**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**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, 2007** |
|                                                   |   |                                                                                                    |
| **OR**                                                 |
|                                                   |   |                                                                                                    |
| o                                                      |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from          to       **

**CommissionFile Number:  333-114102**

**Merisant Worldwide, Inc.**

(Exact Name ofRegistrant as Specified in its Charter)
| **Delaware**                                  | ** ** | **52-2219000**                           |
|-----------------------------------------------|------------|------------------------------------------|
| (State or Other  Jurisdiction of              |       | (I.R.S. Employer  Identification Number) |
| Incorporation or  Organization)               |       |                                     |
|                                          |       |                                     |
| **10  South Riverside Plaza, Suite 850** | ** ** | ** **                               |
| **Chicago,  Illinois**                        | ** ** | **60606**                                |
| (Address of Principal  Executive Offices)     |       | (Zip Code)                               |

 

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

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

**Notapplicable.**

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.   Yes  o   No  x

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer  o |   | Accelerated filer  o |   | Non-accelerated filer  x |
|--------------------------------------|--------|--------------------------------|--------|------------------------------------|

 

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

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

As of November 13, 2007,the registrant had 9,089,380 shares of common stock, par value $0.01 per share.

Thisreport is being filed pursuant to a requirement contained in the indenturegoverning Merisant Worldwide, Inc.’s 121⁄4% Senior Subordinated Discount Notesdue 2014.

 

 

 

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** **

**MERISANT WORLDWIDE, INC.**

**INDEX TOREPORT**

**FOR THEQUARTER ENDED SEPTEMBER 30, 2007**
| **PART I—FINANCIAL INFORMATION** |   |
|---------------------------------------|--------|
|                                  |   |   |   |
| Item  1.                              |   | Financial  Statements of Merisant Worldwide, Inc.        | 3 |
|                                  |   |   |   |
|                                  |   | Unaudited Consolidated Balance Sheets at  December 31, 2006 and September 30, 2007        | 3 |
|                                  |   |   |   |
|                                  |   | Unaudited Consolidated Statements of Operations and  Comprehensive Income (Loss) for the Three and Nine Months Ended September 30,  2006 and 2007      | 4 |
|                                  |   |   |   |
|                                  |   | Unaudited Consolidated Statement of Stockholders’  Deficit for the Nine Months Ended September 30, 2007              | 5 |
|                                  |   |   |   |
|                                  |   | Unaudited Consolidated Statements of Cash Flows for  the Nine Months Ended September 30, 2006 and 2007       | 6 |
|                                  |   |   |   |
|                                  |   | Notes to Unaudited Consolidated Financial Statements               | 7 |
|                                  |   |   |   |
| Item 2.                               |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                | 15 |
|                                  |   |   |   |
| Item 3.                               |   | Quantitative  and Qualitative Disclosures About Market Risk     | 29 |
|                                  |   |   |   |
| Item 4.                               |   | Controls and Procedures    | 29 |
|                                  |   |   |   |
| **PART II—OTHER INFORMATION**    |   |
|                                  |   |   |   |
| Item 1.                               |   | Legal Proceedings               | 29 |
|                                  |   |   |   |
| Item 1A.                              |   | Risk Factors          | 29 |
|                                  |   |   |   |
| Item 6.                               |   | Exhibits  | 29 |

 

 

2

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**PART I—FINANCIAL INFORMATION**

**Item 1.Financial Statements of Merisant Worldwide, Inc.**

**MERISANT WORLDWIDE, INC.**

**Unaudited Consolidated Balance Sheets**

**(Dollars In Thousands, Except Per Share Amounts)**
| ** **                                                                                                             | ** ** | **At December 31, 2006** | ** ** | **At September 30, 2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|---------------------------|------------|
| **ASSETS**                                                                                                             | ** ** | ** **               | ** ** | ** **                | ** ** |
| Cash and cash equivalents                                                                                              |       | $                        | 23,753     |                      | $          | 40,559 |   |
| Trade accounts receivable, net of allowances of $534 and  $729, respectively                                      |       | 68,006                   |       | 70,544                    |       |
| Other receivables                                                                                                      |       | 5,676                    |       | 7,600                     |       |
| Inventories                                                                                                            |       | 13,792                   |       | 13,067                    |       |
| Prepaid expenses and other assets                                                                                      |       | 5,477                    |       | 7,538                     |       |
| Current portion of note receivable from director                                                                       |       | 970                      |       | 970                       |       |
| Deferred income tax assets                                                                                             |       | 1,534                    |       | 1,418                     |       |
| Total current assets                                                                                                   |       | 119,208                  |       | 141,696                   |       |
| Property and equipment, net                                                                                            |       | 23,341                   |       | 20,380                    |       |
| Trademarks and other intangible assets, less accumulated amortization  of $159,340 and $158,758, respectively          |       | 182,679                  |       | 165,961                   |       |
| Goodwill                                                                                                               |       | 107,209                  |       | 107,209                   |       |
| Deferred financing costs, less accumulated amortization of $8,410 and  $10,270, respectively                           |       | 15,793                   |       | 12,348                    |       |
| Non-current portion of note receivable from director                                                                   |       | 2,651                    |       | 1,779                     |       |
| Investment in equity affiliate                                                                                         |       | 269                      |       | 396                       |       |
| Other non-current assets                                                                                               |       | 967                      |       | 854                       |       |
| Total assets                                                                                                           |       | $                        | 452,117    |                      | $          | 450,623 |   |
| **LIABILITIES AND STOCKHOLDERS’ DEFICIT**                                                                         | ** ** | ** **               | ** ** | ** **                | ** ** |
| Accounts payable                                                                                                       |       | $                        | 16,234     |                      | $          | 15,201 |   |
| Income taxes payable                                                                                                   |       | 1,578                    |       | 630                       |       |
| Accrued interest expense                                                                                               |       | 11,793                   |       | 7,529                     |       |
| Accrued trademarketing and consumer promotions                                                                         |       | 12,200                   |       | 16,657                    |       |
| Accrued incentives                                                                                                     |       | 8,017                    |       | 4,454                     |       |
| Accrued expenses and other liabilities                                                                                 |       | 11,757                   |       | 10,269                    |       |
| Current maturities of long-term obligations                                                                            |       | 8,468                    |       | 9,837                     |       |
| Total current liabilities                                                                                              |       | 70,047                   |       | 64,577                    |       |
| Long-term obligations, net of current maturities                                                                       |       | 537,565                  |       | 541,061                   |       |
| Deferred income tax liabilities                                                                                        |       | 19,439                   |       | 22,456                    |       |
| Other liabilities                                                                                                      |       | 11,452                   |       | 6,536                     |       |
| Total liabilities                                                                                                      |       | 638,503                  |       | 634,630                   |       |
| Commitments and contingencies (Note 8)                                                                                 |       |                     |       |                      |       |
| Stockholders’ deficit:                                                                                            |       |                     |       |                      |       |
| Common stock, $0.01 par value, 10,000,000 shares authorized,  9,169,552 shares issued and 9,089,380 shares outstanding |       | 91                       |       | 91                        |       |
| Due for purchase of shares                                                                                             |       | (707                     | )          | (189                      | )          |
| Retained deficit                                                                                                       |       | (178,423                 | )          | (178,233                  | )          |
| Accumulated other comprehensive loss                                                                                   |       | (5,626                   | )          | (3,955                    | )          |
|                                                                                                                   |       | (184,665                 | )          | (182,286                  | )          |
| Less cost of treasury stock (80,172 shares)                                                                            |       | (1,721                   | )          | (1,721                    | )          |
| Total stockholders’ deficit                                                                                       |       | (186,386                 | )          | (184,007                  | )          |
| Total liabilities and stockholders’ deficit                                                                       |       | $                        | 452,117    |                      | $          | 450,623 |   |
|                                                                                                                        |            |                          |            |                           |            |  |  |  |  |

 

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

 

3

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**MERISANT****WORLDWIDE, INC.**

**Unaudited Consolidated Statementsof Operations and**

**Comprehensive Income (Loss)**

**(Dollars In Thousands)**
| ** **                        | ** ** | **Three Months Ended**

**September 30,** | ** ** | **Nine Months Ended**

**September 30,** | ** ** |
|-----------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                        | ** ** | **2006**                                  | ** ** | **2007**                                 | ** ** | **2006** | ** ** | **2007** | ** ** |
| Net sales                         |       | $                                         | 68,430     |                                     | $          | 72,837 |   | $ | 216,726 |   | $ | 213,240 |   |
| Cost of sales                     |       | 29,720                                    |       | 31,518                                   |       | 91,339 |   | 94,120 |   |
| Gross profit                      |       | 38,710                                    |       | 41,319                                   |       | 125,387 |   | 119,120 |   |
| Operating expenses:               |       |                                      |       |                                     |       |   |   |   |   |
| Marketing and selling expenses    |       | 17,025                                    |       | 15,921                                   |       | 56,134 |   | 48,202 |   |
| Administration expenses           |       | 9,080                                     |       | 8,183                                    |       | 31,653 |   | 33,548 |   |
| Amortization of intangible assets |       | 5,553                                     |       | 5,264                                    |       | 16,661 |   | 16,718 |   |
| Transaction fees                  |       | —                                    |       | —                                   |       | 3,300 |   | — |   |
| Net loss on long lived assets     |       | 7,788                                     |       | —                                   |       | 7,788 |   | — |   |
| Restructuring expenses.           |       | 1,441                                     |       | 211                                      |       | 5,037 |   | 1,085 |   |
| Total operating expenses          |       | 40,887                                    |       | 29,579                                   |       | 120,573 |   | 99,553 |   |
| Income (loss) from operations     |       | (2,177                                    | )          | 11,740                                   |       | 4,814 |   | 19,567 |   |
| Other expense (income):           |       |                                      |       |                                     |       |   |   |   |   |
| Interest income                   |       | (104                                      | )          | (246                                     | )          | (468 | ) | (611 | ) |
| Interest expense                  |       | 15,344                                    |       | 14,543                                   |       | 43,742 |   | 44,880 |   |
| Costs of refinancing              |       | —                                    |       | —                                   |       | 2,478 |   | 5,791 |   |
| Other expense (income), net       |       | (1,094                                    | )          | 117                                      |       | 444 |   | (29,962 | ) |
| Total other expense               |       | 14,146                                    |       | 14,414                                   |       | 46,196 |   | 20,098 |   |
| Loss before income taxes          |       | (16,323                                   | )          | (2,674                                   | )          | (41,382 | ) | (531 | ) |
| Provision for income taxes        |       | 2,206                                     |       | 1,336                                    |       | 5,147 |   | 5,036 |   |
| Net loss                          |       | $                                         | (18,529    | )                                        | $          | (4,010 | ) | $ | (46,529 | ) | $ | (5,567 | ) |
|                              |       |                                      |       |                                     |       |   |   |   |   |
| Net loss from above               |       | $                                         | (18,529    | )                                        | $          | (4,010 | ) | $ | (46,529 | ) | $ | (5,567 | ) |
| Other comprehensive income (loss) |       | (581                                      | )          | 960                                      |       | 279 |   | 1,671 |   |
| Total comprehensive loss          |       | $                                         | (19,110    | )                                        | $          | (3,050 | ) | $ | (46,250 | ) | $ | (3,896 | ) |
|                                   |            |                                           |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

 

4

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**MERISANT****WORLDWIDE, INC.**

**UnauditedConsolidated Statement of Stockholders’ Deficit**

**(Dollars In Thousands)**
| ** **                                 | ** ** | **Common  Stock** | ** ** | **Due for Purchase  of Shares** | ** ** | **Retained  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Treasury Stock, at  Cost** | ** ** | **Total** | ** ** |
|--------------------------------------------|------------|-------------------|------------|--------------------------------------|------------|-----------------------|------------|---------------------------------------------|------------|------------------------------|------------|-----------|------------|
| Balance at December 31, 2006          |       | $                 | 91         |                                 | $          | (707                  | )          | $                                           | (178,423   | )                            | $          | (5,626    | )          | $ | (1,721 | ) | $ | (186,386 | ) |
| Foreign currency translation adjustment    |       | —            |       | —                               |       | —                |       | 1,671                                       |       | —                       |       | 1,671     |       |
| Settlement of loans for purchase of shares |       | —            |       | 518                                  |       | —                |       | —                                      |       | —                       |       | 518       |       |
| Cumulative effect of FIN 48 implementation |       | —            |       | —                               |       | 5,757                 |       | —                                      |       | —                       |       | 5,757     |       |
| Net loss                                   |       | —            |       | —                               |       | (5,567                | )          | —                                      |       | —                       |       | (5,567    | )          |
| Balance at September 30, 2007              |       | $                 | 91         |                                 | $          | (189                  | )          | $                                           | (178,233   | )                            | $          | (3,955    | )          | $ | (1,721 | ) | $ | (184,007 | ) |

