**UNITED STATES****SECURITIES 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 March 31, 2008** |
| ** **                                              | ** ** | ** **                                                                                              |
| **OR**                                                  |
| ** **                                              | ** ** | ** **                                                                                              |
| **o**                                                   | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from             to**

 

**Commission File Number:  333-114102**

 

**Merisant Worldwide, Inc.**

(Exact Name of Registrant as Specified in its Charter)

 

| **Delaware**                                                    |   | **52-2219000**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
| (State or Other  Jurisdiction of Incorporation or Organization) |   | (I.R.S. Employer  Identification Number) |
|                                                            |   |                                     |
| **33  North Dearborn**                                          |   |                                     |
| **Chicago,  Illinois**                                          |   | **60602**                                |
| (Address of Principal  Executive Offices)                       |   | (Zip Code)                               |

 

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

 

Former name, former address and former fiscal year, if changed sincelast report:

**Not applicable.**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.   Yes  o   No  x

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer  o                     |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer x                        |   | Smaller reporting  company o |
| (Do not check if a  smaller reporting company) |   |                              |

 

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

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.

 

As of May 14,2008, the registrant had 9,086,495 shares of common stock, par value $0.01 pershare, outstanding.

 

This Quarterly Report is being filed pursuant to arequirement contained in the indenture governing Merisant Worldwide Inc.’s 121⁄4% Senior Subordinated Discount Notes due 2014.

 

 

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**MERISANT WORLDWIDE, INC.**

 

**INDEX TO REPORT**

 

**FOR THE QUARTER ENDED MARCH 31, 2008**

 
|                                             | ** **                                                                                                                       | **Page** |
|---------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|----------|
| **PART I—FINANCIAL  INFORMATION** | 3                                                                                                                                |
|                                        |                                                                                                                             |     |
| Item 1.                                     | Financial Statements of  Merisant Worldwide, Inc.                                                                           | 3        |
|                                        |                                                                                                                             |     |
|                                        | Unaudited  Consolidated Balance Sheets at December 31, 2007 and March 31, 2008                                         | 3        |
|                                        |                                                                                                                             |     |
|                                        | Unaudited  Consolidated Statements of Operations and Comprehensive Loss for the Three  Months Ended March 31, 2007 and 2008 | 4        |
|                                        |                                                                                                                             |     |
|                                        | Unaudited  Consolidated Statement of Stockholders’ Deficit for the Three Months Ended  March 31, 2008                  | 5        |
|                                        |                                                                                                                             |     |
|                                        | Unaudited  Consolidated Statements of Cash Flows for the Three Months Ended  March 31, 2007 and 2008                        | 6        |
|                                        |                                                                                                                             |     |
|                                        | Notes  to Unaudited Consolidated Financial Statements                                                                            | 7        |
|                                        |                                                                                                                             |     |
| Item 2.                                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                      | 12       |
|                                        |                                                                                                                             |     |
| Item 3.                                     | Quantitative  and Qualitative Disclosures About Market Risk                                                                      | 21       |
|                                        |                                                                                                                             |     |
| Item 4T.                                    | Controls and  Procedures                                                                                                         | 22       |
|                                        |                                                                                                                             |     |
| PART II—OTHER  INFORMATION        | 22                                                                                                                               |
|                                        |                                                                                                                             |     |
| Item 1.                                     | Legal Proceedings                                                                                                                | 22       |
|                                        |                                                                                                                             |     |
| Item 1A.                                    | Risk Factors                                                                                                                     | 23       |
|                                        |                                                                                                                             |     |
| Item 6.                                     | Exhibits                                                                                                                         | 23       |
|                                             |                                                                                                                                  |          |  |

 

2

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**PART I**—**FINANCIAL INFORMATION**

 

**Item 1. Financial Statements ofMerisant Worldwide, Inc.**

 

