2006.

**7.****                       ****Transactions with Related Parties**

Merisant has a deferredcompensation payable to Arnold Donald, its former Chairman and a currentdirector, and a note receivable in the same amount from Mr. Donald. Merisantrecorded $67 and $55 of interest income on the note receivable for the threemonths ended September 30, 2005 and 2006, respectively, and $201 and $166 ofinterest income on the note receivable for the nine months ended September 30,2005 and 2006, respectively, and an equal amount of interest expense in therespective periods.

Merisant had been a party to a sublease agreement with The DigitalHome/Digital Office, LLC (“Digital Home”), pursuant to which it subleasedoffice space located at One North Brentwood Boulevard in Clayton, Missouri toDigital Home for a term that expired on March 31, 2006 at a rate of $9 permonth. At the end of the term of the sublease agreement, Digital Home acquiredthe office furniture and equipment at no cost. The underlying lease expired onMarch 31, 2006 and Merisant had leased the office space for $15 per month. Theacquisition value of the furniture and equipment was $225 and the net bookvalue of these assets was zero, subsequent to a previously recorded impairmentcharge of $143. Digital Home is controlled by Mr. Donald.

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Merisant is party to an agreement with Brand Architecture International(“Brand Architecture”) pursuant to which Brand Architecture has agreed toprovide consulting services relating to the development of brand architecturefor the Merisant’s brands. As compensation, Merisant paid approximately $220and $815 to Brand Architecture for the three months and nine months endedSeptember 30, 2006, respectively, including the reimbursement to BrandArchitecture for expenses relating to its work. Adam Stagliano, a member of theCompany’s board of directors, is a founding director and the President andChief Strategic Officer of Brand Architecture.

On March 28, 2006, Merisant acquiredfrom Pegasus Partners II, L.P., which controls the principal stockholder of theCompany, all of the issued and outstanding limited liability interests of WholeEarth Sweetener Company LLC for $1. At the time of the acquisition, the onlyassets of Whole Earth Sweetener Company LLC were trademark applications for the**SweetSimplicity** trademark.

**8.****                       ****Commitments and 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 September 30,2006, 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 the Italiandesigner Elio Fiorucci operates. Under this co-branding arrangement, MerisantEurope produced a line of *Canderel*®tablet dispensers 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 in Mr. Fiorucci’s name and in thedesigns used by the Company and has filed suit against Merisant Europe inMilan, Italy. On or about March 17, 2006, the court in Milan enjoined MerisantEurope from producing or selling the tablet dispensers after the date of thecourt order. The Company no longer produces the dispensers and has stoppedselling dispensers to its distributor in Italy and to customers through theInternet. Merisant Europe has filed an appeal and will vigorously oppose the court’sorder. Merisant Europe will also enforce its indemnification rights under itsco-branding arrangement with Galleria Srl.

H. J. Heinz Company (“Heinz”)and Merisant US, Inc. entered into a termination agreement dated March 31, 2006pursuant to which the Heinz retail grocery and foodservice distributionagreements were terminated effective May 4, 2006. In accordance with thetermination agreement, the Company placed $2,500 into an escrow account on May3, 2006 for the purpose of reimbursing Heinz for expenses incurred by Heinzrelating to trade promotion programs associated with products distributed byHeinz prior to May 4, 2006 and that had been approved by the Company. Unusedfunds and earned interest totaling $1,512 and $29, respectively, were remitted fromthe escrow account to the Company in the third quarter of 2006 and the escrowaccount 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 Food Companies, Inc. became the Company’s exclusivedistributor in the United States effective 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. The Companydoes not believe that this indemnification obligation will have a materialadverse effect on the Company’s consolidated financial position or results ofoperations.

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, 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.

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**Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

*The following discussion should be read in conjunction with the Company’sunaudited consolidated financial statements and accompanying notes includedelsewhere in this document. The Company’s discussion of results by reportablesegment should be read in conjunction with Note 2 to the Company’s unauditedconsolidated financial statements included elsewhere in this document, whichillustrates the reconciliation of Operating EBITDA to income (loss) beforeincome taxes. Unless otherwise indicated or unless the context requiresotherwise, all references in this discussion to “Merisant Worldwide” or “theCompany” mean Merisant Worldwide, Inc. and its consolidated subsidiaries andall references to “Merisant” mean Merisant Company and its consolidatedsubsidiaries.*

**Overview**

Merisant Worldwide is a worldwide leader in themarketing of low-calorie tabletop sweeteners, with an estimated 24% dollarshare as of December 31, 2005 of a growing global retail market, which theCompany estimates at $1.5 billion. Merisant Worldwide believes that it has theleading dollar market share as of December 31, 2005 in approximately half ofwhat it estimates as the top 20 markets for low-calorie tabletop sweetenersales. The Company’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 Worldwidemarkets its products under approximately 20 other regional brands that enjoysignificant brand recognition in their target markets. Merisant Worldwide sellsits brands 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 Monsanto Company (“Monsanto”).Searle invented the key sweetening ingredient in the Company’s products,aspartame, in 1965. Aspartame was first approved for consumer use in France in1979, where Searle marketed the product under the *Canderel*®brand. By the early 1980s, *Canderel*® wasbeing 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 Worldwide 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 Worldwide with a global infrastructure dedicated to the manufacture,marketing and distribution of low-calorie tabletop sweeteners. The Company’sworldwide headquarters are located in Chicago, Illinois, and its principalregional offices are located in Mexico City, Mexico, Neuchâtel, Switzerland,Paris, France and Sydney, Australia. The Company owns and operatesmanufacturing facilities in Manteno, Illinois and Zarate, Argentina and ownsprocessing lines that are operated exclusively for it at plants located inBergisch and Stendal, Germany. As of November 13, 2006, Merisant Worldwide hadtwenty-four direct and indirect subsidiaries, including four subsidiaries inthe United States, nine subsidiaries in European countries, six subsidiaries inMexico, Central America and South America, and five subsidiaries in the Asia/Pacificregion, including Australia and India. In addition, Merisant’s Swiss subsidiaryholds 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 Worldwide’spremium-priced brands had enjoyed a dominant market position among low-caloriesweeteners in many of the Company’s key markets. In recent years, however, theCompany has faced significant competition from McNeil Nutritionals LLC, asubsidiary of Johnson & Johnson (“McNeil”), which markets and distributesthe artificial sweetener*Splenda*®.*Splenda*® is sweetened withsucralose, 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 an initiative tostrengthen the Company’s core brands, improve the efficiency of its operations,reduce costs and transform the Company into a consumer focused sweetener andsweetened food company. Mr. Block has recruited individuals from outside theCompany and promoted individuals from within the organization to form a newsenior management team with the goal of developing a culture of innovation witha focus on invasive marketing campaigns combined with the development andlaunch of new products designed to revitalize the existing consumer base andattract new consumers.

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

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

·                  Increase thepace of product innovation to bring new aspartame sweetened products and brandextensions to the market. The Company plans to launch several new products in2006 with numerous additional products 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. TheCompany has successfully reduced costs and made its business more efficient,which has resulted in a significant positive contribution to Bank EBITDA in2006.