 

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

 

5

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**MERISANT WORLDWIDE, INC.**

**UnauditedConsolidated Statements of Cash Flows**

**(Dollars InThousands)**
| ** **                                                                        | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                        | ** ** | **2006**                                  | ** ** | **2007** | ** ** |
| **Operating Activities**                                                          |       |                                      |       |   |   |
| Net loss                                                                          |       | $                                         | (46,529    | ) | $ | (5,567 | ) |
| Adjustments to reconcile net loss to net cash provided by operating  activities:  |       |                                      |       |   |   |
| Depreciation                                                                      |       | 6,527                                     |       | 4,919 |   |
| Net loss on long lived assets                                                     |       | 7,788                                     |       | — |   |
| Gain on liquidation or sale of subsidiary                                         |       | (888                                      | )          | (284 | ) |
| Amortization of intangible assets                                                 |       | 16,661                                    |       | 16,718 |   |
| Amortization of deferred financing costs                                          |       | 2,551                                     |       | 2,740 |   |
| Interest accretion on senior subordinated discount notes                          |       | 9,088                                     |       | 10,235 |   |
| Write off of deferred financing costs                                             |       | 2,478                                     |       | 3,241 |   |
| Euro-denominated loan foreign exchange loss                                       |       | 2,169                                     |       | 1,382 |   |
| Net realized gains on derivative instruments                                      |       | (694                                      | )          | — |   |
| Equity in income of affiliate                                                     |       | (21                                       | )          | (127 | ) |
| Deferred income tax provision                                                     |       | 3,416                                     |       | 3,141 |   |
| Changes in operating assets and liabilities:                                      |       |                                      |       |   |   |
| Trade accounts receivable                                                         |       | 5,109                                     |       | (929 | ) |
| Other receivables                                                                 |       | 5,768                                     |       | (994 | ) |
| Inventories                                                                       |       | 9,900                                     |       | 1,005 |   |
| Prepaid expenses and other assets                                                 |       | (550                                      | )          | (1,917 | ) |
| Accounts payable                                                                  |       | (2,558                                    | )          | (1,112 | ) |
| Accrued expenses and other                                                        |       | (16,319                                   | )          | (5,749 | ) |
| Net cash provided by operating activities                                         |       | 3,896                                     |       | 26,702 |   |
| **Investing Activities**                                                          |       |                                      |       |   |   |
| Proceeds from sale of property and equipment                                      |       | 207                                       |       | 216 |   |
| Purchases of property and equipment                                               |       | (1,652                                    | )          | (2,188 | ) |
| Net cash used in investing activities                                             |       | (1,445                                    | )          | (1,972 | ) |
| **Financing Activities**                                                          |       |                                      |       |   |   |
| Net payments under revolving credit facility                                      |       | (16,000                                   | )          | — |   |
| Borrowings under long-term obligations                                            |       | 85,095                                    |       | 85,088 |   |
| Principal payments on long-term obligations, excluding revolving credit  facility |       | (74,517                                   | )          | (91,649 | ) |
| Payment of deferred financing costs                                               |       | (5,644                                    | )          | (2,537 | ) |
| Settlement of loans for purchase of shares in Merisant Worldwide,  Inc.           |       | —                                    |       | 518 |   |
| Net cash used in financing activities                                             |       | (11,066                                   | )          | (8,580 | ) |
| Effect of exchange rate on cash and cash equivalents                              |       | 284                                       |       | 656 |   |
| Net increase in cash and cash equivalents                                         |       | (8,331                                    | )          | 16,807 |   |
| Cash and cash equivalents at beginning of period                                  |       | 18,074                                    |       | 23,753 |   |
| Cash and cash equivalents at end of period                                        |       | $                                         | 9,743      |   | $ | 40,559 |   |
|                                                                                   |            |                                           |            |  |  |  |  |  |

 

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

 

6

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**MERISANTWORLDWIDE, INC.**

**Notes to Unaudited Consolidated Financial Statements**

**(DollarsIn Thousands)**

** **

** **

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

The consolidated financial statements and notes do notcontain certain information included in the annual consolidated financialstatements and notes of Merisant Worldwide, 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 balance sheet atDecember 31, 2006 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.

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

The Company manufactures and markets primarily low-calorietabletop sweeteners globally. Therefore, the Company’s reportable segmentsare organized and managed principally by geographic region:  North America; Europe/Africa/Middle East,referred to as EAME; Latin America; and Asia/Pacific. The Company’s managementreviews Operating EBITDA to evaluate segment performance and allocateresources. Operating EBITDA consists of segment earnings before interestexpense, income tax expense, depreciation and amortization as well as itemssuch as expenses related to restructuring charges, certain significant chargesrelated to new product development and launch costs, costs related to thetransition to a new exclusive distributor in the United States, certainlitigation costs and certain other non-cash items or excludable gains orlosses. Other expense (income), net, as reported in the unaudited consolidatedfinancial statements, is included in Operating EBITDA of the respectivereportable segments, except for the portion of other expense (income), net thatrelates to the foreign currency transaction gains or losses associated with theCompany’s euro-denominated debt (see Note 6) and unrealized gains or losses onderivative instruments. Corporate expenses include corporate staff and relatedamounts. Corporate expenses, interest and other expenses and the provision forincome taxes are centrally managed and, accordingly, such items are notpresented by segment since they are excluded from the measure of segmentperformance reviewed by management. The Company launched a new product line inNorth America in the first quarter of 2006 which management evaluates andmanages separately from its other North American operations. As such, this itemis also excluded from the measure of segment performance reviewed bymanagement. The Company’s definition of Operating EBITDA is largely driven bysimilar definitions of Bank EBITDA under its primary credit facilities.  The definition of Bank EBITDA was amended inthe May 2007 amendment of those credit facilities, and that change is reflectedin the Company’s computation of Operating EBITDA for the 2007 periods.  The Company’s assets, which are principallyin the United States and Europe, are also managed geographically. A summary ofthe Company’s results of operations by reportable segment for the three andnine months ended September 30, 2006 and 2007 is as follows:

7

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**For the Three Months Ended September 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    | ) |
|                                                                     |            |                    |            |          |            |                    |            |                    |            |                  |            |  |  |  |  |  |  |  |  |

 

**For theThree Months Ended September 30, 2007**
| ** **                                               | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| Total net sales for reportable segments                  |       | $                  | 29,127     |     | $          | 27,920             |       | $                  | 9,508      |             | $          | 6,254 |   | $ | 72,809 |   |
| Net sales related to new product launch                  |       |               |       |     |       |               |       |               |       | 28               |       |
| Total consolidated net sales                             |       |               |       |     |       |               |       |               |       | $                | 72,837     |   |
|                                                     |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                         |       | $                  | 11,298     |     | $          | 9,874              |       | $                  | 2,913      |             | $          | 1,971 |   | $ | 26,056 |   |
| Less (plus):                                             |       |               |       |     |       |               |       |               |       |             |       |
| Corporate expenses                                       |       |               |       |     |       |               |       |               |       | 5,237            |       |
| Restructuring and specified project implementation costs |       |               |       |     |       |               |       |               |       | 414              |       |
| Depreciation expense                                     |       |               |       |     |       |               |       |               |       | 1,590            |       |
| Amortization expense                                     |       |               |       |     |       |               |       |               |       | 5,264            |       |
| Currency loss on euro debt                               |       |               |       |     |       |               |       |               |       | 879              |       |
| Gain on liquidation or sale of subsidiary                |       |               |       |     |       |               |       |               |       | (284             | )          |
| Loss related to new product launch                       |       |               |       |     |       |               |       |               |       | 1,314            |       |
| Other non-cash expense                                   |       |               |       |     |       |               |       |               |       | 19               |       |
| Other income, net                                        |       |               |       |     |       |               |       |               |       | (117             | )          |
| Income from operations                                   |       |               |       |     |       |               |       |               |       | 11,740           |       |
| Interest expense, net                                    |       |               |       |     |       |               |       |               |       | 14,297           |       |
| Other income, net                                        |       |               |       |     |       |               |       |               |       | 117              |       |
| Loss before income taxes                                 |       |               |       |     |       |               |       |               |       | $                | (2,674     | ) |
|                                                          |            |                    |            |          |            |                    |            |                    |            |                  |            |  |  |  |  |  |  |  |

 

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**Forthe Nine Months Ended September 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                                               |       |               |       |     |       |               |       |               |       | 43,274           |       |
| Cost of refinancing                                                 |       |               |       |     |       |               |       |               |       | 2,478            |       |
| Other expense, net                                                  |       |               |       |     |       |               |       |               |       | 444              |       |
| Loss before income taxes                                            |       |               |       |     |       |               |       |               |       | $                | (41,382    | ) |
|                                                                     |            |                    |            |          |            |                    |            |                    |            |                  |            |  |  |  |  |  |  |  |

 

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**For the NineMonths Ended September 30, 2007**
| ** **                                                              | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| Total net sales for reportable segments                                 |       | $                  | 85,655     |     | $          | 84,577             |       | $                  | 22,855     |             | $          | 20,157 |   | $ | 213,244 |   |
| Net sales related to new product launch                                 |       |               |       |     |       |               |       |               |       | (4               | )          |
| Total consolidated net sales                                            |       |               |       |     |       |               |       |               |       | $                | 213,240    |   |
|                                                                    |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                                        |       | $                  | 31,703     |     | $          | 25,581             |       | $                  | 5,913      |             | $          | 7,428 |   | $ | 70,625 |   |
| Less (plus):                                                            |       |               |       |     |       |               |       |               |       |             |       |
| Corporate expenses                                                      |       |               |       |     |       |               |       |               |       | 19,282           |       |
| Restructuring and specified project implementation costs                |       |               |       |     |       |               |       |               |       | 1,288            |       |
| Depreciation expense                                                    |       |               |       |     |       |               |       |               |       | 4,919            |       |
| Amortization expense                                                    |       |               |       |     |       |               |       |               |       | 16,718           |       |
| Currency loss on euro debt                                              |       |               |       |     |       |               |       |               |       | 1,382            |       |
| Gain on liquidation or sale of subsidiary                               |       |               |       |     |       |               |       |               |       | (284             | )          |
| Loss related to new product launch                                      |       |               |       |     |       |               |       |               |       | 2,852            |       |
| Other non-cash charge and net gain excludable from Operating EBITDA     |       |               |       |     |       |               |       |               |       | 4,869            |       |
| Gain from receipt of one-time payment excludable from Operating  EBITDA |       |               |       |     |       |               |       |               |       | (30,000          | )          |
| Other non-cash expense                                                  |       |               |       |     |       |               |       |               |       | 70               |       |
| Other expense, net                                                      |       |               |       |     |       |               |       |               |       | 29,962           |       |
| Income from operations                                                  |       |               |       |     |       |               |       |               |       | 19,567           |       |
| Interest expense, net                                                   |       |               |       |     |       |               |       |               |       | 44,269           |       |
| Cost of refinancing                                                     |       |               |       |     |       |               |       |               |       | 5,791            |       |
| Other expense, net                                                      |       |               |       |     |       |               |       |               |       | (29,962          | )          |
| Loss before income taxes                                                |       |               |       |     |       |               |       |               |       | $                | (531       | ) |
|                                                                         |            |                    |            |          |            |                    |            |                    |            |                  |            |  |  |  |  |  |  |

 

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

Duringthe nine months ended September 30, 2007, 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 $1,441 and $211 were recorded for the three monthsended September 30, 2006 and September 30, 2007, respectively, and $5,037 and$1,085 were recorded for the nine months ended September 30, 2006 and September30, 2007, respectively. The 2007 charges principally related to plannedtermination costs for employees, including charges related to sixteenadditional personnel that were notified of the termination of their employment duringthe nine months ended September 30, 2007. Severance payments and benefits are scheduled to be made over the nextthree months.

Reconciliation of the restructuring liability at September30, 2007 is as follows: 
| Restructuring liability at December 31, 2006                   |   | $      | 444    |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|
| Restructuring expenses for the nine months ended September 30, 2007 |   | 1,085  |   |
| Cash payments for the nine months ended September 30, 2007          |   | (1,300 | )      |
| Restructuring liability at September 30, 2007                       |   | $      | 229    |   |

 

The restructuring liability at December 31, 2006 andSeptember 30, 2007 is included in the line item “Accrued expenses and otherliabilities” in the accompanying consolidated balance sheets.