**MERISANT WORLDWIDE, INC.Unaudited Consolidated Balance Sheets(Dollars In Thousands, Except Per Share Amount)**

 
| ** **                                                                                                                    | ** ** | **At  December  31, 2007** | ** ** | **At March  31,  2008** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|------------------------------|------------|
| **ASSETS**                                                                                                                    |       |                       |       |                         |       |
| Cash and cash  equivalents                                                                                                    |       | $                          | 51,050     |                         | $          | 45,977 |   |
| Trade accounts  receivable, net of allowances of $854 and $742, respectively                                                  |       | 74,410                     |       | 71,501                       |       |
| Other  receivables                                                                                                            |       | 9,128                      |       | 9,499                        |       |
| Inventories                                                                                                                   |       | 13,540                     |       | 20,702                       |       |
| Prepaid expenses  and other assets                                                                                            |       | 6,269                      |       | 6,038                        |       |
| Current portion  of note receivable from director                                                                             |       | 970                        |       | 1,970                        |       |
| Deferred income  tax assets                                                                                                   |       | 1,620                      |       | 1,723                        |       |
| Total current  assets                                                                                                         |       | 156,987                    |       | 157,410                      |       |
| Property and  equipment, net                                                                                                  |       | 23,509                     |       | 25,096                       |       |
| Trademarks and  other intangible assets, less accumulated amortization and impairment of  $164,022 and $169,286, respectively |       | 160,697                    |       | 155,433                      |       |
| Goodwill                                                                                                                      |       | 107,209                    |       | 107,209                      |       |
| Deferred financing  costs, less accumulated amortization of $11,186 and $12,097 respectively                                  |       | 11,464                     |       | 10,553                       |       |
| Non-current  portion of note receivable from director                                                                         |       | 1,822                      |       | 851                          |       |
| Investment in  equity affiliate                                                                                               |       | 264                        |       | 327                          |       |
| Other  non-current assets                                                                                                     |       | 880                        |       | 836                          |       |
| Total assets                                                                                                                  |       | $                          | 462,832    |                         | $          | 457,715 |   |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIT**                                                                               |       |                       |       |                         |       |
| Accounts payable                                                                                                              |       | $                          | 22,618     |                         | $          | 20,529 |   |
| Income taxes  payable                                                                                                         |       | 1,031                      |       | 1,299                        |       |
| Accrued interest  expense                                                                                                     |       | 12,727                     |       | 6,784                        |       |
| Accrued  trademarketing and consumer promotions                                                                               |       | 14,353                     |       | 17,168                       |       |
| Accrued  incentives                                                                                                           |       | 8,024                      |       | 2,873                        |       |
| Accrued expenses  and other liabilities                                                                                       |       | 11,069                     |       | 12,392                       |       |
| Current  maturities of long-term obligations                                                                                  |       | 12,178                     |       | 37,200                       |       |
| Total current  liabilities                                                                                                    |       | 82,000                     |       | 98,245                       |       |
| Long-term  obligations, net of current maturities                                                                             |       | 540,446                    |       | 525,512                      |       |
| Deferred income  tax liabilities                                                                                              |       | 23,701                     |       | 25,116                       |       |
| Other  liabilities                                                                                                            |       | 6,954                      |       | 7,414                        |       |
| Total  liabilities                                                                                                            |       | 653,101                    |       | 656,287                      |       |
| Commitments and  contingencies (Note 7)                                                                                  |       |                       |       |                         |       |
| Stockholders’  Deficit:                                                                                                  |       |                       |       |                         |       |
| Common stock,  $0.01 par value, 10,000,000 shares authorized, 9,169,552 shares issued and  9,086,495 shares outstanding.      |       | 91                         |       | 91                           |       |
| Due for purchase  of shares                                                                                                   |       | (107                       | )          | (86                          | )          |
| Retained deficit                                                                                                              |       | (185,434                   | )          | (195,734                     | )          |
| Accumulated  other comprehensive loss                                                                                         |       | (3,038                     | )          | (1,062                       | )          |
|                                                                                                                          |       | (188,488                   | )          | (196,791                     | )          |
| Less cost of  treasury stock (83,057 and 83,057 shares, respectively)                                                         |       | (1,781                     | )          | (1,781                       | )          |
| Total  stockholders’ deficit                                                                                             |       | (190,269                   | )          | (198,572                     | )          |
| Total  liabilities and stockholders’ deficit                                                                             |       | $                          | 462,832    |                         | $          | 457,715 |   |

 

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

 

3

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**MERISANT WORLDWIDE, INC.****Unaudited Consolidated Statements of Operationsand****Comprehensive Loss****(Dollars In Thousands)**

 
| ** **                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------|------------|--------------------------------------------------|------------|
| ** **                         | ** ** | **2007**                                         | ** ** | **2008** | ** ** |
| Net sales                          |       | $                                                | 69,313     |   | $ | 68,920 |   |
| Cost of sales                      |       | 30,742                                           |       | 32,925 |   |
| Gross profit                       |       | 38,571                                           |       | 35,995 |   |
| Operating  expenses:               |       |                                             |       |   |   |
| Marketing and  selling expenses    |       | 15,247                                           |       | 14,385 |   |
| Administration  expenses           |       | 11,936                                           |       | 10,023 |   |
| Amortization of  intangible assets |       | 5,727                                            |       | 5,264 |   |
| Restructuring  expenses            |       | 560                                              |       | 115 |   |
| Total operating  expenses          |       | 33,470                                           |       | 29,787 |   |
| Income from  operations            |       | 5,101                                            |       | 6,208 |   |
| Other expense  (income):           |       |                                             |       |   |   |
| Interest income                    |       | (205                                             | )          | (304 | ) |
| Interest expense                   |       | 15,393                                           |       | 13,923 |   |
| Other expense,  net                |       | 139                                              |       | 801 |   |
| Total other  expense               |       | 15,327                                           |       | 14,420 |   |
| Loss before  income taxes          |       | (10,266                                          | )          | (8,212 | ) |
| Provision for  income taxes        |       | 1,846                                            |       | 2,088 |   |
| Net loss                           |       | $                                                | (12,072    | ) | $ | (10,300 | ) |
|                               |       |                                             |       |   |   |
| Net loss from above                |       | $                                                | (12,072    | ) | $ | (10,300 | ) |
| Other  comprehensive income        |       | 303                                              |       | 1,976 |   |
| Total  comprehensive loss          |       | $                                                | (11,769    | ) | $ | (8,324 | ) |

 

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

 