·                  Develop and testproducts that have the potential to transform the Company’s brand portfolio.The Company has developed an all-natural, zero-calorie sweetener, which can nowbe found on-shelf in all Wild Oats retail outlets in the United States. Nearlyall divisions of Whole Foods have also accepted the product with storesbeginning to order inventory recently and this product has also been sold intoapproximately 100 independent organic retail outlets across the United States. Thisinnovative product is being marketed under the *SweetSimplicity*TM brand for the Whole Earth Sweetener Company LLC, a newlyformed entity and wholly owned subsidiary of 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 $544.1 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 represented interestpayments on Merisant’s 9 1⁄2% senior subordinated notes due 2013 (the “Notes”).If the Company cannot generate cash flows from operations significantly inexcess of its short-term debt obligations, it may not have the resourcesrequired 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 Merisant’s senior credit agreement (the“Senior Credit Agreement”). Merisant succeeded in negotiating amendments to theSenior Credit Agreement which may afford the Company time to stabilize its corebusiness, improve operating efficiencies and provide more flexibility toaddress the Company’s capital structure 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 adescription of Bank EBITDA and a reconciliation of Bank EBITDA to cash flowsfrom operating activities, see “—Liquidity and Capital Resources”.

15

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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 financialcovenants as 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, Merisant enteredinto the Second Lien Credit Agreement with a syndicate of lenders, includingCredit Suisse, as administrative agent, and Wells Fargo Bank, NationalAssociation, as collateral agent. The Second Lien Credit Agreement consists ofan aggregate principal amount of $85.0 million in term loans, the net proceedsof which were used to prepay $9.5 million of euro-denominated term A loans,prepay $53.3 million of term B loans and to repay $15.0 million of revolvingloans, in each case, outstanding under Merisant’s Senior Credit Agreement. Thisrefinancing transaction satisfied Merisant’s obligation under the FourthAmendment to refinance a portion of the loans outstanding under the SeniorCredit 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 “—Liquidityand Capital Resources—Financing” for a more detailed description of the FifthAmendment 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.

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

The following table sets forthcertain of the Company’s financial data for the three-month periods ended September30, 2005 and 2006 (totals may not foot due to rounding).
| ** **                         | ** ** | **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                                                 |       | 17.1                                                 |       | 23 | % | 25 | % | 0.1 |   | 1 | % |
| Administration  expenses           |       | 9.1                                                  |       | 8.5                                                  |       | 12 | % | 12 | % | 0.5 |   | 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          |       | 32.9                                                 |       | 40.9                                                 |       | 44 | % | 60 | % | (8.0 | ) | (24 | )% |
|                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| 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                  |       | 14.8                                                 |       | 15.3                                                 |       | 20 | % | 22 | % | (0.6 | ) | (4 | )% |
| Other  expense (income), net       |       | (1.2                                                 | )          | (1.1                                                 | )          | (2 | )% | (2 | )% | (0.1 | ) | (7 | )% |
| Total  other expenses              |       | 13.5                                                 |       | 14.1                                                 |       | 18 | % | 21 | % | (0.7 | ) | (5 | )% |
|                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Loss before income taxes           |       | (2.7                                                 | )          | (16.3                                                | )          | (4 | )% | (24 | )% | (13.7 | ) | (512 | )% |
|                               |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Provision for income  taxes        |       | 1.4                                                  |       | 2.2                                                  |       | 2 | % | 3 | % | (0.8 | ) | (60 | )% |
| Net loss                           |       | $                                                    | (4.0       | )                                                    | $          | (18.5 | ) | (5 | )% | (27 | )% | $ | (14.5 | ) | (358 | )% |

 

**Consolidated Results**

*Net sales.*Overall,net sales declined in the third quarter of 2006 compared to the third quarterof 2005. The decline was related to lower sales in the North America and EAMEregions. In North America, increased trade marketing in the grocery and foodservice channels and unfavorable sales mix were the primary contributors to thereduction in sales. In the grocery and food service channels, sales volumesalso declined due to lower consumer demand. In the EAME region, the decline innet sales was driven primarily by the UK, South Africa, France and Hungary. Inthe UK, sales were negatively impacted primarily by timing of shipments and aggressivepricing by major grocery retailers that forced higher discounting. Despite the higher discounting, the Companymaintained its volume and dollar share of the market. In France, lowerchocolate sales were the primary cause for the decline in net sales. Changes inthe business models for several countries in EAME caused unusual variations innet sales as well. In South Africa and Hungary, lower net sales were due mainlyto the sale of the entities and shift to a distributor model to improve overallprofitability. In the third quarter of 2005, sales in Portugal were positively impactedby shipments to a new distributor to establish appropriate starting inventorylevels, resulting in an unusually negative variance when comparing to sales inthe third quarter of 2006. In the third quarter of 2006, the opposite impact inBelgium and the Netherlands occurred as an unusually positive impact on salescompared to the same period in 2005 was created by the conversion to a buy/sellmodel with the distributor in those countries. In Latin America, salesincreased in the third quarter of 2006 compared to the third quarter of 2005due mainly to a shift in the timing of shipments in Colombia, improveddistributor performance in Argentina and improved consumer demand in the grocerychannel 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 improveddue to reduced freight and distribution costs relating to lower sales volumesand conversion of certain countries to distributor models and the impact of avolume-related penalty relating to *Equal®Sugar Lite**Ô* recordedin the three months ended September 30, 2005 that did not repeat in the threemonths ended September 30, 2006. Unfavorable currency translation partiallyoffset 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 restructuring actions. Administrationexpenses decreased mainly due to lower corporate expenses resulting fromreduced consulting and employee related costs, lower information technologyspending and savings from restructuring actions, partially offset by higher performancebased incentive expense 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 from thirdparty vendors due to the cancellation of a product launch in the EAME regionand the write down of assets at the Company’s vacated Clayton, Missourilocation that was being subleased.The majority of thenet loss reported for the three months ended September 30, 2006 relates to thelicense agreement with The NutraSweet Company that allows the Company tomanufacture and sell products 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. In the third quarter of 2006, the Companydetermined that, as a result of the initiation of a multi-supplier strategy foraspartame to substantially improve the cost efficiency of its aspartame supply,it will not require the minimum purchase volume needed in 2006 to maintain thelicense agreement. The license agreement will not automatically terminate uponthe Company’s failure to meet the minimum purchase requirement; instead, TheNutraSweet Company must deliver written notice to the Company of termination,which would be effective six months after such notice or when stock on hand asof the date of the notice is depleted, whichever is later. Although the Companycannot be certain if or when it will receive written notice of termination, ithas determined that an adjustment was required to the estimated remaininguseful life of the trademark and performed an impairmentanalysis, which resulted in an impairment loss of $7.6 million. The Audit Committeeof the Board of Directors reviewed and approved this impairment charge onNovember 7, 2006. This non-cash accounting loss has no impact on the statementof cash flows or Operating EBITDA and the Company is implementing programsaimed at neutralizing any future cash flow impact from any discontinuation ofthe *NutraSweet®*product line. Additionalinformation regarding the charges in the third quarter of 2006 can be found inNote 5 to the unaudited consolidated financial statements found elsewhere in thisdocument.