The following table represents restructuring expensesincluded in each segment and corporate expenses for the three and nine monthsended September 30, 2006 and 2007:

 

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| ** **    | ** ** | **Three Months Ended**

**September 30,** | ** ** | **Nine Months Ended**

**September 30,** | ** ** |
|---------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **    | ** ** | **2006**                                  | ** ** | **2007**                                 | ** ** | **2006** | ** ** | **2007** | ** ** |
| North America |       | $                                         | 256        |                                     | $          | — |   | $ | 359 |   | $ | — |   |
| EAME          |       | 770                                       |       | 204                                      |       | 2,637 |   | 502 |   |
| Latin America |       | 20                                        |       | 5                                        |       | 1,058 |   | 91 |   |
| Asia/Pacific  |       | 78                                        |       | 2                                        |       | 583 |   | 332 |   |
| Corporate     |       | 317                                       |       | —                                   |       | 400 |   | 160 |   |
| Total         |       | $                                         | 1,441      |                                     | $          | 211 |   | $ | 5,037 |   | $ | 1,085 |   |
|               |            |                                           |            |                                          |            |  |  |  |  |  |  |  |  |  |

 

**4.****                      ****Inventories**

Inventories consisted of the following at December 31,2006 and September 30, 2007:
| ** **                      | ** ** | **December 31, 2006** | ** ** | **September 30, 2007** | ** ** |
|---------------------------------|------------|-----------------------|------------|------------------------|------------|
| Raw materials and supplies      |       | $                     | 7,309      |                   | $          | 6,335 |   |
| Work in process                 |       | 592                   |       | 765                    |       |
| Finished goods                  |       | 6,869                 |       | 6,626                  |       |
| Inventory obsolescence reserves |       | (978                  | )          | (659                   | )          |
| Total                           |       | $                     | 13,792     |                   | $          | 13,067 |   |

 

 

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

On July 2, 2007, the Company’s license agreement to manufactureand sell product using the *NutraSweet®*trademark under a license agreement with The NutraSweet Companyterminated.  The value of this licenseagreement was classified as an intangible asset on the balance sheet and wasbeing amortized over a 15 year life commencing in March 2000.  The majority of the net loss on long livedassets reported for the three and nine months ended September 30, 2006 relatesto the impairment of this license agreement. The license agreement required the purchase of an annual minimum volumeof aspartame from The NutraSweet Company to continue 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 would not acquire the minimum purchase volume needed in 2006 to maintain thelicense agreement.  After a review of theundiscounted estimated future cash flows of this intangible asset and itscarrying value, the Company determined that an impairment existed.  The Company recorded an impairment lossrelating to this intangible asset during the third quarter of 2006 of$7,577.  The impairment loss wascalculated as the difference between the carrying value of the intangible assetand the estimated fair value of the license agreement using a traditional cashflow approach to present value. The impaired intangible asset is reported inthe North America and EAME segments. This non-cash accounting loss has no impact on the statement of cashflows or Operating EBITDA and the Company has been implementing programs aimedat mitigating future cash flow impact from the discontinuation of the *NutraSweet®*product line. During the nine months ended September 30, 2007, the remaining value ofthe intangible was fully amortized and the accumulated amortization andimpairment were offset against the gross value.

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

The Company is highly leveraged. At September 30, 2007, the Company andits subsidiaries, including Merisant Company (“Merisant”), had $550,760 oflong-term debt outstanding, consisting of $119,987 aggregate principal amountof the Company’s 12 1⁄4% senior subordinated discount notes due 2014, $225,000aggregate principal amount of Merisant’s 9 1⁄2% senior subordinated notes due2013 (the “Notes”) and $205,773 aggregate principal amount outstanding underMerisant’s amended and restated senior secured credit agreement (the “Amendedand Restated Credit Agreement”), excluding capital lease obligations of $138and unused commitments on the revolving portion of the Amended and RestatedCredit Agreement of $30,464.

At September 30, 2007, borrowings under the Amended and Restated CreditAgreement included $15,704 (“Term A”) aggregate principal amount of term loansbearing annual interest of 7.74% and $190,069 (“Term B”) aggregate principalamount of term loans bearing annual interest of 8.86%. The Term A loans areeuro-denominated and are translated into U.S. dollars at the spot rate as ofSeptember 30, 2007.

 

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On June 23, 2006,Merisant entered into an $85,000 senior secured term loan agreement (the “SecondLien Credit Agreement”), the borrowings under which were secured by a secondlien on all the assets that secured loans outstanding under the then existingsenior secured credit facility (the “Senior Credit Agreement”).  The Second Lien Credit Agreement consisted ofan aggregate of $85,000 principal amount of term loans, the net proceeds ofwhich were used to prepay $9,540 of euro-denominated Term A loans, prepay$53,320 of Term B loans and to repay $15,000 of revolving loans, in each case,outstanding under the Senior Credit Agreement.

On May 9, 2007, the Company, Merisant and certain ofMerisant’s subsidiaries entered into the Amended and Restated Credit Agreement,which, among other things, increased by $85,000 the principal amount of Term Bloans that may be borrowed by Merisant under the Senior Credit Agreement.  Merisant paid $2,505 in fees and expensesrelated to this amendment and restatement which it deferred and is amortizingover the term of the related debt. Upon closing, Merisant borrowed the full$85,000 of additional Term B loans available under the Amended and RestatedCredit Agreement and used the proceeds plus cash on hand to prepay theprincipal of all loans outstanding under the Second Lien Credit Agreementtotaling $85,000, plus all outstanding interest of $1,438 and a premium of$2,550, or $88,988.  The Second LienCredit Agreement was terminated as a result of the transaction and there was noincrease in Merisant’s long term debt as a result of this transaction.  In addition to the incurrence of fees, thistransaction also resulted in a write-off of existing deferred financing feesrelating to the extinguishment of previously outstanding debt under the SecondLien Credit Agreement of $3,241.

Upon closing of the above transaction and execution ofthe related amendment, the interest rate on all term loans and revolving loansoutstanding under the Amended and Restated Credit Agreement increased fromeuro-LIBOR and LIBOR plus 325 basis points per annum to euro-LIBOR and LIBORplus 350 basis points per annum.  As aresult of the termination of the Second Lien Credit Facility,  Merisant’s effective interest rate on variableinterest rate debt decreased from 10.63% per annum prior to the closing of thistransaction to 8.73% per annum subsequent to this transaction.

Merisant paid interest on borrowings under the Senior CreditAgreement, the Second Lien Credit Agreement and on the Notes totaling $38,568and $35,933 for the nine months ended September 30, 2006 and 2007,respectively.

The Amended and Restated Credit Agreement preservedprior amendments, amended financial covenant ratios and levels and contains anumber of additional amendments, including to the definition of Bank EBITDA,that give Merisant more flexibility to operate its business and de-leverage itsbalance sheet.

The Amended and Restated Credit Agreement containscovenants, including financial covenants that must be met on a quarterly basis.“Bank EBITDA” is the measure by which the financial covenants contained in theAmended and Restated Credit Agreement are measured. However, Bank EBITDA is nota measure of liquidity under GAAP. Accordingly, while providing usefulinformation with respect to an assessment of liquidity as measured inaccordance with the covenants in the Company’s primary debt obligations, thismeasure should not be considered in isolation from, or as a substitute for,consolidated statement of cash flow data prepared in accordance with GAAP as anindication of liquidity. In addition, the Bank EBITDA measurepresented may differ from, and may not becomparable to, similarly titled measures used by other companies.

Merisant was in compliance with its covenants underthe Amended and Restated Credit Agreement as of September 30, 2007.

**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.Merisant recorded $55 and $43 of interest income on the note receivable for thethree months ended September 30, 2006 and 2007, respectively, and $166 and $129of interest income on the note receivable for the nine months ended September30, 2006 and 2007, respectively, and an equal amount of interestexpense in the respective periods.

Merisant is party to anagreement with Brand Architecture International (“Brand Architecture”) pursuantto which Brand Architecture has agreed to provide consulting services relatingto the development of brand architecture for Merisant’s brands. Ascompensation, Merisant paid approximately $220 and $15 to Brand Architecturefor the three months ended September 30, 2006 and 2007, respectively, andapproximately $815 and $315 for the nine months

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ended September 30, 2006and 2007, respectively, including the reimbursement to Brand Architecture forexpenses relating to its work. Adam Stagliano, a member of the Company’sboard of directors, is a founding director and the President and ChiefStrategic Officer of Brand Architecture.

**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, imports andmarkets low-calorie sweeteners for the international consumer food markets,primarily under the *Equal®* brandwithin the Philippines. In addition to its investment in the joint venture, theCompany is committed to a 50% share in any new borrowings of the joint venture.As of December 31, 2006 and September 30, 2007, there were no additionaljoint venture borrowings.

On November 26, 2004, Merisant filed a federal andstate false advertising complaint against McNeil in the United States DistrictCourt for the Eastern District of Pennsylvania. That lawsuit sought to haveMcNeil’s *Splenda*® advertising campaign stoppedand significant damages recovered.  Thetrial commenced on April 9, 2007 before a Philadelphia jury and the partiesentered into a confidential settlement agreement on May 11, 2007.

In April 2007, an operating subsidiary of the Companyentered into a new operating lease for office space in Chicago and terminatedits current lease, providing the required one year notice period.  The Company plans to move its corporateoperations to the new space in early 2008. The new landlord paid the lease termination fee of $869 on the Company’sbehalf and the related expense was recorded in Administration expenses in thesecond quarter of 2007.  The new leaseterminates on April 30, 2024. Current leasehold improvements and other non-transferable assets will befully depreciated between April 2007 and the estimated date the Company willmove into the new facility and moving costs will be expensed as they areincurred.

The Company is subject to variousother claims, pending and possible legal actions for product liability andother damages, and other matters arising out of the conduct of the Company’sbusiness, including tax uncertainties arising from doing business in variousEuropean jurisdictions. The Company believes, based on current knowledge andconsultation with counsel, that the outcome of such claims and actions will nothave a material adverse effect on the Company’s consolidatedfinancial position or results of operations.

**9.        Income Taxes**

In June 2006, the Financial Accounting Standards Board (“FASB”)issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - aninterpretation of FASB Statement No. 109 (“FIN 48”), that clarifies theaccounting and recognition for income tax positions taken or expected to betaken in the Company’s tax returns. The Company adopted FIN 48 on January 1,2007, and recorded the cumulative effect of a change in accounting principle byrecording a decrease in the liability for uncertain tax positions of $5,757,that was accounted for as a credit to opening retained earnings. At January 1,2007 and September 30, 2007, the total liability, including interest andpenalties, for uncertain tax positions recorded in the Company’s balance sheetin non-current Other liabilities was $2,145 and $2,641, respectively. Nouncertain tax position reserves were reversed or settled during the nine monthperiod.  The entire amount of thisconsolidated worldwide liability for uncertain tax positions would affect theCompany’s effective tax rate upon favorable resolution of the uncertain taxpositions.  Absent new experience indefending these uncertain tax positions in the various jurisdictions to whichthey relate, the Company cannot currently estimate a range of possible changeof the September 30, 2007 liability over the next twelve months.

The Company files a consolidated U.S. income tax return andtax returns in various state and local jurisdictions. The Company’ssubsidiaries also file tax returns in various foreign jurisdictions. Inaddition to the U.S., the Company’s major taxing jurisdictions includeSwitzerland, France, the United Kingdom, Belgium, Australia, Argentina andMexico. In the U.S., all tax years from inception in 2000 through the presentare open.  The Company’s Switzerlandsubsidiary operates under a tax holiday, resulting in no uncertain taxpositions for that entity for any tax year. Local audits of the tax returns for the Company’s France subsidiary havebeen completed through 2004.  In theUnited Kingdom, the Company assumes that tax years through 2004 are closed dueto local practice.  In Belgium and Australia,tax years through 2003 and 2001, respectively, are closed due to the localstatute of limitations.  In Argentina andMexico, only the year of inception, 2000, is considered a closed tax year dueto the local statute of limitations.