4

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**MERISANT WORLDWIDE, INC.****Unaudited Consolidated Statement of Stockholders’Deficit****(Dollars In Thousands)**

 
| ** **                                       | ** ** | **Common  Stock** | ** ** | **Due for  Purchase of  Shares** | ** ** | **Retained  Earnings  (Deficit)** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Treasury  Stock at   cost** | ** ** | **Total**    | ** ** |
|--------------------------------------------------|------------|-------------------|------------|--------------------------------------------|------------|-----------------------------------|------------|---------------------------------------------|------------|-----------------------------------------|------------|--------------|------------|
| Balance at December 31, 2007 |       | $                 | 91         |                                       | $          | (107                              | )          | $                                           | (185,434   | )                                       | $          |  (3,038 | )          | $ |  (1,781 | ) | $ |  (190,269 | ) |
| Foreign currency  translation adjustment         |       | —            |       | —                                     |       | —                            |       | 1,976                                       |       | —                                  |       | 1,976        |       |
| Settlement of  loan for purchase of shares       |       | —            |       | 21                                         |       | —                            |       | —                                      |       | —                                  |       | 21           |       |
| Net loss                                         |       | —            |       | —                                     |       | (10,300                           | )          | —                                      |       | —                                  |       | (10,300      | )          |
| Balance at  March 31, 2008                  |       | $                 | 91         |                                       | $          | (86                               | )          | $                                           | (195,734   | )                                       | $          | (1,062       | )          | (1,781 | )  | $ | (198,572 | ) |
|                                                  |            |                   |            |                                            |            |                                   |            |                                             |            |                                         |            |              |            |  |  |  |  |  |  |

 

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

 

5

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**MERISANT WORLDWIDE, INC.Unaudited Consolidated Statements of Cash Flows(Dollars In Thousands)**

 
| ** **                                                                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2007**                                         | ** ** | **2008** | ** ** |
| **Operating  Activities**                                                        |       |                                             |       |   |   |
| Net loss                                                                         |       | $                                                | (12,072    | ) | $ | (10,300 | ) |
| Adjustments to reconcile  net loss to net cash provided by operating activities: |       |                                             |       |   |   |
| Depreciation                                                                     |       | 1,558                                            |       | 1,226 |   |
| Amortization of  intangible assets                                               |       | 5,727                                            |       | 5,264 |   |
| Amortization of  deferred financing costs                                        |       | 936                                              |       | 911 |   |
| Interest  accretion on senior subordinated discount notes                        |       | 3,310                                            |       | 3,728 |   |
| Euro-denominated  loan foreign exchange loss                                     |       | 301                                              |       | 961 |   |
| Equity in income  of affiliate                                                   |       | (38                                              | )          | (63 | ) |
| Deferred income  tax provision                                                   |       | 1,288                                            |       | 1,342 |   |
| Changes in  operating assets and liabilities:                                    |       |                                             |       |   |   |
| Trade accounts  receivable                                                       |       | 5,290                                            |       | 4,473 |   |
| Other  receivables                                                               |       | (11                                              | )          | (245 | ) |
| Inventories                                                                      |       | 273                                              |       | (6,071 | ) |
| Prepaid expenses  and other assets                                               |       | 1,058                                            |       | 307 |   |
| Accounts payable                                                                 |       | 1,876                                            |       | (2,283 | ) |
| Accrued expenses  and other                                                      |       | (8,882                                           | )          | (7,173 | ) |
| Net cash  provided by (used in) operating activities                             |       | 614                                              |       | (7,923 | ) |
| **Investing  Activities**                                                        |       |                                             |       |   |   |
| Proceeds from  sale of property and equipment                                    |       | —                                           |       | 22 |   |
| Purchases of  property and equipment                                             |       | (209                                             | )          | (2,822 | ) |
| Net cash used in  investing activities                                           |       | (209                                             | )          | (2,800 | ) |
| **Financing  Activities**                                                        |       |                                             |       |   |   |
| Net borrowings  under revolving credit facility                                  |       | —                                           |       | 8,000 |   |
| Principal  payments on long-term obligations                                     |       | (2,148                                           | )          | (2,585 | ) |
| Settlement of  loans for purchase of shares                                      |       | 179                                              |       | 21 |   |
| Net cash  provided by (used in) financing activities                             |       | (1,969                                           | )          | 5,436 |   |
| Effect of  exchange rate on cash and cash equivalents                            |       | 118                                              |       | 214 |   |
| Net decrease in  cash and cash equivalents                                       |       | (1,446                                           | )          | (5,073 | ) |
| Cash and cash  equivalents at beginning of period                                |       | 23,753                                           |       | 51,050 |   |
| Cash and cash  equivalents at end of period                                      |       | $                                                | 22,307     |   | $ | 45,977 |   |

 

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

 

6

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** **

**MERISANT WORLDWIDE, INC.****Notes to Unaudited Consolidated FinancialStatements****(Dollars In Thousands)**

 

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

 

The consolidated financial statementsand notes do not contain certain information included in the annualconsolidated financial statements and notes of Merisant Worldwide, Inc.and subsidiaries. Unless otherwise indicated or unless the context otherwiserequires, all references to the “Company” mean Merisant Worldwide, Inc.and its consolidated subsidiaries. The consolidated balance sheet at December 31,2007 was derived from the Company’s audited consolidated financial statements,but does not include all disclosures required by generally accepted accountingprinciples in the United States of America (“GAAP”). The remaining consolidatedfinancial statements are unaudited. In the opinion of management, all normal,recurring adjustments necessary for a fair presentation of such unauditedfinancial statements have been included therein. For interim reportingpurposes, certain marketing and advertising expenses are charged to results ofoperations as a percentage of sales. Interim results may not be indicative ofresults for a full year. These unaudited consolidated financial statements andnotes should be read in conjunction with the Company’s annual consolidatedfinancial statements.