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 financial statementslocated 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’s borrowings under the Senior CreditAgreement and Second Lien Credit Agreement had a weighted average interest rateof approximately 10.3% per annum upon the closing of the Second Lien CreditAgreement. In addition, the Company andMerisant successfully closed the registered exchange offers of the Company’s121⁄4% senior subordinated discount notes due 2014 (the “Discount Notes”) and theNotes in October 2005 which resulted in the discontinuation of penaltyinterest. The penalty interest went into effect as the Company and Merisant hadnot consummated the registered exchange offer prior to the previously agreeddeadline. The decrease in interest expense as a result of the discontinuationof the penalty interest partially offsets the increase in interest expensepreviously 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 third quarter of 2005, a $0.4 million currencygain on the euro-denominated debt and a $0.8 million unrealized gain oninterest rate derivatives that expired in March 2006 were recorded compared toa currency loss on the euro-denominated debt of $0.2 million in the third quarterof 2006. These impacts were partially offset by favorable balance sheetremeasurement impacts and a gain on the liquidation of the Italian subsidiaryof $1.0 million recorded in the 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 $16.3 million. The unusualrelationship of the Company’s tax provision to its pre-tax loss in the thirdquarter of 2006 relates to a combination of factors. These factors includeincreased tax loss carryforwards, primarily generated in the United States, forwhich the Company has not recorded a tax benefit, as well as provisions forfuture tax costs which may be

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**incurred upon the potentialrepatriation of certain 2006 foreign earnings that are not deemed to bepermanently reinvested.**With regard to the deferredincome tax assets on the tax loss carryforwards, the Company determined that ithas not satisfied the “more likely than not” test and has increased its totalvaluation allowance by $6.0 million in the third quarter of 2006 to a total of$75.8 million. The Company will continue to assess the valuation allowances,and, to the extent the Company determines that such allowances are no longerrequired, these deferred income tax assets will be recognized in the future.

**Segment Results**

Thefollowing table presents net sales and Operating EBITDA expressed in millionsof dollars for each reportable segment (totals may not foot due to rounding):
| ** **               | ** ** | **Net Sales**                               | ** ** | **Operating EBITDA (1)**            | ** ** |
|--------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **               | ** ** | **Three Months  Ended  September 30,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** | **Three Months  Ended  September 30,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **               | ** ** | **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 asreductions in sales volumes in the grocery, food service, club and masschannels. Lower consumer demand negatively impacted the grocery and foodservice channels. Sales volumes were slightly lower in the club and masschannels, but consumer demand improved. Increased contract manufacturingactivity partially offset 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 unfavorable impacts were partially offset byimproved overhead absorption costs related to increased contract manufacturingactivities, lower freight and distribution costs relating to lower salesvolumes and inventory levels and the impact of a volume related penaltyrecorded in the third quarter of 2005 that did not repeat in 2006. OperatingEBITDA margin decreased due primarily to the unfavorable sales mix andincreased trade marketing costs, as well as the impacts previously discussed.

***EAME***

*Net sales*.In the EAME region, the decline in net sales was driven primarily by the UK,South Africa, France and Hungary. In the UK, sales were negatively impactedprimarily by timing of shipments and aggressive pricing by major groceryretailers that forced higher discounting. Despite the higher discounting, theCompany maintained its volume and dollar share of the market. In France, lowerchocolate sales were the primary cause for the decline in net sales. Changes inthe business models

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for several countries inEAME caused unusual variations in net sales as well. In South Africa andHungary, lower net sales were due mainly to the sale of the entities and shiftto a distributor model to improve infrastructure costs. In the third quarter of2005, sales in Portugal were positively impacted by shipments to a newdistributor to establish appropriate starting inventory levels, resulting in anunusually negative variance when comparing to sales in the third quarter of2006. In the third quarter of 2006, the opposite impact in Belgium and theNetherlands occurred as an unusually positive impact on sales compared to thesame period in 2005 was created by the conversion to a buy/sell model with thedistributor in those countries. Favorable currency translation of $0.8 millionpositively impacted sales in the third quarter of 2006 compared to the thirdquarter of 2005.

*Operating EBITDA.*Operating EBITDA decreased mainly due to lowersales, partially offset by reduced marketing and infrastructure costs due tosavings from restructuring actions and changes in business models in severalmarkets. The decrease in Operating EBITDA margin was primarily due to adecrease in gross profit as a percentage of sales, mainly related to changes insales mix and discounted pricing in the UK.

***Latin America***

*Net sales.*The increase in Latin American sales was mainlydue to a shift in the timing of shipments in Colombia, improved distributorperformance in Argentina and improved consumer demand in the grocery channel inthe 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 in Mexico. OperatingEBITDA margin increased primarily due to higher gross profit and lower operatingexpenses as a 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 third quarter of 2005 to $5.3 million in the third quarterof 2006, primarily due to reduced consulting and employee related costs, lowerinformation technology spending and savings from restructuring actions,partially offset by higher performance based incentive expense and litigationcosts.

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***Nine Months Ended September 30, 2006 Compared toNine Months 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).
| ** **                         | ** ** | **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                                                |       | 30.2                                                |         | 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                   |       | (0.5                                                | )          | 3.3                                                 |         | (0 | )% | 2 | % | (3.8 | ) | (759 | )% |
| 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          |       | 108.3                                               |       | 120.6                                               |         | 47 | % | 56 | % | (12.3 | ) | (11 | )% |
|                               |       |                                                |       |                                                |         |   |   |   |   |   |   |   |   |
| Income from operations             |       | 25.7                                                |       | 4.8                                                 |         | 11 | % | 2 | % | (20.9 | ) | (81 | )% |
|                               |       |                                                |       |                                                |         |   |   |   |   |   |   |   |   |
| Other expenses  (income):          |       |                                                |       |                                                |         |   |   |   |   |   |   |   |   |
| Interest income                    |       | (0.6                                                | )          | (0.5                                                | )            | (0 | )% | (0 | )% | (0.1 | ) | (23 | )% |
| Interest expense                   |       | 43.6                                                |       | 46.2                                                |         | 19 | % | 21 | % | (2.6 | ) | (6 | )% |
| Other expense  (income), net       |       | (10.1                                               | )          | 0.4                                                 |         | (4 | )% | 0 | % | (10.5 | ) | (104 | )% |
| Total other  expenses              |       | 32.9                                                |       | 46.2                                                |         | 14 | % | 21 | % | (13.3 | ) | (40 | )% |
|                               |       |                                                |       |                                                |         |   |   |   |   |   |   |   |   |
| Loss before income  taxes          |       | (7.2                                                | )          | (41.4                                               | )            | (3 | )% | (19 | )% | (34.2 | ) | (473 | )% |
|                               |       |                                                |       |                                                |         |   |   |   |   |   |   |   |   |
| Provision for income  taxes        |       | 5.3                                                 |       | 5.1                                                 |         | 2 | % | 2 | % | 0.2 |   | 3 | % |
| Net loss                           |       | $                                                   | (12.5      | )                                                   | $ (46.5 | ) | (5 | )% | (21 | )% | $ | (34.0 | ) | (271 | )% |

 