**Interest and penalties related to taxpositions taken in the Company’s tax returns are recorded in income tax expensein**

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**the consolidated statements of operations.At January 1, 2007 and September 30, 2007, the combined amount of accruedinterest and penalties related to tax positions taken on the Company’s taxreturns and recorded in non-current Other liabilities was $429 and $664,respectively.**

 

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

*The following discussion shouldbe read in conjunction with our unaudited consolidated financial statements andaccompanying notes included elsewhere in this document. Our discussion ofresults by reportable segment should be read in conjunction with Note 2 tothe  unaudited consolidated financialstatements included elsewhere in this document, which illustrates thereconciliation of Operating EBITDA to income or loss before income taxes.Unless otherwise indicated or unless the context requires otherwise, allreferences in this discussion to “us”, “our” or “our company” mean MerisantWorldwide, Inc. and its consolidated subsidiaries and all references to “Merisant”mean Merisant Company.*

**Overview**

Our company is a worldwide leader in themarketing of low-calorie tabletop sweeteners, with an estimated 23% dollarshare as of December 31, 2006 of a stable global retail market, which weestimate at $1.5 billion.  We believethat our company has the leading dollar market share as of December 31, 2006 inapproximately half of what we estimate as the top twenty markets forlow-calorie tabletop sweetener sales. Our premium-priced brands, *Equal*®and *Canderel*®, are among the mostrecognized low-calorie tabletop sweetener products in the world, with aidedbrand awareness estimated at between 85% and 95% in our four top markets.  In addition to *Equal*® and *Canderel*®,we market our products under eighteen other regional brands that enjoysignificant brand recognition in their target markets.  We sell our brands in over ninety countries.

Our business is the result of over 25years of history in the low-calorie tabletop sweetener industry, first as adivision of G.D. Searle & Co. (“Searle”) and later Monsanto Company (“Monsanto”).  Searle invented the key sweetening ingredientin many of our products, aspartame, in 1965. Aspartame was first approved for consumer use in France in 1979, whereSearle marketed the product under the *Canderel*®brand.  By the early 1980s, *Canderel*® was being marketed in much ofEurope.  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 1985through its acquisition of Searle. Our company is a Delaware corporation thatwas formed in 2000 by an investor group led by an affiliate of Pegasus CapitalAdvisors, L.P. to acquire Monsanto Company’s tabletop sweetener business.

Our worldwide headquarters is located inChicago, Illinois, and we have principal regional offices in Mexico City,Mexico, Neuchâtel, Switzerland, Paris, France and Singapore.  We own and operate manufacturing facilitiesin Manteno, Illinois and Zarate, Argentina and own processing lines that areoperated exclusively for us at plants located in Bergisch and Stendal,Germany.  On October 26, 2007, weconcluded a new contract manufacturing arrangement with a company that willoperate processing lines that we will own in Bangkrason, Thailand.  As of November 13, 2007, we had sixteenactive direct and indirect subsidiaries, including three subsidiaries in theUnited States, six subsidiaries in Europe, four subsidiaries in Mexico andSouth America, and three subsidiaries in the Asia Pacific region, including Australiaand India.  In addition, our Swisssubsidiary holds a 50% interest in a joint venture in the Philippines.

Our core business continues to be productssweetened with aspartame, and the *Equal*®and *Canderel*® tabletop sweetenerproducts accounted for approximately 87% of our net sales in 2006.   The majority of our eighteen other regionalbrands around the world are also sweetened with aspartame.

***Sales Trends and Strategy***

Ourcompany’s premium-priced brands had enjoyed a dominant market position among low-caloriesweeteners in many of our key markets. In recent years, however, we have faced significant competition fromMcNeil Nutritionals LLC, a subsidiary of Johnson & Johnson (“McNeil”),which markets and distributes the 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. FromDecember 2002 to December 2006, *Splenda*®’sdollar share of the United States retail grocery market has grown fromapproximately 15% to 62% and has surpassed that of *Equal*® to become the number one premium low-caloriesweetener in the United States.  While webelieve that the introduction of *Splenda*®has increased the size of the market for low-calorie sweeteners in general, ournet sales have declined during this period, particularly in North America whichhad accounted for 46% and 42% of our net sales in 2003 and 2006,respectively.  As a result of decliningnet sales, we have experienced significant declines in our Bank EBITDA from$110.2 million in 2003 to $67.2 million in 2006.  For a description of Bank EBITDA and areconciliation of Bank EBITDA to cash flow from operating activities, see “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Liquidity and Capital Resources”.

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We believe that there areopportunities for future growth in the low-calorie tabletop sweetener andsweetened food category and that our company is positioned to pursue theseopportunities.  Despite recent declinesin net sales, our premium brands *Equal*®and *Canderel*® are among the mostrecognized low-calorie tabletop sweetener products in the world, with aidedbrand awareness estimated between 85% and 95% in our top four markets.

Paul Block was appointedChief Executive Officer in November 2004 and has led an initiative tostrengthen our company’s core brands, improve the efficiency of our operations,reduce costs and transform our company into a sweetener and sweetened foodcompany.   Mr. Block has recruitedindividuals from outside our company and promoted individuals from within theorganization to form a new senior management team with the goal of developing aculture of innovation with a focus on the development and launch of newproducts designed to revitalize the existing customer base and attract newconsumers.

Our company seeks tostabilize and then grow revenues through the following five strategicinitiatives:

•                  Promote new usage among existing consumers and expandthe *Equal*® and *Canderel*®brand positioning to attract new consumers through invasive marketing campaignsand improved sales execution.

•                  Pursue product innovation to bring new aspartamesweetened products and brand extensions to the market.

•                  Develop and test products that have the potential totransform our company’s brand portfolio. We have developed an all-natural,zero-calorie sweetener that is being marketed under the *SweetSimplicity*® brand for our subsidiary, Whole Earth Sweetener CompanyLLC.

•                  Dedicate significant resources to improving theefficiency of operations by, among other things, implementing supplychain-based programs to streamline manufacturing capabilities and improving theefficiency of certain support services.  We have successfully reduced costs and made our business more efficient,which has significantly contributed to the current stabilization of Bank EBITDAover the past two years.

•                  Offer private label low-calorie sweeteners to retail andfood service customers and leverage supply chain expertise globally.

We believe thatthe development and introduction of new products under our *Equal*®and *Canderel*® brands may help to stabilizeour core business while innovative, all-natural sweeteners and sweetened foodproducts under our *Sweet Simplicity®*brand for Whole Earth Sweetener Company present growth opportunities for us.However, we may be constrained in our ability to realize fully the value ofthese new products as a result of our current capital structure. The successfullaunch of new products and marketing of our core brands requires capital, andwe must use a significant portion of our cash flows from operations to serviceour outstanding debt. We had an aggregate of $550.8 million of long-term debtoutstanding at September 30, 2007, excluding capital lease obligations, andpaid $44.3 million in interest costs for the year ended December 31, 2006,$22.0 million of which represented interest payments on Merisant’s91⁄2% senior subordinated notes due 2013 (the “Notes”). If we cannot generate cash flows fromoperations significantly in excess of our short-term debt obligations, we maynot have the resources required to fully realize the value of our strategicinitiatives.  We may engage in discussionsfrom time to time with our lenders and noteholders on ways to optimize ourcapital structure.

**Results of Operations**

For eachof the periods discussed below, the information set forth under the caption “ConsolidatedResults” represents an overview of our company’s results of operations on aconsolidated basis. Additional detail regarding the results of operations canbe found under the caption “Segment Results” for each period discussed below.

***Three Months EndedSeptember 30, 2007 Compared to Three Months Ended September 30, 2006***

The following table sets forth certain of our company’sfinancial data for the three month periods ended September 30, 2006 and 2007(totals may not foot due to rounding).

 

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| ** **                        | ** ** | **Three Months Ended  September 30,** | ** **  | **Three Months Ended  September 30,** | ** ** |
|-----------------------------------|------------|---------------------------------------|-------------|---------------------------------------|------------|
| ** **                        | ** ** | ** **                            | ** **  | ** **                            | ** ** | ** ** | ** ** | **Better/(Worse)** | ** ** |
| ** **                        | ** ** | **2006**                              | ** **  | **2007**                              | ** ** | **2006** | ** ** | **2007** | ** ** | **Than Prior Year** | ** ** |
|                              |       | **(in millions)**                     |        | **As% of Net Sales**   |       | **Dollars** |   | **%** |   |
| Net sales                         |       | $                                     |  68.4  |                                  | $          |  72.8 |   | 100 | % | 100 | % | $ |  4.4 |   | 6 | % |
| Cost of sales                     |       | 29.7                                  |        | 31.5                                  |       | 42 | % | 43 | % | (1.8 | ) | (6 | )% |
| Gross profit                      |       | 38.7                                  |        | 41.3                                  |       | 58 | % | 57 | % | 2.6 |   | 7 | % |
| Operating expenses:               |       |                                  |        |                                  |       |   |   |   |   |   |   |   |   |
| Marketing and selling expenses    |       | 17.0                                  |        | 15.9                                  |       | 23 | % | 22 | % | 1.1 |   | 6 | % |
| Administration expenses           |       | 8.5                                   |        | 7.8                                   |       | 12 | % | 11 | % | 0.7 |   | 8 | % |
| Research and development expenses |       | 0.5                                   |        | 0.4                                   |       | 1 | % | 0 | % | 0.2 |   | 33 | % |
| Amortization of intangible assets |       | 5.6                                   |        | 5.3                                   |       | 7 | % | 7 | % | 0.3 |   | 5 | % |
| Net loss on long lived assets     |       | 7.8                                   |        | —                                |       | 11 | % | 0 | % | 7.8 |   | 100 | % |
| Restructuring expenses            |       | 1.4                                   |        | 0.2                                   |       | 2 | % | 0 | % | 1.2 |   | 85 | % |
| Total operating expenses          |       | 40.9                                  |        | 29.6                                  |       | 60 | % | 41 | % | 11.3 |   | 28 | % |
| Income (loss) from operations     |       | (2.2                                  | )           | 11.7                                  |       | (3 | )% | 16 | % | 13.9 |   | 639 | % |
| Other expenses (income):          |       |                                  |        |                                  |       |   |   |   |   |   |   |   |   |
| Interest income                   |       | (0.1                                  | )           | (0.2                                  | )          | (0 | )% | (0 | )% | 0.1 |   | 136 | % |
| Interest expense                  |       | 15.3                                  |        | 14.5                                  |       | 22 | % | 20 | % | 0.8 |   | 5 | % |
| Other expense (income), net       |       | (1.1                                  | )           | 0.1                                   |       | (2 | )% | 0 | % | (1.2 | ) | (111 | )% |
| Total other expense (income)      |       | 14.1                                  |        | 14.4                                  |       | 21 | % | 20 | % | 0.3 |   | (2 | )% |
| Loss before income taxes          |       | (16.3                                 | )           | (2.7                                  | )          | (24 | )% | (4 | )% | 13.6 |   | 84 | % |
| Provision for income taxes        |       | 2.2                                   |        | 1.3                                   |       | 3 | % | 2 | % | 0.9 |   | 39 | % |
| Net loss                          |       | $                                     |  (18.5 | )                                     | $          |  (4.0 | ) | (27 | )% | (6 | )% | $ | 14.5 |   | 78 | % |
|                                   |            |                                       |             |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

***Consolidated Results***

*Net sales.*Our consolidated net sales increased in the third quarterof 2007 compared to the third quarter of 2006. Higher net sales in North America and, to a lesser extent, in the AsiaPacific and EAME regions contributed to this overall increase.  North America experienced most of its netsales gains as a result of planned increases in the food service inventorylevels at our distributor and promotional activity in the club channel.  Net sales improved in the UK in the thirdquarter of 2007 compared to the same period in 2006 as a result of our effortsto stop product diversion.  As the amountof discounted products sold by UK diverters in 2006 has declined, the averageprice for products sold to our trade customers has increased.  We believe that most of the products divertedin the UK have been sold.  The devaluationof the U.S. dollar and the resulting favorable currency translation impact onour financial statements accounted for approximately $2.3 million of net salesin both the EAME region and to a lesser extent the Asia Pacific region.Notwithstanding the favorable impact of currency translation on net sales,unusually high sales to new distributors in Belgium and Netherlands in thirdquarter of 2006 masked net sales improvements for EAME in the third quarter of2007.  In Latin America, net salesdecreased in the third quarter of 2007 compared to the same period in 2006primarily as a result of delayed shipments caused by the conversion of Mexicofrom a distributor to a direct sales model.