 

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

 

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

 

The Company manufactures and marketsprimarily low-calorie tabletop sweeteners globally. Therefore, the Company’s reportablesegments are 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, certain litigation costsand certain other non-cash or excludable charges or losses. Other expense(income), net, as reported in the unaudited consolidated financial statements,is included in Operating EBITDA of the respective reportable segments, exceptfor the portion of other expense (income), net that relates to the foreigncurrency transaction gains or losses associated with the Company’seuro-denominated debt (see Note 5) and unrealized gains or losses on derivativeinstruments. Corporate expenses include corporate staff and related amounts.Corporate expenses, interest and other expenses and the provision for incometaxes are centrally managed and, accordingly, such items are not presented bysegment since they are excluded from the measure of segment performancereviewed by management. The Company launched a new product line in NorthAmerica in the first quarter of 2006 which management evaluates and managesseparately from its other North American operations. As such, this item is alsoexcluded from the measure of segment performance reviewed by management. TheCompany’s definition of Operating EBITDA is largely driven by similardefinitions of Bank EBITDA under its primary credit facilities. The definitionof Bank EBITDA was adjusted in the May 2007 amendment of those facilitiesand that change is reflected prospectively in the Company’s computation ofOperating EBITDA. The Company’s assets, which are principally in the UnitedStates and Europe, are also managed geographically. A summary of the Company’sresults of operations by reportable segment for the three months ended March 31,2007 and 2008 is as follows:

 

7

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**For the Three Months Ended March 31, 2007**

 
| ** **                                     | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| Total net sales  for reportable segments       |       | $                  | 28,937     |     | $          | 26,576             |       | $                  | 5,297      |             | $          | 8,528 |   | $ | 69,338 |   |
| Plus: Net sales  related to new product launch |       |               |       |     |       |               |       |               |       | (25              | )          |
| Total  consolidated net sales                  |       |               |       |     |       |               |       |               |       | $                | 69,313     |   |
|                                           |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                               |       | $                  | 10,282     |     | $          | 6,977              |       | $                  | 1,094      |             | $          | 4,091 |   | $ | 22,444 |   |
| Less (plus):                                   |       |               |       |     |       |               |       |               |       |             |       |
| Corporate  expenses                            |       |               |       |     |       |               |       |               |       | 9,312            |       |
| Restructuring  expense                         |       |               |       |     |       |               |       |               |       | 560              |       |
| Depreciation  expense                          |       |               |       |     |       |               |       |               |       | 1,558            |       |
| Amortization  expense                          |       |               |       |     |       |               |       |               |       | 5,727            |       |
| Currency loss on  euro debt                    |       |               |       |     |       |               |       |               |       | 301              |       |
| Other non-cash  expense                        |       |               |       |     |       |               |       |               |       | 24               |       |
| Other expense,  net                            |       |               |       |     |       |               |       |               |       | (139             | )          |
| Income from  operations                        |       |               |       |     |       |               |       |               |       | 5,101            |       |
| Interest  expense, net                         |       |               |       |     |       |               |       |               |       | 15,188           |       |
| Other expense,  net                            |       |               |       |     |       |               |       |               |       | 139              |       |
| Loss before  income taxes                      |       |               |       |     |       |               |       |               |       | $                | (10,226    | ) |

 

**For the Three Months Ended March 31, 2008**

 
| ** **                                                   | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| Total net sales  for reportable segments                     |       | $                  | 23,194     |     | $          | 32,182             |       | $                  | 7,635      |             | $          | 5,894 |   | $ | 68,905 |   |
| Plus: Net sales  related to new product launch               |       |               |       |     |       |               |       |               |       | 15               |       |
| Total  consolidated net sales                                |       |               |       |     |       |               |       |               |       | $                | 68,920     |   |
|                                                         |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                             |       | $                  | 6,215      |     | $          | 10,580             |       | $                  | 2,201      |             | $          | 2,500 |   | $ | 21,496 |   |
| Less (plus):                                                 |       |               |       |     |       |               |       |               |       |             |       |
| Corporate  expenses                                          |       |               |       |     |       |               |       |               |       | 6,227            |       |
| Restructuring  and specified project implementation costs    |       |               |       |     |       |               |       |               |       | 611              |       |
| Depreciation  expense                                        |       |               |       |     |       |               |       |               |       | 1,226            |       |
| Amortization expense                                         |       |               |       |     |       |               |       |               |       | 5,264            |       |
| Currency loss on  euro debt                                  |       |               |       |     |       |               |       |               |       | 961              |       |
| Loss related to  new product launch                          |       |               |       |     |       |               |       |               |       | 1,306            |       |
| Expenses related  to credit agreement amendments and waivers |       |               |       |     |       |               |       |               |       | 466              |       |
| Other non-cash  expense                                      |       |               |       |     |       |               |       |               |       | 28               |       |
| Other expense,  net                                          |       |               |       |     |       |               |       |               |       | (801             | )          |
| Income from  operations                                      |       |               |       |     |       |               |       |               |       | 6,208            |       |
| Interest  expense, net                                       |       |               |       |     |       |               |       |               |       | 13,619           |       |
| Other expense,  net                                          |       |               |       |     |       |               |       |               |       | 801              |       |
| Loss before  income taxes                                    |       |               |       |     |       |               |       |               |       | $                | (8,212     | ) |