**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 primarilyrelated to lower sales in the EAME region, led by France, the UK, Portugal,South Africa, and Italy, as well as a foreign currency translation loss ofapproximately $2.4 million, most of which occurred in the EAME region. InFrance and Italy, weakened economies depressed sales, and the decreasedrevenues for the nine months ended September 30, 2006 also reflected the lossof consumers resulting from the publication in July 2005 of a now widelydiscredited study on the safety of aspartame.In France, these factors, as well as increased health consciousness, negativelyaffected the low-calorie sweetener category in general as well as the sugarcategory. In the UK, sales were negatively impacted primarily by timing ofshipments and aggressive pricing by major grocery retailers that forced higher discounting.Despite the higher discounting, the Companymaintained 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. Also in Portugal, as well as South Africa andHungary, the conversion from a direct sales model to a distributor model causeddeclines in net sales, but this planned decline in revenue was offset byreduced 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, sales declined slightly as increased sales inAustralia/New Zealand and Thailand were more than offset by lower sales inMalaysia and foreign currency translation losses. 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 expenses declined. Increasedcontract manufacturing activity also favorably impacted sales. Lower foodservice sales related to increased competition, unfavorable sales mix andincreased trade marketing partially offset the improved sales in North America.In Latin America, the sales increase primarily related to improved grocerysales in the Caribbean and improved distributor performance in Argentina andChile, partially offset by lower food service sales in Mexico and unfavorablecurrency 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 currencytranslation, lower inventory obsolescence costs and reduced freight anddistribution costs relating to lower sales volumes and conversion of certaincountries to distributor models also contributed to lower cost of sales. Inaddition, cost of

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salesimproved as a volume-related penalty relating to *Equal® Sugar Lite**Ô* recorded in the nine months ended September 30,2005 did not repeat in the nine months ended September 30, 2006. Overall, thegross profit as a percentage of net sales remained stable at 58% for the ninemonths ended 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, loweroverall marketing and selling administration costs due to savings fromrestructuring actions and favorable foreign currency translation. Thesefavorable impacts were partially offset by termination costs and highercommissions relating to the transition from H. J. Heinz Company to ACH as theCompany’s exclusive distributor in the United States and marketing and sellingcosts associated with *Sweet Simplicity*TM. Administration expenses improved due to thenon-recurring $1.4 million charge related to the Food Brokers, LTD receivablethat was incurred in the period ended September 30, 2005 after Food Brokers,LTD went into receivership. Lower consulting and information technology costsand savings related to restructuring actions also reduced administrationexpenses. These favorable impacts were more than offset by an increase incorporate expenses related to higher performance based incentive expense and anincrease in litigation costs. Transaction fees increased as a result of $3.3million in expenses incurred in conjunction with the Second Lien CreditAgreement.

The net loss on long lived assets in thenine months ended September 30, 2005 relates to the write down of equipmentthat the Company was obligated to purchase from third party vendors due to thecancellation of a product launch in the EAME region and the write down of assets at the Company’s vacated Clayton, Missourilocation 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 licenseagreement requires the purchase of an annual minimum volume of aspartame fromThe NutraSweet Company to continue the use of the trademark. In the thirdquarter of 2006, the Company determined that, as a result of the initiation ofa multi-supplier strategy for aspartame to substantially improve the cost efficiencyof its aspartame supply, it will not require the minimum purchase volume neededin 2006 to maintain the license agreement. The license agreement will notautomatically terminate upon the Company’s failure to meet the minimum purchaserequirement; instead, The NutraSweet Company must deliver written notice to theCompany of termination, which would be effective six months after such noticeor when stock on hand as of the date of the notice is depleted, whichever islater. Although the Company cannot be certain if or when it will receivewritten notice of termination, it has determined that an adjustment wasrequired to the estimated remaining useful life of the trademark and performedan impairment analysis, which resulted in an impairment loss of $7.6 million. TheAudit Committee of the Board of Directors reviewed and approved this impairmentcharge on November 7, 2006. This non-cash accounting loss has no impact on thestatement of cash flows or Operating EBITDA and the Company is implementing programsaimed at neutralizing any future cash flow impact from any discontinuation ofthe *NutraSweet®*product line. Additional information regarding the charges inthe third quarter of 2006 can be found in Note 5 to the unaudited consolidatedfinancial statements found elsewhere 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 thenine months ended September 30, 2006 as compared to $2.3 million in the sameperiod in 2005. The restructuring charges incurred in the nine months endedSeptember 30, 2006 relate primarily to new employee termination costs acrossall segments and the corporate headquarters and are expected to besubstantially paid by the end of 2006. Additional information regardingrestructuring charges and the related liability can be found in Note 3 to theunaudited consolidated financial statements.

*Interest.*On June23, 2006, Merisant 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. The extinguishment of indebtedness under theSenior Credit Agreement resulted in an increase in interest expense due to thewrite-off of related deferred financing fees totaling $2.5 million. Inaddition, the Company’s interest expense increased as a result of higherinterest bearing loans under Merisant’s Second Lien Credit Agreement and theuse of proceeds from the Second Lien Credit Agreement to prepay lower interestbearing loans under Merisant’s Senior Credit Agreement, as well as overallincreases in interest rates on variable interest rate debt instruments. Loansoutstanding under the Senior Credit Agreement had a weighted average interestrate of approximately 9.0% per annum prior to the closing of the Second LienCredit Agreement. Merisant’s borrowings under the Senior Credit Agreement andSecond Lien Credit Agreement had a weighted average interest rate ofapproximately 10.3% per annum upon the closing of the Second Lien CreditAgreement. Lastly, the Company and Merisantsuccessfully closed the registered exchange offers of the Discount Notes andthe Notes in October 2005 which resulted in the discontinuation of penaltyinterest. The penalty interest went into effect as the Company and Merisant hadnot consummated the registered exchange offer prior to

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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.

*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 realized gainon derivative instruments for the nine month period ended September 30, 2006. Inaddition, the impact of a $1.3 million reversal of a currency loss in LatinAmerica, occurring in the period ended September 30, 2005 and not repeating inthe period ended September 30, 2006, also contributed to the unfavorablevariance. These items were partially offset by favorable balance sheetremeasurement impacts and a gain on the liquidation of the Italian subsidiaryof $1.0 million recorded in the third quarter of 2006.

*Taxes.* For thenine months ended September 30, 2006, the Company recorded a $5.1 million taxprovision on a loss before income taxes of $41.4 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. Thesefactors include increased tax loss carryforwards, primarily generated in theUnited States, for which the Company has not recorded a tax benefit, as well asprovisions for future tax costswhich may be incurred upon the potential repatriation of certain 2006 foreignearnings that are not deemed 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 $16.2 million in the ninemonths ended September 30, 2006 to a total of $75.8 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 expressed inmillions of dollars for each reportable segment (totals may not foot dueto 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

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contractmanufacturing activity also favorably impacted sales. Lower food service salesrelated to increased competition, sales declines in the club channel related tochanges in inventory levels and lower consumer demand, unfavorable sales mixand increased trade marketing partially offset the sales improvement previouslydiscussed.