*Cost of sales.* Cost of sales increased primarily due to theincrease in overall sales volumes.  Inaddition, the devaluation of the U.S. dollar and the resulting unfavorablecurrency translation impact, increased costs for corn- and lactose-based rawmaterials, increased packaging costs, increased distribution expendituresrelated to higher energy costs and the increased cost of purchasing productsfrom our German contract manufacturer for sale in countries with weakercurrencies contributed to the increased cost of sales.  Overall, gross profit as a percentage of netsales declined from 58% for the three months ended September 30, 2006 to 57%for the three months ended September 30, 2007. The increased cost of sales, expanded contract manufacturing for thirdparties, increased sales of raw materials, and sales of products todistributors at lower margins in markets that had been serviced by direct orbroker sales models in 2006 all contributed to this decline in gross profit asa percentage of sales

*Operating expenses.*Marketing and selling expensesdecreased due to lower brand support in EAME and lower overall marketingand selling administration costs due to savings from restructuringactions in North America. Net loss on long lived assets recorded in the thirdquarter of 2006 did not recur in the third quarter of 2007.   Higher brand support in the Asia Pacific regionand the impact of higher currencies against the U.S. dollar partially offsetthese improvements in operating expenses. Administration expenses decreased mainly due to lower legal costs andlower depreciation, partly offset by higher performance-based incentives.

 

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The majority of the net loss on long lived assetsreported for the third quarter 2006 relates to the license agreement withNutraSweet that allowed us to manufacture and sell products using the *NutraSweet®* trademark. The license agreement required thepurchase of an annual minimum volume of aspartame from NutraSweet to continuethe use of the trademark.  In the threemonths ended September 30, 2006, as a result of the initiation of amulti-supplier strategy for aspartame to substantially improve the costefficiency of our aspartame supply, we determined that we would not acquire theminimum purchase volume needed in 2006 to maintain the license agreement.  NutraSweet delivered written notice to us onJanuary 2, 2007 of termination of the license agreement, which was effective sixmonths after such notice.  We performedan impairment analysis of this intangible asset, which resulted in animpairment loss of $7.5 million that did not repeat in 2007.

During the third quarter of 2007, we continued ourrestructuring initiatives to improve both financial results and the long-termvalue of the business. As a result of these actions, we recorded restructuringcharges for workforce reductions of $0.2 million in the third quarter of 2007as compared to $1.4 million in the third quarter of 2006. The restructuringcharges incurred in the third quarter of 2007 relate primarily to new employeetermination costs and are expected to be substantially paid by December 31,2007. Additional information regarding restructuring charges and the related liabilitycan be found in Note 3 to the unaudited consolidated financial statementslocated elsewhere in this document.

*Interest.*Ourinterest expense decreased as a net result of lower interest bearing loansunder our Amended and Restated Credit Agreement that were in place for theentire third quarter of 2007 compared to the higher interest bearing loans inplace during the third quarter of 2006.  Offsetting this decrease was interest calculated on a higher accretedbalance on our 12 1⁄4% senior subordinated discount notes due 2014 (the “DiscountNotes”) during the third quarter of 2007.

 *Otherincome/expense, net*. The $1.2million decline in other income/expense, net from the third quarter of 2006compared to the third quarter of 2007 primarily resulted from a $0.7 milliondecrease in gain on liquidations and sales of subsidiaries, as well as a $0.7million higher currency loss on the euro-denominated debt in the third quarterof 2007 compared to the third quarter of 2006.

*Taxes.*For the three months ended September 30, 2007, werecorded a $1.3 million tax provision on income before income taxes of $0.9million and for the three months ended September 30, 2006, we recorded a $2.2million tax provision on a loss before income taxes of $13.1 million. The unusualrelationship of our tax provisions to our pre-tax income  relates to a combination of factors. Thesefactors include increased tax loss carryforwards, primarily generated in theUnited States, for which we have not recorded a tax benefit, as well as **provisionsfor future tax costs which may be incurred upon the potential repatriation ofcertain foreign earnings that are not deemed to be permanentlyreinvested. **With regard to the deferred income taxassets on the tax loss carryforwards, we determined that we have not satisfiedthe “more likely than not” test and we increased our total valuation allowanceby $5.2 million in the third quarter of 2007 to a total of $87.7 million. Wewill continue to assess the valuation allowances, and, to the extent we determinethat such allowances are no longer required, these deferred income tax assetswill be recognized in the future.

**Segment Results**

Thefollowing table presents net sales and Operating EBITDA expressedin millions of dollars for each reportable segment (totals may not footdue to rounding):

 
|                    |   | **Net Sales**                          |   | **Operating EBITDA(1)**          |   |
|-------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                    |   | **Three  Months Ended  September 30,** |   | **Better/(Worse)  than Prior   Year** |   | **Three  Months Ended  September 30,** |   | **Better/(Worse)  than Prior   Year** |   |   |
|                    |   | **2006**                               |   | **2007**                              |   | **$** |   | **%** |   | **2006** |   | **2007** |   | **$** |   | **%** |   |   |
|                    |   |                                   |   | **(in  millions)**                    |   |   |   |   |   | **(in  millions)** |   |   |   |   |
|                    |   |                                   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| North America (2)       |   | $                                      | 25.9   |                                  | $      | 29.1 |   | $ | 3.3 |   | 13 | % | $ | 9.0 |   | $ | 11.3 |   | $ | 2.3 |   | 26 | % |   |
| Operating EBITDA Margin |   |                                   |   |                                  |   |   |   |   |   | 35 | % | 39 | % | 4 | % |   |   |   |
| EAME                    |   | 27.4                                   |   | 27.9                                  |   | 0.5 |   | 2 | % | 8.1 |   | 9.9 |   | 1.8 |   | 22 | % |   |
| Operating EBITDA Margin |   |                                   |   |                                  |   |   |   |   |   | 30 | % | 35 | % | 5 | % |   |   |   |
| Latin America           |   | 9.6                                    |   | 9.5                                   |   | (0.1 | ) | (1 | )% | 3.1 |   | 2.9 |   | (0.2 | ) | (6 | )% |   |
| Operating EBITDA Margin |   |                                   |   |                                  |   |   |   |   |   | 33 | % | 31 | % | (2 | )% |   |   |   |
| Asia/Pacific            |   | 5.6                                    |   | 6.3                                   |   | 0.7 |   | 12 | % | 1.4 |   | 2.0 |   | 0.6 |   | 43 | % |   |
| Operating EBITDA Margin |   |                                   |   |                                  |   |   |   |   |   | 25 | % | 32 | % | 7 | % |   |   |   |
|                         |        |                                        |        |                                       |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)             “OperatingEBITDA” as used with respect to our operating segments is a measure upon whichwe assess the financial performance of these segments. Operating EBITDAexcludes interest expense, income tax expense and depreciation andamortization, as well as items such as restructuring expenses, certainsignificant charges related to new product development and launch costs,certain litigation costs, cost related to the transition to a new exclusivedistributor in the United States and certain other non-cash items or excludablegains or losses. Our definition of Operating EBITDA is largely driven bysimilar definitions of Bank EBITDA under our primary credit facilities.  That definition changed in the May 2007amendment of those credit facilities, and that change is reflected in ourcomputation of Operating EBITDA for the 2007 period. See Note 2 to theunaudited consolidated financial statements for a description of Operating EBITDAand a reconciliation of Operating EBITDA to income or 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 and $1.3million of negative Operating EBITDA related to a new product launch whichmanagement evaluates separately from this geographical segment for the threemonth periods ended September 30, 2006 and 2007, respectively.

***North America***

*Net sales.*  In North America, net sales improved due toincreased volumes in the food service, club and discount channels along withincreases in contract manufacturing activity. Food service increases were primarily driven by planned increases in distributorinventory to prepare for the fourth quarter sales along with expandeddistribution within the channel and increased sales of bulk products to foodservice customers.  In the discountchannel, increased distribution and sales volumes contributed to thesegains.  Promotional activity improvedsales volume in the club channel.  Theseincreases were partially offset by higher trade marketing expense in thegrocery, drug, and foods service channels along with lower consumer demand inthe grocery and drug channels.  In thegrocery channel, the transition from *NutraSweet®*to our ownvalue brand alsocontributed to thesales decline.

*Operating EBITDA.*The increase inOperating EBITDA was primarily related to the positive margin impact of highernet sales and lower marketing and general administration costs due to savingsfrom restructuring actions.  OperatingEBITDA margin improved as a result of increased sales.

***EAME***

*Net sales.  *In the EAME region, the increasein net sales was driven primarily by the UK, Middle East, South Africa and to alesser extent, France.  Net salesimproved in the UK in the third quarter of 2007 compared to the same period in2006 as a result of our efforts to stop product diversion.  As the amount of discounted products sold byUK diverters in 2006 has declined, the average price for products sold to ourtrade customers has increased.  A shiftin timing of shipments increased sales in Middle East and South Africa.   These increases were offset by decreases inBelgium and Netherlands when comparing the third quarter of 2007 to the thirdquarter of 2006.  Sales in both countriesduring the third quarter of 2006 included unusually high sales to two newdistributors in those countries.  Continued softness in consumer demandreduced sales volume in Italy.  The devaluation of the U.S. dollar and theresulting currency translation impact accounted for approximately $1.8 millionof net sales in the EAME region.

*Operating EBITDA. *Operating EBITDA and OperatingEBITDA margin increased mainly due to lower brand support primarily in Franceand the UK and reduced marketing, selling and general administrative costs duemainly to savings from restructuring actions and changes in business models inseveral markets.  The increase inOperating EBITDA margin was primarily due to a decrease in marketing, sellingand administrative expenses as a percentage of sales.

***Latin America***

*Net sales.* The decrease in netsales in Latin America resulted primarily from our conversion from ourdistributor in Mexico to a direct sales model. We have experienced shipping delays and we have not achieved fulldistribution.  In addition, deteriorationof economic conditions in Puerto Rico contributed to the decrease in thirdquarter sales along with a shift in timing of shipments to Chile andColombia.  These declines were offset byhigher sales volume in Venezuela relating to a sugar shortage and improvedexecution of promotional activity in Argentina.

 

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*Operating EBITDA.*Operating EBITDAdeclined due mainly to the adverse margin impact of lower sales volumes andincreased sales deductions.  OperatingEBITDA margin decreased primarily due to lower gross profit as a percentage ofsales and increased brand support in Argentina.

***Asia/Pacific***

*Net sales. *Net sales in the Asia/Pacificregion increased primarily due to the favorable impact of currencytranslation..  Improved sales inThailand, Malaysia, Australia and New Zealand were offset by lower sales volumein India.

*Operating EBITDA.*Operating EBITDA andOperating EBITDA margin increased primarily due to increased sales volumes andreduced selling costs related to business model changes.

**Corporate Expenses**

Corporate expenses of $5.2 million in the third quarterof 2007 were relatively flat compared to the third quarter of 2006.  Lower litigation costs were offset by higherperformance-based incentives and employee related costs in the third quarter of2007 compared to the third quarter of 2006.