 

8

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

 

During the three monthsended March 31, 2008, the Company continued to evaluate opportunities toincrease efficiency and reduce costs. This review resulted in the continuationof workforce reductions and planned changes in the Company’s global businessmodel. These actions are designed to improve both financial results and thelong-term value of the business. Restructuring expenses for workforcereductions of $560 and $115 were recorded for the three months ended March 31,2007 and March 31, 2008, respectively. The 2008 charges principallyrelated to continuing provisions for previously notified employees beingrecorded over their stay periods. Severance payments and benefits are scheduledto be made over the next six months.

 

Reconciliation of the restructuringliability at March 31, 2008 is as follows:

 
| Restructuring  liability at December 31, 2007                     |   | $   | 182    |   |
|------------------------------------------------------------------------|--------|-----|--------|--------|
| Restructuring  expenses for the three months ended March 31, 2008 |   | 115 |   |
| Cash payments  for the three months ended March 31, 2008          |   | (96 | )      |
| Restructuring  liability at March 31, 2008                        |   | $   | 201    |   |

 

The restructuring liability at December 31, 2007and March 31, 2008 is included in the line item “Accrued expenses andother liabilities” in the accompanying consolidated balance sheets.

 

The following table represents restructuring expensesincluded in each segment and corporate expenses for the three months ended March 31,2007 and 2008:

 
| ** **    | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------|------------|--------------------------------------------------|------------|
| ** **    | ** ** | **2007**                                         | ** ** | **2008** | ** ** |
| North America |       | $                                                | —     |   | $ | — |   |
| EAME          |       | 118                                              |       | — |   |
| Latin America |       | 64                                               |       | — |   |
| Asia/Pacific  |       | 218                                              |       | 115 |   |
| Corporate     |       | 160                                              |       | — |   |
| Total         |       | $                                                | 560        |   | $ | 115 |   |

 

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

 

Inventories consisted of thefollowing at December 31, 2007 and March 31, 2008:

 
| ** **                       | ** ** | **December 31, 2007** | ** ** | **March 31, 2008** | ** ** |
|----------------------------------|------------|---------------------------------|------------|------------------------------|------------|
| Raw materials  and supplies      |       | $                               | 5,767      |                         | $          | 5,202 |   |
| Work in process                  |       | 383                             |       | 489                          |       |
| Finished goods                   |       | 7,924                           |       | 15,625                       |       |
| Inventory  obsolescence reserves |       | (534                            | )          | (614                         | )          |
| Total                            |       | $                               | 13,540     |                         | $          | 20,702 |   |

 

**5.****                       ****Debt**

 

The Company is highlyleveraged. At March 31, 2008, the Company and its subsidiaries, includingMerisant Company (“Merisant”), had $562,602 of long-term debt outstanding,consisting of $127,337 aggregate principal amount of Merisant Worldwide’s 12 1⁄4%senior subordinated discount notes due 2014, $225,000 aggregate principalamount of the Company’s 9 1⁄2% senior subordinated notes due 2013 (the “Notes”),$210,266 aggregate principal amount outstanding under Merisant’s senior creditagreement (the “Senior Credit Agreement” or, as amended and restated, the “Amendedand Restated Credit Agreement”), excluding capital lease obligations of $109and unused commitments on the revolving portion of the Senior Credit Agreementof $21,075.

 

At March 31, 2008,borrowings under the Senior Credit Agreement included $13,149 (“Term A”)aggregate principal 

 

9

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amount of term loansbearing annual interest of 7.89%, $189,117 (“Term B”) aggregate principalamount of term loans bearing annual interest of 6.74%, and $8,000 aggregateprincipal amount in revolver commitments. The Term A loans are euro-denominatedand are translated into U.S. dollars at the spot rate as of March 31, 2008.The variable interest rate decreased to 6.39% effective with the April 30,2008 payment.

 

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 LienCredit Agreement consisted of an aggregate of $85,000 principal amount of termloans, the net proceeds of which were used to prepay $9,540 of euro-denominatedTerm A loans, prepay $53,320 of Term B loans and to repay $15,000 of revolvingloans, in each case, outstanding under the Senior Credit Agreement.

 

On May 9,2007, the Company, Merisant and certain of Merisant’s subsidiaries entered intothe Amended and Restated Credit Agreement, which, among other things, increasedby $85,000 the principal amount of Term B loans that may be borrowed byMerisant under the Senior Credit Agreement. Merisant paid $2,505 in fees andexpenses related to this amendment and restatement which it deferred and isamortizing over the term of the related debt. Upon closing, Merisant borrowedthe full $85,000 of additional Term B loans available under the Amended andRestated Credit 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 Lien Credit Agreement was terminated as a resultof the transaction and there was no increase in Merisant’s long term debt as aresult 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.