*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 impactswere partially offset by higher selling costs due to increased sales volumesand commissions to the new distributor and unfavorable sales mix. OperatingEBITDA margin increased due primarily to the favorable conversion costs andoverhead absorption previously 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,the UK, South Africa, Portugal and Italy. In France and Italy, weakenedeconomies continued to depress sales, and the decreased revenues for the ninemonths ended September 30, 2006 also reflected the loss of consumers resultingfrom the publication in July 2005 of a now widely discredited study on thesafety of aspartame. In France, thesefactors, as well as increased health consciousness, negatively affected thelow-calorie sweetener category in general as well as the sugar category. In theUK, sales were negatively impacted primarily by timing of shipments andaggressive pricing by major grocery retailers that forced higher discounting.Despite the higher discounting, the Companymaintained 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 andconverted its proprietary distribution operation into a third party distributoroperation at the end of 2005. The new distributor acquired more inventory thannormally required as part of its start-up of the distributorship, which causedunusually low sales to that distributor thus far in 2006. Sales also declinedin Hungary, Ireland, Greece and Germany, primarily as a result of lowerconsumer demand, weak economies and health concerns. These negative varianceswere partially offset by increased sales in Belgium and the Netherlands wherean unusually positive impact on sales compared to the same period in 2005 wascreated by the conversion to a buy/sell model with the distributor in thosecountries.

*Operating EBITDA.*OperatingEBITDA decreased mainly due to the margin impact of lower sales. This negativeimpact was partially offset by reduced brand support at the regional level,lower variable selling costs and freight and distribution costs due to reducedsales, reduced supply chain, marketing and selling administration costs due tosavings from restructuring actions, lower inventory obsolescence costs and the$1.3 million charge related to the Food Brokers, LTD receivable that wasincurred 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.* Theincrease in Latin American sales was mainly due to improved consumer demand inthe Caribbean grocery channel and improved distributor performance inArgentina, Central America and Chile. These favorable impacts were partiallyoffset by lower sales in Mexico due to the termination of a food servicedistributor contract, as well as unfavorable currency translation.

*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 model changes. Thereduction in brand support occurred primarily in Mexico due to the absence of aproduct launch in the period ended September 30, 2006 as compared the presenceof a product launch in the same period in 2005. These impacts were partiallyoffset by increased manufacturing costs and the impact of a $1.3 millionreversal of a currency loss in the period ended September 20, 2005 that did notrepeat 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 in Australia/New Zealand, Thailand andIndia were nearly offset by sales decreases in Malaysia, Hong Kong andIndonesia.

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*Operating EBITDA.*Operating EBITDA and Operating EBITDA margin increased due to reductions ininventory obsolescence charges and selling and general administrative costs dueto savings from restructuring actions, mainly in Australia.

**Corporate Expenses**

Corporate expenses increased from $17.9 million for the nine monthsended September 30, 2005 to $19.4 million for the nine months ended September30, 2006, primarily due to higher performance based incentive expense andlitigation costs, partially offset by lower consulting costs, informationtechnology costs and 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 underMerisant’s revolving line of credit under the Senior Credit Agreement. TheCompany’s primary uses of cash are cost of sales, operating expenses, debtservice, capital expenditures. The Company’s foreign subsidiaries generatedapproximately 60% of its consolidated net sales during the nine months endedSeptember 30, 2006, and it has relied upon the repatriation of cash from itsforeign subsidiaries to satisfy many of its cash requirements. Historically,the Company had received a vast majority of funds from its foreign subsidiariesthrough its Swiss subsidiary in the form of payments pursuant to a promissorynote. This promissory note was repaid in full in January 2006. On March 30,2006, Merisant issued a revolver note to its Swiss subsidiary, which willmature in 2011. Merisant may borrow up to $200 million from its Swisssubsidiary during the term of the revolver note, and Merisant expects torepatriate cash to the United States through borrowings under this revolvernote. The balance relating to this revolving note as of September 30, 2006 was$31.4 million, consisting of $30.8 million in outstanding borrowings and $0.6million 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 in thenine months ended September 30, 2006 primarily due to the transition to a newdistributor 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 resultedfrom the purchase of excess aspartame inventory in 2005 to satisfy a minimumvolume commitment that is being consumed during 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 toNine Months Ended September 30, 2005***

For the nine months ended September 30, 2006, net cash provided byoperating activities was $3.9 million compared to $4.4 million for the ninemonths ended September 30, 2005. Operating cash flows decreased $0.5 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 $11.5 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$11.1 million in cash as compared to providing $3.0 million in cash for thenine months ended September 30, 2005. In the nine months ended September 30,2006, cash was provided from borrowings of $85.0 million under Merisant’sSecond Lien Credit Agreement, but the proceeds were used fully to prepayborrowings under Merisant’s Senior Credit Agreement and for costs relating tothe Second Lien Credit Agreement. Additional funds obtained from Merisant’ssale of its South African and Hungarian subsidiaries were used to prepayexisting debt obligations under the Term A and Term B loans in accordance withthe terms of the Senior Credit Agreement. For the nine months ended September30, 2006, the Company also used cash to pay Merisant’s scheduled principal

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paymentsunder the Senior Credit Agreement and to pay fees related to amendments to theSenior Credit Agreement, as was also the case for the same period endedSeptember 30, 2005.

***Capital Expenditures***

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

***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, of whicha portion is available at Merisant’s option in euro or dollars or in the formof 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 the Company and each of Merisant’sdomestic subsidiaries. The Senior Credit Agreement and the guarantees of theguarantors are secured by a first-priority security interest insubstantially all of Merisant’s assets and the assets of the guarantors.

As of September 30, 2006, deferred financing costrelated to entering into the Senior Credit Agreement, the issuance of the Notesin July 2003 and the Discount Notes in November 2003, the 2005 registeredexchange offers with respect to the Notes and the Discount Notes and theexecution of any subsequent amendments to the Senior Credit Agreement wasapproximately $12.9 million and is being amortized in accordance with the termsof the respective debt instruments.

Merisant has sought and obtained amendments to theSenior Credit Agreement from time to time. The Company faced an issue in thefirst quarter of 2006 with a possible immediate default under the Senior CreditAgreement as a result of continued declines 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 Fourth Amendment also required Merisant to raiseapproximately $85.0 million of new borrowings under the Senior Credit Agreementbefore January 2, 2007, including pursuant to loans secured by a second lien onall of the assets that secure loans outstanding under the Senior CreditAgreement.

On June 23, 2006,Merisant completed the Fifth Amendment to the Senior Credit Agreementconcurrent with the closing of the Second 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’s capital structure. The amendmentsinclude exceptions to the restrictive covenants to permit, subject to certainlimitations and subject to the restrictions contained in the indenturegoverning the Discount Notes and the 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 DiscountNotes or the Notes or the repurchase of the Discount Notes or the Notes withthe net cash proceeds from the issuance of such capital stock, PIK notes oradditional secured PIK indebtedness so long as the Discount Notes and the Notesare cancelled in connection with any such transaction; and

·                                          theacquisition by Merisant Worldwide and Merisant of the Discount Notes or theNotes in transactions permitted under the restricted payment covenant.