***Nine Months EndedSeptember 30, 2007 Compared to Nine Months Ended September 30, 2006***

The following table sets forth certain of our company’sfinancial data for the nine month periods ended September 30, 2006 and 2007(totals may not foot due to rounding).
| ** **                        | ** ** | **Nine Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|-------------------------------------------|------------|
| ** **                        | ** ** | ** **                           | ** ** | ** **                                | ** ** | ** ** | ** ** | **Better/(Worse)** | ** ** |
|                              |       | **2006**                             |       | **2007**                                  |       | **2006** |   | **2007** |   | **than Prior Year** |   |
|                              |       | **(in millions  )**                  |       | **As % of  Net Sales**                    |       | **Dollars** |   | **%** |   |
| Net sales                         |       | $                                    | 216.7      |                                      | $          | 213.2 |   | 100 | % | 100 | % | $ | (3.6 | ) | (2 | )% |
| Cost of sales                     |       | 91.3                                 |       | 94.1                                      |       | 42 | % | 44 | % | (2.8 | ) | (3 | )% |
| Gross profit                      |       | 125.4                                |       | 119.1                                     |       | 58 | % | 56 | % | (6.3 | ) | (5 | )% |
| Operating expenses:               |       |                                 |       |                                      |       |   |   |   |   |   |   |   |   |
| Marketing and selling expenses    |       | 56.1                                 |       | 48.2                                      |       | 26 | % | 23 | % | 7.9 |   | 14 | % |
| Administration expenses           |       | 30.1                                 |       | 32.4                                      |       | 14 | % | 15 | % | (2.3 | ) | (8 | )% |
| Research and development expenses |       | 1.5                                  |       | 1.1                                       |       | 1 | % | 1 | % | 0.4 |   | 27 | % |
| Amortization of intangible assets |       | 16.7                                 |       | 16.7                                      |       | 8 | % | 8 | % | (0.1 | ) | (0 | )% |
| Transaction fees                  |       | 3.3                                  |       | —                                    |       | 2 | % | — | % | 3.3 |   | 100 | % |
| Net loss on long lived assets     |       | 7.8                                  |       | —                                    |       | 4 | % | — | % | 7.8 |   | 100 | % |
| Restructuring expenses            |       | 5.0                                  |       | 1.1                                       |       | 2 | % | 1 | % | 4.0 |   | 78 | % |
| Total operating expenses          |       | 120.5                                |       | 99.5                                      |       | 56 | % | 47 | % | 21.0 |   | 17 | % |
| Income from operations            |       | 4.9                                  |       | 19.6                                      |       | 2 | % | 9 | % | 14.8 |   | 306 | % |
| Other expenses (income):          |       |                                 |       |                                      |       |   |   |   |   |   |   |   |   |
| Interest income                   |       | (0.5                                 | )          | (0.6                                      | )          | (0 | )% | (0 | )% | 0.1 |   | 30 | % |
| Interest expense                  |       | 43.7                                 |       | 44.9                                      |       | 20 | % | 21 | % | (1.1 | ) | (3 | )% |
| Cost of refinancing               |       | 2.5                                  |       | 5.8                                       |       | 1 | % | 3 | % | (3.3 | ) | (134 | )% |
| Other expense (income), net       |       | 0.4                                  |       | (30.0                                     | )          | 0 | % | (14 | )% | 30.4 |   | 6,848 | % |
| Total other expense               |       | 46.2                                 |       | 20.1                                      |       | 21 | % | 9 | % | 26.1 |   | 56 | % |
| Income (loss) before income taxes |       | (41.4                                | )          | 0.5                                       |       | (19 | )% | 0 | % | 40.9 |   | 99 | % |
| Provision for income taxes        |       | 5.1                                  |       | 5.0                                       |       | 2 | % | 2 | % | 0.1 |   | 2 | % |
| Net income (loss)                 |       | $                                    | (46.5      | )                                         | $          | (5.6 | ) | (21 | )% | (3 | )% | $ | 41.0 |   | 88 | % |
|                                   |            |                                      |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

***Consolidated Results***

*Net sales. *Overall, net salesdeclined in the nine months ended September 30, 2007 compared to the ninemonths ended September 30, 2006.  Thedecline was related to lower sales in North America, EAME and LatinAmerica.  In North America, the salesdecline primarily related to lower sales volume and higher trade marketingspending in the grocery, drug and food service channels, as well as increasedpromotional spending in the club channel. The decline in grocery, drug and food service was exacerbated by a shiftin the timing of shipments from January 2007 to December 2006 relating to thescheduling of

 

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our annual physical inventory in early January.   In EAME, we experienced our greatest salesdeclines in the UK as a result of weaker consumer demand, the impact of diversion of product into the retailchannel and discontinued sales to certain distributors in an effort to stop thediversion.  Lower sales in France,Belgium and Hungary also contributed to the decline in the EAME region.  In LatinAmerica, the sales decrease primarily related to a sales return from ourprevious distributor in Mexico and a delay in shipping resulting from theconversion from a distributor to a direct sales model in Mexico.  These sales declines were partly offset byimproved sales in Asia Pacific due to shipments to new distributors inAustralia and India to establish beginning inventory levels, approximately $6.6million in favorable currency translation gains, improved consumer demand inthe North America club channel, increased sales in other EAME countries, mainlyPortugal and Ireland, and increased contract manufacturing activity and salesof raw materials.

*Cost of sales.* Cost of sales increased, despite the decline insales, due to sales increases in lower margin products, such as contractmanufacturing and raw materials, the impact of purchasing product from ourGerman contract manufacturer for sales in countries with weaker currencies andunfavorable raw material purchase prices. Overall, gross profit as a percentage of net sales declined from 58% forthe nine months ended September 30, 2006 to 56% for the nine months endedSeptember 30, 2007 due to the increases in costs discussed above as well asincreased trade marketing in North America and France and decreased pricing incountries converted to distributor models.

*Operating expenses.*Marketing and selling expensesdecreased due to lower brand support in North America and EAME, terminationcosts recorded in the nine months ended September 30, 2006 related to thetransition to a new distributor in the United States that did not repeat in thesame period in 2007, net loss on long lived assets recorded in the nine monthsended September 30, 2006 that did not recur in 2007 and lower overall marketingand selling administration costs due to savings from restructuring actions.These favorable impacts were partly offset by higher brand support in the AsiaPacific region and unfavorable currency impacts.  Administration expenses increased mainly dueto higher litigation, consulting and employment termination costs and the expenserelated to the termination of our Chicago office lease partly offset by lowerdepreciation and performance-based incentives. Transaction fees decreased due to $3.3 million in expenses incurred inconjunction with the Second Lien Credit Agreement in the second quarter of 2006that did not repeat in 2007.

The majority of the net loss on long lived assetsreported for the nine months ended September 30, 2006 relates to the licenseagreement with NutraSweet that allowed us to manufacture and sell productsusing the *NutraSweet®* trademark. The licenseagreement required the purchase of an annual minimum volume of aspartame fromNutraSweet to continue the use of the trademark.  During the third quarter of 2006, as a resultof the initiation of a multi-supplier strategy for aspartame to substantiallyimprove the cost efficiency of our aspartame supply, we determined that wewould not acquire the minimum purchase volume needed in 2006 to maintain thelicense agreement.  NutraSweet deliveredwritten notice to us on January 2, 2007 of termination of the licenseagreement, which was effective six months after such notice.  We performed an impairment analysis of thisintangible asset, which resulted in an impairment loss of $7.5 million that didnot repeat in 2007.

During the nine months ended September 30, 2007, wecontinued our restructuring initiatives to improve both financial results andthe long-term value of the business. As a result of these actions, we recordedrestructuring charges for workforce reductions of $1.1 million in the ninemonths ended September 30, 2007 as compared to $5.0 million in the nine monthsended September 30, 2006. The restructuring charges incurred in the nine monthsended September 30, 2007 relate primarily to new employee termination costs andare expected to be substantially paid by December 31, 2007. Additionalinformation regarding restructuring charges and the related liability can befound in Note 3 to the unaudited consolidated financial statements locatedelsewhere in this document.

*Interest.*Our interest expense increased as a result ofinterest calculated on a higher accreted balance on our Discount Notes. Interest expense for the nine months ended September 30, 2007 includesfour months of interest related to the Second Lien Credit Agreement compared tothree months during the same period in 2006. In May 2007, we refinanced and therefore terminated the Second LienCredit Agreement as described below, which resulted in a reduction of cashinterest expense.  This additional interestwas offset by decreased interest on lower revolver borrowings in 2007.

*Costs ofrefinancing. *Costs of refinancing for the nine monthsended September 30, 2007 related to the extinguishment of debt under the SecondLien Credit Agreement.  As a result ofthis transaction, a premium of $2.6 million was incurred to pay all debt andinterest outstanding under the Second Lien Credit Agreement and $3.2 million ofexisting deferred financing fees was written off.  Costs of refinancing for the nine months endedSeptember 30, 2006 related to the consummation of the Second Lien CreditAgreement and related extinguishment of debt under the previously establishedcredit agreement, which resulted in a write-off of existing deferred financingfees of $2.5 million.

 

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*Other income/expense, net*. The highly favorable varianceis attributable to the one-time cash payment received pursuant to an agreement with a thirdparty in the second quarter of 2007.  Also, in the nine months ended September 30, 2007,a $1.4 million currency loss on the euro-denominated debt was offset byfavorable balance sheet remeasurement of other foreign currency denominatedassets and liabilities.  In the ninemonths ended September 30, 2006, we recorded a loss on the euro-denominateddebt of $2.2 million, which was partly offset by a $1.0 million gain on theliquidation of the Italian subsidiary and a $0.7 million realized gain oninterest rate derivatives that expired in March 2006.

*Taxes.  *For the nine monthsended September 30, 2007, we recorded a $5.0 million tax provision on incomebefore income taxes of $0.5 million and in the nine months ended September 30,2006, we recorded a $5.1 million tax provision on a loss before income taxes of$41.4 million.  The unusual relationshipof our tax provisions to our pre-tax losses (excluding the impact of theone-time cash payment described above in the nine months ended September 30,2007 which has no tax provision) relates to a combination of factors. Thesefactors include increased tax loss carryforwards, primarily generated in theUnited States, for which we have not recorded a tax benefit, as well as **provisionsfor future tax costs which may be incurred upon the potential repatriation ofcertain foreign earnings that are not deemed to be permanentlyreinvested. **With regard to the deferred income taxassets on the U.S. tax loss carryforwards, we determined that we have notsatisfied the “more likely than not” test and increased our valuation allowanceby $7.4 million to $87.7 million in the nine months ended September 30, 2007.We will continue to assess the valuation allowances, and, to the extent wedetermine that such allowances are no longer required, these deferred incometax assets will be recognized in the future.

**Segment Results**

Thefollowing table presents net sales and Operating EBITDA expressedin millions of dollars for each reportable segment (totals may not footdue to rounding):
| ** **              | ** ** | **Net Sales**                                                | ** ** | **Operating EBITDA (1)**                      | ** ** |
|-------------------------|------------|--------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **              | ** ** | **Nine Months  Ended  September 30,**                        | ** ** | **Better/(Worse)  than Prior Year** | ** ** | **Nine Months  Ended  September 30,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **              | ** ** | **2006**                                                     | ** ** | **2007**                                      | ** ** | **$** | ** ** | **%** | ** ** | **2006** | ** ** | **2007** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **              | ** ** | **        (in millions)** | ** ** | ** **                                    | ** ** | **(in millions)** | ** ** | ** ** | ** ** |
|                    |       |                                                         |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| North America (2)       |       | $                                                            | 88.8       |                                          | $          | 85.7 |   | $ | (3.1 | ) | (4 | )% | $ | 31.7 |   | $ | 31.6 |   | $ | (0.1 | ) | 0 | % |
| Operating EBITDA Margin |       |                                                         |       |                                          |       |   |   |   |   | 36 | % | 37 | % | 1 | % |   |   |
| EAME                    |       | 88.1                                                         |       | 84.6                                          |       | (3.6 | ) | (4 | )% | 23.9 |   | 25.6 |   | 1.8 |   | 7 | % |
| Operating EBITDA Margin |       |                                                         |       |                                          |       |   |   |   |   | 27 | % | 30 | % | 3 | % |   |   |
| Latin America           |       | 24.3                                                         |       | 22.9                                          |       | (1.5 | ) | (6 | )% | 6.8 |   | 5.9 |   | 0.8 |   | (12 | )% |
| Operating EBITDA Margin |       |                                                         |       |                                          |       |   |   |   |   | 28 | % | 26 | % | (3 | )% |   |   |
| Asia/Pacific            |       | 15.5                                                         |       | 20.2                                          |       | 4.7 |   | 30 | % | 4.7 |   | 7.4 |   | 2.7 |   | 57 | % |
| Operating EBITDA Margin |       |                                                         |       |                                          |       |   |   |   |   | 31 | % | 37 | % | 17 | % |   |   |
|                         |            |                                                              |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             “Operating EBITDA” asused with respect to our operating segments is a measure upon which we assessthe financial performance of these segments. Operating EBITDA excludes interestexpense, income tax expense and depreciation and amortization, as well as itemssuch as restructuring expenses, certain significant charges related to newproduct development and launch costs, certain litigation costs, cost related tothe transition to a new exclusive distributor in the United States and certainother non-cash items or excludable gains or losses. Our definition of OperatingEBITDA is largely driven by similar definitions of Bank EBITDA under ourprimary credit facilities.  Thatdefinition changed in the May 2007 amendment of those credit facilities, andthat change is reflected in our computation of Operating EBITDA for the 2007period. See Note 2 to the unaudited consolidated financial statements for adescription of Operating EBITDA and a reconciliation of Operating EBITDA toincome or loss before income taxes. Operating EBITDA margin representsOperating EBITDA as a percentage of net sales.

(2)             North America segmentresults exclude immaterial sales and $2.7 million and $2.9 million of negativeOperating EBITDA related to a new product launch which management evaluatesseparately from this geographical segment for the nine month periods endedSeptember 30, 2006 and 2007, respectively.

***North America***

*Net sales.*  In North America, the sales decline wasprimarily related to lower sales volume and higher trade marketing

 

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spending in the grocery and drug channels, as well asincreased promotional spending in the club channel.  The decline was exacerbated by a shift in thetiming of shipments from January 2007 to December 2006 relating to thescheduling of our annual physical inventory in early January impacting grocery,drug and food service.   In the retailchannel, the transition from *NutraSweet®* to our own value brandalso contributed to the decline in sales along with decreased consumerdemand  These sales declines were partlyoffset by increased contract manufacturing activity, improved consumer demandin the club channel in response to promotional activities, improved sales incertain areas of the food service channel due to distribution gains and newproduct offerings, lower commissions, and increased volumes and distribution inthe discount channel.