 

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 of the Second Lien Credit Facility,Merisant’s effective interest rate on variable interest rate debt decreasedfrom 10.63% per annum prior to the closing of this transaction to 8.73% perannum subsequent to this transaction.

 

Merisant paid interest on borrowingsunder the Senior Credit Agreement, the Second Lien Credit Agreement, and on theNotes totaling $16,456 and $15,204 for the three months ended March 31,2007 and 2008, respectively.

 

TheAmended and Restated Credit Agreement preserves prior amendments, amends futurefinancial covenant  ratios and levels andcontains a number of additional amendments, including to the definition of BankEBITDA, that give Merisant more flexibility to operate its business andde-leverage its balance sheet.

 

TheAmended and Restated Credit Agreement contains covenants, including financialcovenants that must be met on a quarterly basis. “Bank EBITDA” is the measureby which the financial covenants contained in the Amended and Restated CreditAgreement are measured. However, Bank EBITDA is not a measure of liquidityunder GAAP. Accordingly, while providing useful information with respect to anassessment of liquidity as measured in accordance with the covenants in theCompany’s primary debt obligations, this measure should not be considered inisolation from, or as a substitute for, consolidated statement of cash flowdata prepared in accordance with GAAP as an indication of liquidity. Inaddition, the Bank EBITDA measure presented may differ from, and may not becomparable to, similarly titled measures used by other companies.

 

Merisantwas in compliance with its covenants under the Amended and Restated CreditAgreement as of March 31, 2008.

 

Merisantwas required to prepay $15,226 of the principal amount of term loansoutstanding under the Amended and Restated Credit Agreement five business daysafter filing the annual financial statements with excess cash as required and calculatedunder the terms of the Amended and Restated Credit Agreement. The prepaymentwas completed on April 4, 2008.

 

10

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**6.****                       ****Transactions with Related Parties**

 

Merisant has adeferred compensation payable to Arnold Donald, its former Chairman and acurrent director, and a note receivable in the same amount from Mr. Donald.Merisant recorded $43 and $30 of interest income on the note receivable for thethree months ended March 31, 2007 and 2008, respectively, and an equalamount of interest expense in the respective periods.

 

Merisant is partyto an agreement with Brand Architecture International (“Brand Architecture”)pursuant to which Brand Architecture has agreed to provide consulting servicesrelating to the development of brand architecture for Merisant’s brands. Ascompensation, Merisant paid approximately $76 and $59 to Brand Architecture forthe three months ended March 31, 2007 and 2008, respectively, includingthe reimbursement to Brand Architecture for expenses relating to its work.Adam Stagliano, a member of the Company’s board of directors, is afounding director and the President and Chief Strategic Officer of BrandArchitecture.

 

**7.        Commitmentsand Contingencies**

** **

The Company has aninvestment in an affiliate located in the Philippines that is accounted forusing the equity method. The affiliate, a 50/50 joint venture, distributessugar substitute sweeteners for the international consumer food markets,primarily under the *Equal®* brand.In addition to its investment in the joint venture, the Company is committed toa 50% share in any new borrowings of the joint venture. As of December 31,2007 and March 31, 2008, there were no additional joint ventureborrowings.

 

On January 29, 2008,the Company delivered notice to ACH that the distribution agreement betweenMerisant US, Inc. and ACH would terminate on July 27, 2008 withrespect only to the retail grocery channel. The Company  partially terminatedthe distribution agreement so that it can pursue a direct distribution modelfor retail customers in the United States. The Company will handle order processing, warehousing and trademarketing internally and through a third-party broker and logistics providersfor retail grocery and drug customers in the United States which the Companyanticipate will reduce our operating costs, improve the efficiency of its inventory management and distributioncapabilities, and provide more transparency in customer relations.  On March 4, 2008, the Company and ACHagreed that the Company will pay $300  toACH and that commissions will not increase in connection with the partialtermination of the distribution agreement. This expense is included in operating expenses for the three monthsended March 31, 2008.

 

The Company is subject to various other claims, pending and possiblelegal actions for product liability and other damages, and other mattersarising out of the conduct of the Company’s business, including taxuncertainties arising from doing business in various European and LatinAmerican 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 consolidated financial positionor results of operations.

 

**8.        IncomeTaxes**

** **

In June 2006, the Financial Accounting StandardsBoard (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty inIncome Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”),that clarifies the accounting and recognition for income tax positions taken orexpected to be taken in the Company’s tax returns. The Company adopted FIN 48on January 1, 2007, and recorded the cumulative effect of a change inaccounting principle by recording a decrease in the liability for uncertain taxpositions of $5,757, that was accounted for as a credit to opening retainedearnings. At December 31, 2007 and March 31, 2008, the total liability,including interest and penalties of $715 and $783, respectively for uncertaintax positions recorded in the Company’s balance sheet in non-current Otherliabilities was $2,815 and $3,002, respectively. No uncertain tax positionreserves were reversed or settled during the three months ended March 31,2008.  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 March 31, 2008 liability over the next twelve months.