In addition, the beneficial owners of the DiscountNotes and the Notes may acquire the common stock of Merisant

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Worldwide without triggering a change of control eventof default so long as the original investors in Merisant Worldwide continue tocontrol of record and beneficially, directly or indirectly, at least 51% of theoutstanding common stock of Merisant Worldwide.

Merisant consummated the Second Lien Credit Agreementon June 23, 2006. The Second Lien Credit Agreement provides for an $85.0million term loan facility, which was drawn in a single draw at closing. Thematurity date of the term loan is June 11, 2010.

Depending on the type of borrowing by Merisant, theapplicable interest rate under the Second Lien Credit Agreement is calculatedas a per annum rate equal to (a) LIBOR plus 850 basis points or (b) (i) thegreater of (x) the prime rate or (y) the federal funds effective rate plus 0.5%plus (ii) 750 basis points. As of September 30, 2006, there were $85.0 millionin term loans outstanding under the Second Lien Credit Agreement at an interestrate of 13.98%.

The Second Lien Credit Agreement contains provisionsfor mandatory prepayments from 100% of the net cash proceeds of asset sales,recovery events and debt issuances and 50% of the net cash proceeds of equityissuances, subject to certain exceptions. Merisant may prepay the terms loansunder the Second Lien Credit Agreement in whole or in part at any time. IfMerisant makes any such payments during the first three years of the creditfacility, Merisant must pay a premium of 3%, 2% and 1% of the aggregateprincipal amount of term loans prepaid in the first, second and third years ofthe Second Lien Credit Agreement, respectively, except that these prepaymentpremiums will be reduced to 1.5%, 1% and 0.5%, respectively on the first $25.5million aggregate principal amount of the term loans prepaid with the net cashproceeds from an equity issuance by Merisant Worldwide.

The obligations under the Second Lien Credit Agreementare guaranteed by Merisant Worldwide and Merisant’s domestic subsidiaries, andare secured by a lien on substantially all of the assets of Merisant, MerisantWorldwide and each subsidiary guarantor, including a pledge of 65% of theownership interests in each first-tier foreign subsidiary held by a guarantor,with certain exceptions.

The Second Lien Credit Agreement increased theaggregate principal amount of Merisant’s indebtedness by $7.2 million, andMerisant’s interest expense will increase as a result of the transaction. Merisant’sloans outstanding under the Senior Credit Agreement had a weighted averageinterest rate of approximately 9.0% per annum prior to the closing of theSecond Lien Credit Agreement. Merisant’s borrowings under the Senior CreditAgreement and Second Lien Credit Agreement had a weighted average interest rateof approximately 10.3% per annum upon the closing of the Second Lien CreditAgreement. The interest rates on loans outstanding under the Senior CreditAgreement reverted to Euro-LIBOR plus 325 basis points on Euro-denominated termA loans and LIBOR plus 325 basis points on term B loans and revolving loansupon the closing of the Second Lien Credit Agreement.

As of September 30, 2006, deferred financing costrelated to entering into the Second Lien Credit Agreement was approximately$3.9 million and is being amortized in accordance with the terms of the SecondLien Credit Agreement.

**Intercreditor Arrangements**. Theloans outstanding under the Second Lien Credit Agreement are secured by asecond lien on all of the assets that secure loans outstanding under the SeniorCredit Agreement. In connection with the closing of the Second Lien CreditAgreement, Merisant, Merisant Worldwide, lenders under the Senior CreditAgreement (the “First Lien Lenders”), the lenders under the Second Lien CreditAgreement (the “Second Lien Lenders”), Credit Suisse, as agent to the firstlien lenders, and Wells Fargo Bank, National Association, as agent for thesecond lien lenders, entered into an Intercreditor Agreement. The IntercreditorAgreement subordinates the liens securing the obligations under the Second LienCredit Agreement to the liens securing the obligations under the Senior CreditAgreement. The Intercreditor Agreement restricts amendments to the SeniorCredit Agreement and the Second Lien Credit Agreement. Certain amendments tothe Senior Credit Agreement or the Second Lien Credit Agreement require theprior consent of the administrative agent for the other credit facility actingat the direction of the requisite lenders for that facility. The aggregateprincipal of loans under the Senior Credit Agreement may not exceed $175.0million plus interest that has been capitalized under the Senior CreditAgreement that does not exceed the applicable base rate plus a margin of 6% perannum, exclusive of any default interest. This limitation will be furtherreduced by any permanent repayments of principal and reductions or eliminationsof commitments under the Senior Credit Agreement. The aggregate principalamount of loans outstanding under the Second Lien Credit Agreement may not beincreased. In addition, neither the Senior Credit Agreement nor the Second LienCredit Agreement may be amended to provide for covenants, representations orwarranties, events of default, rights or remedies which are, in the aggregate,on terms less favorable to the lenders under the other credit facility orincrease the amount of interest by an applicable margin of more than 6% with nomore than 4% of any such increase payable in cash, exclusive, in each case, ofdefault interest.

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**Restrictive Covenants and Bank EBITDA**.The indentures governing the Discount Notes and the Notes, the Senior CreditAgreement and the Second Lien Credit Agreement contain certain covenants thatlimit or restrict the incurrence of liens, investments (includingacquisitions), sales of assets, indebtedness, restricted payments (includingdividends) and mergers and consolidations, subject to certain exceptions. Inaddition, the Senior Credit Agreement and the Second Lien Credit Agreementrequire Merisant to maintain compliance with a consolidated first-lien leverageratio covenant, a consolidated senior leverage ratio covenant, a consolidatedleverage ratio covenant, a consolidated interest coverage ratio covenant, and aconsolidated fixed charge coverage ratio covenant. The representations,warranties, covenants and defaults in the Second Lien Credit Agreement aresubstantially similar to the representations, warranties, covenants anddefaults in the Senior Credit Agreement in all material respects, except thatcertain negative covenants are less restrictive on Merisant and itssubsidiaries’ business and operations and the financial covenant ratios areless restrictive, in each case, than those set forth in the Senior CreditAgreement.

As noted above, the Senior Credit Agreement and theSecond Lien Credit Agreement contain financial covenants that require Merisantto maintain certain ratios. These ratios are measured on the basis of BankEBITDA for the four fiscal quarters ending at least 45 days prior to thepayment date. Bank EBITDA is discussed here because it is the measure uponwhich the covenants contained in the Senior Credit Agreement are measured. However,Bank EBITDA is not a measure of liquidity under GAAP. Accordingly, whileproviding useful information with respect to assessing Merisant’s compliancewith covenants under its primary debt obligations, this measure should not beconsidered in isolation from, or as a substitute for, consolidated statement ofcash flow data prepared in accordance with GAAP as an indication of liquidity.In addition, the Bank EBITDA measure presented may differ from, and may not becomparable to, similarly titled measures used by other companies.

Bank EBITDA as defined under the Senior CreditAgreement and the Second Lien Credit Agreement excludes interest expense,income tax expense, depreciation and amortization as well as the certain otherexpenses 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;

·                                          anynon-cash foreign 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.

Bank EBITDA for the nine monthsended September 30, 2006 was $47.8 million. Merisant was in compliance with its

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covenants under the Senior CreditAgreement, as amended, and the Second Lien Credit Agreement at September 30,2006.