*Operating EBITDA.*The slight decreasein Operating EBITDA was primarily related to the adverse margin impact of lowernet sales and unfavorable sales mix. These unfavorable impacts were partly offset by lower overall brandsupport, termination costs recorded in the nine months ended September 30, 2006related to the transition to a new distributor in the US that did not repeat inthe same period in 2007 and lower selling, marketing and general administrativecosts due to savings from restructuring actions.  Operating EBITDA margin was stable fromperiod to period.

***EAME***

*Net sales. *In the EAME region, the declinein net sales was driven primarily by the UK, France, Belgium and Hungary.  We experienced our greatest sales declines inthe UK as a result of weaker consumer demand, the impact of diversion of product into the retailchannel and discontinued sales to certain distributors in an effort to stop thediversion.  Continued softness inconsumer demand and increased trade marketing costs reduced sales in France,however overall profitability improved as compared to the first nine months of2006 The conversion of markets from directsales through subsidiaries or brokers to a distributor model typically resultsin increased net sales in the year in which the conversion occurs because thenew distributor purchases a significant amount of inventory and then results inlower margins on sales in subsequent periods. We experienced this effect in Belgium and Hungary as a result ofdistributor conversions that occurred in 2006. In addition, weaker consumer demand and higher-than-expected inventoriesat the end of 2006 contributed to lower net sales in Belgium.  These unfavorable impacts were partly offsetby favorable currency translation of approximately $5.1 million and improvedsales volumes in several other countries, mainly Portugal and Ireland.  In Portugal, unusually high inventories atDecember 31, 2005 negatively impacted the first quarter of 2006, resulting inan improvement in the year over year comparison for the first nine months of2007.

*Operating EBITDA.* Operating EBITDA increased mainly due tofavorable currency translation impacts along with lower brand support in Franceand the UK.  These positive varianceswere partially offset by the business model changes that occurred in Belgiumand Netherlands that resulted in an unusually high margin during the thirdquarter of 2006 along with the margin impact of lower sales, unfavorable rawmaterial purchase prices and the impact of purchasing product from our Germancontract manufacturer for sales in countries with weaker currencies.  The increase in Operating EBITDA margin wasprimarily due to positive balance sheet currency remeasurement impacts offoreign currency denominated net assets and reduced selling, marketing andgeneral administrative costs as a percentage of sales partly offset by lowergross margin as a percentage of sales resulting from changes in sales mix,discounted pricing in the UK and other countries converted to a distributormodel and increased pricing for raw materials.

***Latin America***

*Net sales.* The sales decreaseprimarily relates to the transition to a new business model in Mexico,including  additional accruals for salesdeductions and sales returns from our previous distributor, and a delay inshipping under the new business model. This decrease in sales was partly offset by improved sales in Venezuelamainly due to a shortage of sugar.

*Operating EBITDA.*Operating EBITDA andOperating EBITDA margin declined due to the adverse margin impact of lower netsales partly offset by reductions in brand support.

***Asia/Pacific***

*Net sales.*Net sales in theAsia/Pacific region increased primarily due to shipments to new distributors inAustralia and India to establish beginning inventory levels and favorablecurrency translation of $1.4 million. Sales also improved in Indonesia, Malaysia and Thailand.

 *Operating EBITDA.*OperatingEBITDA increased primarily due to the margin impact of increased net sales, andlower sales and general administrative costs related to business model changes,partly offset by higher brand support in

 

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Australia. Operating EBITDA margin improved as higher gross margin as a percentageof sales and lower marketing and general administrative costs as a percentageof sales outweighed the increase in brand support as a percentage of sales.

**Corporate Expenses**

Corporate expenses decreasedslightly from $19.4 million in the nine months ending September 30, 2006 to$19.3 million in the nine months ending September 30, 2007 as higher consultingand employee related costs were more than offset by lower legal fees.

**Liquidity and Capital Resources**

Ourliquidity needs are primarily met through internally generated cash flow. Asneeded, Merisant also borrows money under the revolving credit facility of theAmended and Restated Credit Agreement. Our primary uses of cash are cost ofsales, operating expenses, debt service, capital expenditures and distributionsto our stockholder. Foreign subsidiariesgenerated approximately 58% of consolidated net sales for the nine month periodended September 30, 2007, and we have relied upon the repatriation of cash fromour foreign subsidiaries to satisfy many of our domestic cash requirements. Werepatriate cash from our foreign subsidiaries to the United States primarily bymeans of an inter-company revolver note. On March 30, 2006, Merisantissued a revolver note to our Swiss subsidiary, which will mature in 2011.Merisant may borrow up to $200 million from our Swiss subsidiary during theterm of the revolver note, and we expect to repatriate cash to the UnitedStates through borrowings under this revolver note. The balance relating tothis revolving note as of September 30, 2007 was $69.3 million, consisting of$66.1 million in outstanding borrowings and $3.2 million of accrued interest.

We had$40.6 million of cash and cash equivalents as of September 30, 2007. Our cashbalance at September 30, 2007 increased 71% over the cash balance at December31, 2006 due primarily to a one-time cash payment received in 2007 pursuant toan agreement with a third party. Accounts receivable levels, time to paymentand inventory levels impact the amount of internally generated cash flow. Thefollowing table shows information with respect to accounts receivable andinventory as of December 31, 2006 and September 30, 2007.  Inventorylevels and accounts receivable remained relatively stable in the third quarterof 2007 as compared to December 31, 2006.
| ** **                        | ** ** | **December 31, 2006** | ** ** | **September 30, 2007** | ** ** |
|-----------------------------------|------------|-----------------------|------------|------------------------|------------|
|                              |       |                  |       |                   |       |
| Accounts receivable (in millions) |       | $                     | 68.0       |                   | $          | 70.5 |   |
| Days sales outstanding            |       | 83                    |       | 90                     |       |
| Inventory (in millions)           |       | $                     | 13.8       |                   | $          | 13.1 |   |
| Days sales in inventory           |       | 40                    |       | 36                     |       |

 

***Nine Months EndedSeptember 30, 2007 Compared to Nine Months Ended September 30, 2006***

For the nine months ended September 30, 2007, net cashprovided by operating activities was $26.7 million compared to $3.9 million forthe nine months ended September 30, 2006. Operating cash flows increased $22.8million versus the nine months ended September 30, 2006, due to increased netincome after adjusting for non-cash items of $42.0 million primarily due to thegain related to a one-time payment received in 2007 pursuant to an agreementwith a third party net of a decrease in the contribution from working capitalof $11.0 million.

Net cash used in investing activities totaled $2.0million for the nine months ended September 30, 2007 compared to $1.4 millionfor the nine months ended September 30, 2006 due to increased spending oncapital projects.

For the nine months endedSeptember 30, 2007, financing activities used $8.6 million in cash as comparedto $11.1 million in cash for the nine months ended September 30, 2006.  For the nine months ended September 30, 2007,cash was provided from $85.0 million in borrowings under the Amended andRestated Credit Agreement and Merisant used cash to pay its scheduled principalpayments under the Senior Credit Agreement, to pay all outstanding borrowings,interest and premium under the Second Lien Credit Agreement and to pay costsassociated with the Amended and Restated Credit Agreement.   In the nine months ended September 30, 2006,cash was provided from borrowings of $85.0 million under the Second Lien CreditAgreement and Merisant used cash mainly to repay borrowings of $16.0 millionunder the revolving loan facility of the Senior Credit Agreement, to payprincipal payments on the term loans of the Senior Credit Agreement and to payfees related to amendments to the Senior Credit Agreement.  In the nine months ended September 30, 2007,we received $0.5 million in payments to repay the outstanding principal on loanspreviously made to employees to purchase shares of our common stock.

 

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Borrowings under Merisant’s revolving loanfacility were $0 at both December 31, 2006 and September 30, 2007.

***Capital Expenditures***

Capital expenditures in 2007 are expected to be in therange of $5.0 million to $7.0 million. We believe that cash on handand internally generated cash flow, together with borrowing available underMerisant’s Amended and Restated Credit Agreement, will be sufficient to fundcapital expenditures and operations over the next 12 months.  As a result of the large amount of cash onhand we may accelerate capital expenditure programs.

***CorporateHeadquarters’ Lease***

In April 2007, we enteredinto a new operating lease for office space in Chicago and terminated ourcurrent lease and provided the required one year notice period.  We plan to move our corporate operations tothe new space in early 2008.  The newlandlord paid the lease termination fee of $0.9 million on our behalf and werecorded the related expense in the second quarter of 2007.  The new lease terminates on April 30,2024.  Current leasehold improvements andother non-transferable assets will be fully depreciated between April 2007 andthe estimated date we move into the new facility and moving costs will beexpensed as they are incurred.

***Financing***

On November 12, 2003, weissued $136.0 million stated aggregate principal amount at maturity of ourDiscount Notes and on July 11, 2003, Merisant issued $225.0 million principalamount of its Notes and refinanced its credit facility with the Senior CreditAgreement.  A portion of the proceeds ofthe Discount Notes, the Notes and the Senior Credit Agreement were used to paya dividend to our stockholders.

The Discount Notes areunsecured obligations and are subordinated in right of payments to all of ourexisting and future senior indebtedness. The Discount Notes had an initial accreted value of principal of $.551per $1 fully accreted stated principal amount at maturity.  The accreted value of principal of eachDiscount Note increases from the date of issuance until November 15, 2008 atthe rate equal to the interest rate in effect. The Discount Notes mature on May 15, 2014.  The stated rate of interest for the DiscountNotes is 121⁄4% per annum and interest is payable semiannually in arrears on May15th and November 15th, commencing May 15, 2009.

The Notes are unsecuredobligations and are subordinated in right of payment to all existing and futuresenior indebtedness of our company. The Notes mature on July 15, 2013. Thestated rate of interest for the Notes is 91⁄2% per annum and interest is payablesemiannually in arrears on January 15th and July 15th.

The Senior Credit Agreement provided for aggregate commitments of up to$310.0 million, consisting of a revolving loan facility of $35.0 million, ofwhich a portion is available at Merisant’s option in euro or dollars or in theform of letters of credit denominated in dollars or euro, as well as term loanfacilities of $275.0 million, consisting of a Euro Term Loan A of $50.0million, and a Term Loan B of $225.0 million, denominated in dollars. The EuroTerm Loan A and the revolving loan facility have a maturity of five andone-half years while the Term Loan B has a maturity of six and one-half years. TheSenior Credit Agreement is guaranteed by our company and each of Merisant’sdomestic subsidiaries. The Senior Credit Agreement and the guarantees of theguarantors were secured by a first-priority security interest in substantiallyall of Merisant’s assets and the assets of the guarantors.

 

On June 23,2006, Merisant entered into the Second Lien Credit Agreement, the borrowingsunder which were substantially used to pay down amounts outstanding under theSenior Credit Agreement.  The Second LienCredit Agreement increased the aggregate principal amount of our indebtednessby $7.2 million and increased our interest expense.  Merisant’s loans outstanding under the SeniorCredit Agreement had a weighted average interest rate of approximately 9.0% perannum prior to the closing of the Second Lien Credit Agreement.  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.

On May9, 2007, Merisant amended and restated its Senior Credit Agreement (the “Amendedand Restated Credit Agreement”), which, among other things, increased by $85.0million the principal amount of Tranche B Term Loans that could be borrowed byMerisant under the facility.  Merisantpaid $2.5 million in fees and expenses related to this amendment andrestatement which were deferred and are being amortized over the term of therelated debt. Upon closing, Merisant

 

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borrowed the full$85.0 million of additional Tranche B Term Loans and used the proceeds pluscash on hand to prepay the principal of all loans outstanding under the SecondLien Credit Agreement totaling $85.0 million, plus all outstanding interest of$1.4 million and a premium of $2.6 million, or $89.0 million.  The Second Lien Credit Agreement has beenterminated as a result of the transaction and there was no increase in Merisant’slong term debt.  In addition to theincurrence of fees, this transaction resulted in a write-off of existingdeferred financing fees relating to the extinguishment of previouslyoutstanding debt in the amount of $3.2 million.