 

The Company files a consolidated U.S. income taxreturn and tax 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

 

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major taxing jurisdictions include Switzerland,France, the United Kingdom, Belgium, Australia, Argentina and Mexico. In theU.S., all tax years from inception in 2000 through the present are open.  The Company’s Switzerland subsidiary operatesunder a tax holiday, resulting in no uncertain tax positions for that entityfor any tax year.  Local audits of thetax returns for the Company’s France subsidiary have been completed through2004.  In the United Kingdom, the Companyassumes that tax years through 2005 are closed due to local practice.  In Belgium and Australia, tax years through2003 and 2001, respectively, are closed due to the local statute oflimitations.  In Argentina and Mexicoonly 2000 and 2001 are considered closed tax years due to the local statute oflimitations.

 

**Interest and penalties related totax positions taken in the Company’s tax returns are recorded in income taxexpense in the consolidated statements of operations.**

** **

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

 

*The following discussion should be read in conjunction with ourunaudited consolidated financial statements and accompanying notes includedelsewhere in this document. Our discussion of results by reportable segmentshould be read in conjunction with Note 2 to the  unaudited consolidated financial statementsincluded elsewhere in this document, which illustrates the reconciliation ofOperating EBITDA to loss before income taxes. Unless otherwise indicated orunless the context requires otherwise, all references in this discussion to “us”,“our” or “our company” mean Merisant Worldwide, Inc. and its consolidatedsubsidiaries 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 22% dollarshare as of December 31, 2007 of a stable global retail market, which weestimate at $1.6 billion.  We believethat our company has the leading dollar market share as of December 31,2007 in almost 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 90% and 95% in our four top markets.  In addition to *Equal*® and *Canderel*®,we market our products under 18 other regional brands that enjoy significantbrand recognition in their target markets. We sell our brands in over 90 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, and Paris, France.  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, Germanyand Bankrason, Thailand.  As of May 14,2008, we had 20 direct and indirect active subsidiaries, including five subsidiariesin the United States, seven subsidiaries in Europe, five subsidiaries inMexico, Central America and South America, and three subsidiaries in the AsiaPacific region, including Australia and India. In addition, our Swiss subsidiary holds a 50% interest in a jointventure in the Philippines.

 

Our core business continues to be productssweetened with aspartame, and the *Equal*®and *Canderel*® tabletop sweetenerproducts accounted for approximately 85% of our net sales in 2007.  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 amonglow-calorie sweeteners in many of our key markets.  In recent years, however, we have facedsignificant competition from McNeil Nutritionals LLC,

 

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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 complexchemical process that converts sucrose molecules into a synthetic compound.From December 2002 to December 2007, *Splenda*®’sdollar share of the United States retail grocery market has grown fromapproximately 15% to 61% 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 40% of our net sales in 2003 and 2007,respectively.  As a result of decliningnet sales, we have experienced significant declines in our Bank EBITDA from$110.2 million in 2003 to a low of $67.2 million in 2006, before increasing to$69.9 million in 2007.  For a descriptionof Bank EBITDA and a reconciliation of Bank EBITDA to cash flow from operatingactivities, see “Management’s Discussion and Analysis of Financial Conditionand Results of Operations—Liquidity and Capital Resources”.

 

We believe that there are opportunities for future growth in thelow-calorie tabletop sweetener and sweetened food category and that our companyis positioned to pursue these opportunities. Despite recent declines in net sales, our premium brands *Equal*® and *Canderel*® are among the most recognized low-calorie tabletopsweetener products in the world, with aided brand awareness estimated between90% and 95% in our top four markets.

 

A new management team launched efforts to revitalize our company’sbusiness.  Paul Block was appointed ChiefExecutive Officer in November 2004 and has led an initiative to strengthenour company’s core brands, improve the efficiency of our operations, reducecosts 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 to stabilize and then grow revenues through thefollowing five strategic initiatives:

 

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

 

·                  Increasethe pace of product innovation to bring new products and brand extensions tothe market, including products sweetened with high intensity sweeteners otherthan aspartame.

 

·                  Developand test products that have the potential to transform our company’s brandportfolio, including by building a platform for all natural, low-caloriesweeteners and sweetened foods.

 

·                  Dedicatesignificant resources to improving the efficiency of operations by, among otherthings, implementing programs to streamline manufacturing capabilities andimproving the efficiency of certain support services.  We have successfully reduced costs and madeour business more efficient, which has significantly contributed to the currentstabilization of Bank EBITDA over the past two years.

 

·                  Offerprivate label low-calorie sweeteners to retail and food service customers andleverage supply chain expertise globally.

 

**CapitalConstraints and Need to Refinance or Restructure**

 

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 Whole Earth Sweetener Company present growth opportunitiesfor us. However, we may be constrained in our ability to realize fully thevalue of these new products as a result of our current capital structure. Thesuccessful launch of new products and marketing of our core brands requirescapital, and we must use a significant portion of our cash flows fromoperations to service our outstanding debt. We had an aggregate of $562.7million of long-term debt outstanding at March 31, 2008, including capitallease obligations and borrowings from Merisant’s revolving creditfacility.  We paid $15.2 million ininterest costs for the three months ended March  31, 2008, $10.7million of which represented interest payments on Merisant’s 9 1⁄2% seniorsubordinated notes due 2013 (the “Notes”). If we cannot generate cash flowsfrom operations

 

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significantly in excessof our debt obligations, we may not have the resources required to fullyrealize the value of our strategic initiatives.