The following table illustratesthe reconciliation of Bank EBITDA to cash flow from operating activities, whichmanagement believes is the most nearly equivalent GAAP measure:

|                                                                   | ** ** | **Nine Months  Ended  September 30, 2006** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                        | ** ** | **(in millions)**                                    | ** ** |
| Net cash provided by  operating activities                        |       | $                                                         | 3.9        |   |
| 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)                                                   |       | 3.6                                                       |       |
| Equity in (income) loss  of affiliates                            |       | 0.0                                                       |       |
| Net change in operating  assets and liabilities                   |       | (1.3                                                      | )          |
| Bank EBITDA                                                       |       | $                                                         | 47.8       |   |

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(a)                                  The charges principally relate to planned employeetermination costs that have been announced in the period presented. Therestructuring liability as of the end of each period is included in Accruedexpenses and other liabilities in the consolidated balance sheets.

(b)                                 Other items consist mainly of certain non-cashexpenses (income) and charges related to certain new product development andlaunch expenses that are excluded from the definition of Bank EBITDA.

***Forward Looking Statements***

Certain information included or incorporated in thisreport may be deemed to be “forward-looking statements” within the meaning ofSection 27A of the Securities Act and Section 21E of the Exchange Act. Allstatements, other than statements of historical facts, included or incorporatedin this report, are forward-looking statements. In particular, statements madeunder the heading “Management’s Discussion and Analysis of Financial Conditionand Results of Operations,” relating to overall volume trends, pricing trendsand industry forces, anticipated results, expectations for funding capitalexpenditures and operations and increased market share and the sufficiency ofcapital to meet working capital, capital expenditures requirements andstrategies are forward-looking statements. When used in this document, thewords “anticipate,” “estimate,” “project” and similar expressions are intendedto identify forward-looking statements.

These statementsare based 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 those contemplatedby such forward-looking statements. The Company disclaims any duty to updateany forward-looking statements. Some of the factors that may cause actualresults, developments and business decisions to differ materially from thosecontemplated by such forward-looking statements include the following: changesin consumer preferences and nutritional and health-related concerns; increasedcompetition; changes in the terms on which the Company may obtain aspartame;damaged consumer confidence in the Company’s products as a result ofhealth-related allegations; product liability claims; fluctuations in exchangerates and other currency risks; disruptions in the Company’s business as aresult of strikes or work stoppages; changes in the Company’s relationship withits largest distributor; and changes in economic and political conditions inthe countries in which the Company markets and produces its products.

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

***ForeignOperations***

With approximately64% 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, purchaseagreements, 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. OnMarch 30, 2006, Merisant issued a revolver note to its Swiss subsidiary, whichwill mature in 2011. Merisant may borrow up to $200 million from its Swisssubsidiary during the term of the revolver note. The Company is repatriatingcash to the United States through borrowings under this revolver note, whichtotal $30.8 million as of September 30, 2006. Regulators in the United Statesand other foreign countries where Merisant operates may closely monitor itscorporate structure and how it effects intercompany fund transfers.

In addition,as of September 30, 2006, foreign affiliates comprised approximately 45% ofMerisant’s consolidated total assets. Accordingly, the Company has been, andwill continue to be, exposed to foreign exchange risk.

***ForeignCurrency and Interest Rate Risks***

Inherent inMerisant’s operations are certain risks related to changes in foreign currencyexchange rates and interest rates. The Company bears foreign exchange riskbecause a majority of its financing was obtained in U.S. dollars although asignificant portion of its revenues are earned in the various currencies of itsforeign subsidiaries’ operations. Under Merisant’s Senior Credit Agreement, aportion of its financing was obtained in euros. This euro-denominated loandecreases Merisant’s transactional exposure to euro exchange fluctuations untilthe euro principal and interest are repaid. Any decrease in sales and earningsfrom euro denominated countries that results from the euro weakening againstthe 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 significantportion of the Company’s debt bears interest at a fixed rate. Interest rateexposure results from Merisant’s floating rate borrowings. For the nine monthperiod ended September 30, 2006, a 1.0% per annum increase or decrease ininterest rates would have resulted in an increase or decrease in cash interestcosts for Merisant’s Term A and Term B loans of approximately $1.7 million,excluding the impact from the interest rate derivatives that were still inplace for the majority of the three month period ended March 31, 2006.

In the normal course of business, Merisantidentifies risks relating to foreign currency exchange rates and interest ratesand mitigates their financial impact through corporate policies and, at times,through the use of derivative financial instruments. Merisant uses derivativesonly where there is an underlying exposure and does not use them for trading orspeculative purposes. The counter parties to the hedging activities are highlyrated financial institutions. The Company did not have any foreign currencyforward exchange contracts or interest rate derivatives outstanding atSeptember 30, 2006.

***InflationRisk***

Inflation isnot expected to have a material impact on the Company’s business, financialcondition or results of operations. In markets outside the United States incountries with higher inflation, Merisant generally has been able to offset theimpact of inflation through a combination of cost-cutting measures and priceincreases.

**Item 4. Controls and Procedures**

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

TheCompany conducted an evaluation, under the supervision of the Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness as of December 31,2005 of the Company’s disclosure controls and procedures (as defined inExchange Act Rule 15d-15(e)). Based on this evaluation, the ChiefExecutive Officer and Chief Financial Officer had concluded that, as ofDecember 31, 2005, the Company’s disclosure controls and procedures neededimprovement and were not effective to provide reasonable assurance thatinformation required to be disclosed by the Company in reports that it fileswith the SEC or submits under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms. In making this conclusion, the Chief Executive Officer and ChiefFinancial Officer considered the material weaknesses in the Company’s internalcontrols over financial reporting and the status of the corrective actions toremedy those material weaknesses described below. In its reevaluation of theCompany’s disclosure controls and procedures as of September 30, 2006, theChief Executive Officer and the Chief Financial Officer noted certainincremental improvements during the year. However, the Company has not formallydocumented and tested all of its

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potentially remediatedcontrols to affirmatively conclude that such controls are operatingeffectively.

Thecertifications of the Chief Executive Officer and Chief Financial Officerrequired in accordance with Section 302 of the Sarbanes-Oxley Act of 2002appear as exhibits to this report. The disclosures set forth in this Item 4contain information concerning the evaluation of the Company’s disclosurecontrols and procedures, and changes in internal controls over financialreporting, referred to in paragraphs 4(b) and (c) of the certifications. Thecertifications should be read in conjunction with this Item 4 for a morecomplete understanding of the topics presented.

## ***Material Weaknesses Identified***

In aletter to the Company dated September 24, 2004 related to the audit of theCompany’s financial 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 auditor identifiedcertain matters involving the Company’s system of internal control and itsoperation that the auditor considered to be material weaknesses as defined inthe Public Company Accounting Oversight Board’s, or PCAOB’s, Auditing StandardNo. 2, *An Audit of Internal Control OverFinancial Reporting Performed in Conjunction with an Audit of FinancialStatements* (the PCAOB’s final standard will apply to the Company’saudit for the year ended December 31, 2007). The Company’s former auditor notedthe balance sheet accounts for income taxes, fixed assets, inventory, andaccrued trade promotions were not reconciled, or not reconciled in a timelymanner. As a result, the Company made material adjustments to the financialstatements that were not initially identified by its internal controls overfinancial reporting.