Uponclosing of the above transaction and execution of the related amendment, theinterest rate on all term loans and revolving loans outstanding under theAmended and Restated Credit Agreement increased from euro-LIBOR and LIBOR plus325 basis points per annum to euro-LIBOR and LIBOR plus 350 basis points perannum.  As a result of the termination ofthe Second Lien Credit Facility, Merisant’s effective interest rate on variableinterest rate debt decreased from 10.63% per annum prior to the closing of thistransaction to 8.73% per annum subsequent to this transaction.

As ofSeptember 30, 2007, unamortized deferred financing cost related to enteringinto the Senior Credit Agreement, the issuance of the Notes in July 2003,the issuance of the Discount Notes in November 2003, the 2005 registeredexchange offer with respect to the Notes and the Discount Notes,  the execution of any subsequent amendments tothe Senior Credit Agreement and the execution of the Amended and RestatedCredit Agreement was approximately $12.3 million and is being amortized inaccordance with the terms of the respective debt instruments.

**Bank EBITDA**.  The Amendedand Restated Credit Agreement requires Merisant to maintain compliance with aconsolidated first-lien leverage ratio covenant, a consolidated leverage ratiocovenant and a consolidated interest coverage ratio covenant. These ratios aremeasured on the basis of Bank EBITDA for the four fiscal quarters ending atleast 45 days prior to the payment date. Bank EBITDA is discussed here because it is the measure upon which thecovenants contained in the Amended and Restated Credit Agreement aremeasured.  However, Bank EBITDA is not ameasure of liquidity under GAAP. Accordingly, while providing usefulinformation with respect to assessing compliance with covenants under ourprimary debt obligations, this measure should not be considered in isolationfrom, or as a substitute for, consolidated statement of cash flow data preparedin accordance 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.

Bank EBITDA as defined under the Amended and RestatedCredit Agreement excludes interest expense, income tax and gross receipts taxexpense, depreciation and amortization as well as certain other expenses andnon-cash items, including:

•                                          any extraordinary, unusual ornon-recurring non-cash expenses or losses (including non-cash losses on salesof assets outside of the ordinary course of business);

•                                          non-cash contributions and other non-cashcompensation expense;

•                                          non-cash losses attributable to equity innon-consolidated subsidiaries;

•                                          transaction costs associated with the2003 recapitalization transaction which are expensed and not amortized;

•                                          any non-cash foreign currency translationadjustments;

•                                          any extraordinary or non-recurring cashlosses or expenses arising from restructuring not to exceed in theaggregate  (A) if such period ends priorto January 1, 2006, $14,600,000, or (B) if such period begins on or afterJanuary 1, 2006, (x) $11,000,000 with respect to any such non-recurring cashlosses or expenses 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 Heinz toACH as Merisant’s exclusive distributor in the United States; and (z) any cashexpenses incurred in connection with (i) any waiver of a default or event ofdefault and any amendment to the Senior Credit Agreement including the fees andexpenses of any attorneys and financial advisers retained by the administrativeagent pursuant thereto with respect to any such waiver or amendment and (ii)the negotiation, execution and closing of the Second Lien Credit Agreement andany waiver of a default or event of default and any amendment to the SecondLien Credit Agreement including the fees and expenses of any attorneys andfinancial advisers retained by the administrative agent with respect to anysuch waiver or amendment;

 

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•                                          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®*trademark in an amount not to exceed in the aggregate $3,000,000 and prior toJanuary 1, 2009 in an amount not to exceed in the aggregate $15,000,000; and

•                                          expenses incurred between January 1, 2007and December 31, 2007 in connection with our litigation against McNeil andMcNeil-PPC, Inc. in an amount not to exceed $4,000,000.

Bank EBITDA for the nine monthsended September 30, 2007 under the Amended and Restated Credit Agreement was$51.4 million as compared to $51.8 million for the nine months ended September30, 2006, adjusted to reflect litigation costs on a comparable basis with thecurrent definition of Bank EBITDA. Merisant was compliance with the covenants under the Amended andRestated Credit Agreement at September 30, 2007.

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, 2007** | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                | ** ** | **(in millions)**                          | ** ** |
| Net cash provided by operating activities                                 |       | $                                          | 26.7       |   |
| Provision for income taxes, net of deferred income tax provision          |       | 1.9                                        |       |
| Interest expense, net of non-cash interest expense                        |       | 31.3                                       |       |
| Restructuring expenses (a)                                                |       | 1.1                                        |       |
| Cash costs of refinancing                                                 |       | 2.6                                        |       |
| Other non-cash items and gains or losses excludable from Bank EBITDA  (b) |       | (22.0                                      | )          |
| Equity in (income) loss of affiliates                                     |       | 0.1                                        |       |
| Net change in operating assets and liabilities                            |       | 9.7                                        |       |
| Bank EBITDA                                                               |       | $                                          | 51.4       |   |

 

(a)          The chargesprincipally relate to planned employee termination costs that have beenannounced 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)         Includes the non-cash charge related to thetermination of the Chicago lease, expenses related to our litigation againstMcNeil and costs related to the development and commercialization of ourall-natural low-calorie sweetener. Combined, these items were more than offset by a one-time cash paymentreceived pursuant to an agreement with a third party.

***ForwardLooking Statements***

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

These 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 thosecontemplated by such forward-looking statements. We disclaim any duty to updateany forward-looking statements. Some of the factors that may cause actualresults, developments and business decisions to differ materially fromthose contemplated by suchforward-looking statements include the following:  changes in consumer preferences andnutritional and health-related concerns; increased competition; changes in theterms on which we may obtain aspartame; damaged consumer confidence in ourproducts as a result of health-related allegations; product liability claims;fluctuations in exchange rates and other currency risks; disruptions in ourbusiness as a result of strikes or work stoppages; changes in our relationshipwith our largest distributor; and changes in economic and political conditionsin the countries in which we market and produce our products.

 

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**Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk**

***Foreign Operations***

Withapproximately 60% and 61% of consolidated total net sales generated bysubsidiaries outside of the United States in the nine months ended September30, 2006 and September 30, 2007, respectively, our ability to obtain fundsnecessary to meet our domestic obligations is subject to applicable laws,foreign taxes and intercompany pricing laws, including those relating to theflow of funds between our foreign affiliates pursuant to, for example, purchaseagreements, licensing agreements or other arrangements.  Merisant repatriates cash from its foreignsubsidiaries to the United States primarily by means of an inter-companyrevolver note.  On March 30, 2006,Merisant issued a revolver note to its Swiss subsidiary, which will mature in2011. Merisant may borrow up to $200 million from its Swiss subsidiary duringthe term of the revolver note.  Merisantis repatriating cash to the United States through borrowings under thisrevolver note, which total $69.3 million, including $3.2 million of interest,as of September 30, 2007. Regulators in the United States and other foreigncountries where we operate may closely monitor our corporate structure and howit affects intercompany fund transfers.

In addition, as of September30, 2007, foreign affiliates comprised approximately 45% of our consolidatedtotal assets.  Accordingly, we haveexperienced and will continue to be exposed to foreign exchange risk.

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

Inherent in our operationsare certain risks related to changes in foreign currency exchange rates andinterest rates. We bear foreign exchange risk because a majority of ourfinancing was obtained in U.S. dollars although a significant portion ofrevenues are earned in the various currencies of our foreign subsidiaries’operations.  Under the Amended andRestated Credit Agreement, a portion of our financing is denominated ineuro.  This euro-denominated loandecreases our transactional exposure to euro exchange fluctuations until theeuro principal and interest are repaid. Decreases in sales and earnings from euro denominated countries thatresult from the euro weakening against the U.S. dollar create an offset to thedecrease in the euro denominated debt obligations (i.e., foreign currencytransaction gain) and interest expense that also results from such a decreasein exchange rate.  Likewise, any increasein sales and earnings from the euro denominated countries that results from astrengthening euro against the U.S. dollar creates an offset to the increase inthe euro denominated debt obligations (i.e., foreign currency transaction loss)and interest expense that results from such an exchange rate increase.

A significant portion ofMerisant’s debt bears interest at a fixed rate. Interest rate exposure results from Merisant’s floating rate borrowings.For the nine months ended September 30, 2007, a 1.0% per annum increase ordecrease in interest rates would have resulted in an increase or decrease incash interest costs for Merisant’s variable rate term loans of approximately$1.5 million.

In the normal course of business, we identifyrisks relating to foreign currency exchange rates and interest rates andmitigate their financial impact through corporate policies and, at times,through the use of derivative financial instruments.  We use derivatives only where there is anunderlying exposure and do not use them for trading or speculative purposes.The counter parties to the hedging activities would be highly rated financialinstitutions. We did not have any foreign currency forward exchange contractsor interest rate derivatives outstanding at September 30, 2007.

***Inflation Risk***

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

**Item4.  Controls and Procedures**

# *Evaluationof Disclosure Controls and Procedures*

We conducted anevaluation, under the supervision of the Chief Executive Officer and InterimChief Financial Officer, of the effectiveness as of December 31, 2006 ofour disclosure controls and procedures (as defined in Exchange ActRule 15d-15(e)). Based on this evaluation, the Chief Executive Officer andInterim Chief Financial Officer had concluded that, as of December 31,2006, our disclosure controls and procedures needed improvement and were noteffective to provide

 

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reasonable assurance that information required to bedisclosed by us in reports that we file with the SEC or submit under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms. In making this conclusion,the Chief Executive Officer and Interim Chief Financial Officer considered thepreviously disclosed material weaknesses in our internal controls overfinancial reporting and the status of the corrective actions to remedy thosematerial weaknesses. Although the Chief Executive Officer and the Interim ChiefFinancial Officer noted certain incremental improvements during the year endedDecember 31, 2006, we had not formally documented and tested all of ourpotentially remediated controls to affirmatively conclude that such controlswere operating effectively. In our reevaluation of our disclosure controls andprocedures as of September 30, 2007, the Chief Executive Officer and the ChiefFinancial Officer noted that our company had formally documented and tested allof our potentially remediated controls and affirmatively concluded that suchcontrols are operating effectively.

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

***Changes in Internal Control Over Financial Reporting***

Therehave been no changes in our internal control over financial reporting duringthe most recently completed fiscal quarter that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.  As disclosed in our Annual Report on Form 10-K for the yearended December 31, 2006, we have taken numerous corrective actions over thelast three fiscal years with respect to certain matters that our former auditorconsidered to be material weaknesses in connection with its audits of ourfinancial statements for the years ended December 31, 2003 and 2004.  Inthe second quarter of 2007, we completed an internal audit which concluded thatthose material weaknesses no longer exist.

**PART II**—**OTHER INFORMATION**

**Item 1.Legal Proceedings**

From time to time, our company is involved inlitigation concerning its business operations. We disclosed material developments in reported legal proceedings in ourQuarterly Report on Form 10-Q for the period ended June 30, 2007.

Ourcompany is subject to various claims, pending and possible legal actions forproduct liability and other damages, and other matters arising out of theconduct of our business, including tax uncertainties arising from doingbusiness in various European jurisdictions. We believe, based on currentknowledge and consultation with counsel,that the outcome of such claims and actions will not have a material adverseeffect on our consolidated financial position or results of operations.

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

The most significant riskfactors applicable to our company are described in Part I, Item 1A “RiskFactors” of our Annual Report on Form 10-K for the year ended December 31,2006. There have been no material changes from the risk factors previouslydisclosed in our report on Form 10-K.

**Item 6.    Exhibits**
| **Exhibit No.** | ** ** | **Description**                                                                                           |
|-----------------|------------|-----------------------------------------------------------------------------------------------------------|
| 31.1            |       | Certificate of Paul Block pursuant to Rule 15d-14  under the Securities Exchange Act of 1934.        |
|            |       |                                                                                                      |
| 31.2            |       | Certificate of Diana S. Ferguson pursuant to  Rule 15d-14 under the Securities Exchange Act of 1934. |
|            |       |                                                                                                      |
| 32.1            |       | Certificate of Paul Block pursuant to 18 U.S.C.  Section 1350.                                       |
|            |       |                                                                                                      |
| 32.2            |       | Certificate of Diana S. Ferguson pursuant to 18  U.S.C. Section 1350.                                |

 

 

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SIGNATURES

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                    | MERISANT WORLDWIDE, INC.                  |                  |
|-------------------------|-------------------------------------------|-----------------------|
|                    |                                      |
|                    |                                      |
| Date: November 13, 2007 | By:                                       | /s/ Diana S. Ferguson |   |
|                    | Diana S. Ferguson                         |
|                    | Chief Financial Officer                   |
|                    | (on behalf of the Company and in capacity |
|                    | of principal financial officer)           |
|                         |                                           |                       |  |  |

 

 

30

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