## ***Corrective Actions***

Therehave been some improvements, as described more fully below, in the Company’sinternal control over financial reporting that occurred during the periodcovered by this report that have materially affected, or are reasonably likelyto materially affect, its internal control over financial reporting. During theperiod covered by this report, the Company has taken steps to improve itsinternal control structure and procedures regarding disclosures in itsfinancial reporting, including those contemplated by Section 404 of theSarbanes-Oxley Act and the rules and regulations of the SEC promulgatedthereunder, with which the Company is required to be in compliance as ofDecember 31, 2007. The Company continues to take further steps with regard tothese matters.

Duringand prior to the periods covered by this report, the Company has taken steps toimprove its control activities and procedures over financial reporting. TheCompany continues to make further enhancements with regards to its entity leveldisclosure controls. These actions include the following enhancements.

·                  The Company’sdisclosure committee has been expanded to include management at the corporate,regional and local levels to discuss operational and financial issues for thereporting 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 significantvariances between the actual results as compared to projections and prior year.For the quarter, 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.

TheCompany reviewed the matters identified by its former auditor and initiated aneffort to implement controls to mitigate the identified control weaknesses andimplement plans to fully remediate these weaknesses. This process is ongoing,and during the period covered by this report, the Company continued to makematerial changes in the following areas.

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*Income Taxes*. Theincome tax accounts were reconciled at year-end and quarter-end. The Companycontinues to use an outside adviser to assist with its taxes andreconciliations on a regular basis as well as to assist with training financepersonnel on tax accounting matters. In addition, the Company hired an internaltax manager to further build its core competencies in the tax area.

*Inventory*. Theinventory accounts were substantially reconciled at year-end and quarter-end.While the entire inventory process, from acquiring raw materials to shippingfinished goods, requires frequent manual intervention, the Company hasimplemented critical monthly and annual controls to ensure that the inventoryaccounts presented in the financial statements are fairly stated. Specifically,the following actions are 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*. TheNorth America fixed asset accounts were reconciled at year-end and quarter-end.Prior to 2004, certain fixed assets were accounted for on a manual spreadsheet,which led to errors. In 2004, the fixed asset spreadsheet was reviewed andcorrected. The corrected asset values and depreciable lives were uploaded intothe SAP fixed asset module, automating the process. In the EAME region, themanual fixed asset process mentioned above is currently used. During 2005, theCompany performed a physical inventory and reconciliation of fixed assets,including reviewing each asset’s depreciable life. The Company intends toimplement the SAP fixed asset module for the region. All fixed asset accountswere reconciled at year-end and quarter-end.

*Accrued Trade Promotions*.The accrued trade promotion account was reconciled at year-end andquarter-ends. Throughout 2005 and the nine months ended September 30, 2006, theCompany has continued to refine its detailed methodology for estimating andaccruing trade marketing expenses.

TheCompany believes that the changes it has implemented are sufficient to mitigatethe material weaknesses described above. However, while the Company hasenhanced the design of the current controls and implemented additionalcontrols, there are still opportunities for additional improvements in certainareas. Additionally, the Company has not yet formally tested the on-goingeffectiveness of the new controls. In addition to the continuing effortsdescribed above, the Company has made significant progress in documenting,testing and remediating its system of internal controls in preparation forcompliance with the requirements of Section 404 of the Sarbanes-Oxley Act andthe rules and regulations of the SEC promulgated thereunder, with which it mustbe in compliance by December 31, 2007.

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

Except as otherwise described above, there have beenno changes in the Company’s internal control over financial reporting duringthe most recently completed fiscal quarter that have materially affected, orare reasonably likely to materially affect, the Company’s internal control overfinancial reporting.

**PART II**—**OTHER INFORMATION**

**Item 1.Legal Proceedings**

From time to time,the Company 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’sfiling in Puerto Rico precluded the NAD from reviewing the matter or referringMcNeil’s advertising to the Federal Trade Commission. In order to have McNeil’sadvertising addressed by a jury and court in the continental United Statesfamiliar with McNeil’s claims, on November 26, 2004, Merisant filed a federaland state false advertising complaint against McNeil in the United StatesDistrict Court for the Eastern District of Pennsylvania. That suit continuestoday and seeks to have McNeil’s Splenda® campaign stopped because of itsmisleading nature and seeks significant damages resulting from the impactMcNeil’s false advertising has had on Merisant’s sales. On January 13, 2005,McNeil voluntarily dismissed its action in Puerto Rico and in April 2005 McNeilamended its answer to the Company’s complaint in the Pennsylvania action to adda counterclaim against the Company alleging that its Equal® Sugar LiteTMpackaging and advertising were misleading. McNeil has dismissed itscounterclaim relating to Equal® Sugar LiteTM packaging and advertising and onJuly 7, 2006, the court entered a dismissal with prejudice of those claims.

On October 23, 2006, Merisant France SAS, the Company’sFrench subsidiary, commenced legal actions in the Commercial Court of Parisagainst 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 Europe B.V.B.A.,the Company’s Belgium subsidiary, entered into a co-branding agreement withGalleria Srl, a company through which the Italian designer Elio Fioruccioperates. Under this co-branding arrangement, Merisant Europe produced a lineof *Canderel*® tablet dispensersthat featured designs and trademarks from Mr. Fiorucci’s “Love Therapy by ElioFiorucci” collection. The co-branding arrangement contains a representation andwarranty that Galleria owns all rights in the name “Love Therapy by ElioFiorucci” and associated designs and further provides that Galleria willindemnify and hold Merisant Europe and its affiliates harmless against damagesresulting from or related to their use of the name and designs pursuant to theagreement. Beginning in 2005, Merisant Europe sold tablet dispensers with the “LoveTherapy by Elio Fiorucci” designs in Italy. Edwin & Co. Ltd. has claimedthat it owns all rights in Mr. Fiorucci’s name and in the designs used by theCompany and has filed suit against Merisant Europe in Milan, Italy. On or aboutMarch 17, 2006, the court in Milan enjoined Merisant Europe from producing orselling the tablet dispensers after the date of the court order. The Company nolonger produces 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 issubject to various other claims, pending and possible legal actions for productliability and other damages, and other matters arising out of the conduct ofthe Company’s business, including tax uncertainties arising from doing businessin various 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 current knowledge, recorded accruals, and consultation withcounsel, that the outcome of such claims and actions will not have a materialadverse effect on the Company’s consolidated financial position or results ofoperations.

**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 the Company’s AnnualReport on Form 10-K for the year ended December 31, 2005. There have been nomaterial changes from the risk factors previously disclosed in the Company’sreport on Form 10-K.

**Item 4. Submissionof Matters to a Vote of Security Holders.**

On July 20, 2006,the stockholders holding more than a majority of the outstanding shares ofcommon stock of the Company 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 therequirements of the Securities Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.
|                         | MERISANT WORLDWIDE,  INC. |
|-------------------------|---------------------------|
|                    |                      |   |
|                    |                      |   |
| 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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