 

In order tomaximize value, management is focused on refinancing or restructuring all orpart of our debt obligations.  On January 11,2009, approximately $4.1 million principal amount of the Term A loans and anyrevolving loans outstanding under our senior credit facility will become dueand payable, and we will no longer be able to draw revolving loans or issueletters of credit under Merisant’s senior credit facility.  In addition, interest on our 12 1⁄4% seniorsubordinated discount notes due 2014 (the “Discount Notes”), will becomepayable in cash commencing on May 15, 2009.  The indenture governing the Notes limitsMerisant’s ability to pay dividends or loan cash to our company, which has nooperations of its own.

 

On March 17,2008, Merisant launched efforts to arrange a new $245 million senior securedcredit facility, comprised of $210 million of term loans and a $35 millionrevolving loan facility (the “New Credit Facility”).  Under the terms contemplated, we anticipatedthat we would have had more flexibility under its covenants to furtherstabilize our core business, pursue our growth initiatives and address thechallenges of our current capital structure. On April 2, 2008, Merisant ceased refinancing efforts due toadverse market conditions that prevented it from obtaining favorableterms.  We may engage in discussions fromtime to time with our noteholders on ways to restructure all or part of ourother debt obligations.

 

**Results ofOperations**

 

For each of the periods discussed below, the informationset forth under the caption “Consolidated Results” represents an overview ofour company’s results of operations on a consolidated basis. Additional detailregarding the results of operations can be found under the caption “SegmentResults” for each period discussed below.

 

***Three Months Ended March 31,2008 Compared to Three Months Ended March 31, 2007***

 

The following table sets forth certain of our company’sfinancial data for the three month periods ended March 31, 2007 and 2008(totals may not foot due to rounding).

 
| ** **                         | ** ** | **Three Months Ended  March 31,** | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                         | ** ** | **2007**                                         | ** ** | **2008**                                         | ** ** | **2007** | ** ** | **2008** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **                         | ** ** | **(in millions)**                           | ** ** | **As% of Net Sales**              | ** ** | **Dollars** | ** ** | **%** | ** ** |
| Net sales                          |       | $                                                | 69.3       |                                             | $          | 68.9 |   | 100 | % | 100 | % | $ | (0.4 | ) | (1 | )% |
| Cost of sales                      |       | 30.7                                             |       | 32.9                                             |       | 44 | % | 48 | % | (2.2 | ) | (7 | )% |
| Gross profit                       |       | 38.6                                             |       | 36.0                                             |       | 56 | % | 52 | % | (2.6 | ) | (7 | )% |
| Operating  expenses:               |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Marketing and selling  expenses    |       | 15.2                                             |       | 14.4                                             |       | 22 | % | 21 | % | 0.9 |   | 6 | % |
| Administration  expenses           |       | 11.9                                             |       | 10.0                                             |       | 17 | % | 15 | % | 1.9 |   | 16 | % |
| Amortization of  intangible assets |       | 5.7                                              |       | 5.3                                              |       | 8 | % | 8 | % | 0.5 |   | 8 | % |
| Restructuring  expenses            |       | 0.6                                              |       | 0.1                                              |       | 1 | % | 0 | % | 0.4 |   | 80 | % |
| Total operating  expenses          |       | 33.5                                             |       | 29.8                                             |       | 48 | % | 43 | % | 3.7 |   | 11 | % |
| Income from  operations            |       | 5.1                                              |       | 6.2                                              |       | 7 | % | 9 | % | 1.1 |   | 22 | % |
| Other expenses  (income):          |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Interest income                    |       | (0.2                                             | )          | (0.3                                             | )          | (0 | )% | (0 | )% | 0.1 |   | 48 | % |
| Interest expense                   |       | 15.4                                             |       | 13.9                                             |       | 22 | % | 20 | % | 1.5 |   | 10 | % |
| Other expense  (income), net       |       | 0.1                                              |       | 0.8                                              |       | 0 | % | 1 | % | (0.7 | ) | (477 | )% |
| Total other  expenses              |       | 15.3                                             |       | 14.4                                             |       | 22 | % | 21 | % | 0.9 |   | 6 | % |
| Loss before  income taxes          |       | (10.2                                            | )          | (8.2                                             | )          | (15 | )% | (12 | )% | 2.0 |   | (20 | )% |
| Provision for  income taxes        |       | 1.8                                              |       | 2.1                                              |       | 3 | % | 3 | % | (0.2 | ) | (13 | )% |
| Net loss                           |       | $                                                | (12.1      | )                                                | $          | (10.3 | ) | (17 | )% | (15 | )% | $ | 1.8 |   | 15 | % |

 

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**Consolidated Results**

 

*Net sales.*Overall,net sales declined slightly in the first quarter of 2008 compared to the firstquarter of 2007.  The decline was relatedto lower sales in North America and Asia Pacific offset by higher sales in EAMEand Latin America.  In North America, netsales declined as a result of a decline in consumer consumption and a declinein inventory levels maintained by our distributor in the food servicechannel.  These negative impacts on netsales were slightly offset by decreased trade marketing spending.  In Asia Pacific, we had high net sales in thefirst quarter of 2007 related to shipments to new distributors to establish beginninginventory levels which did not repeat in 2008. Offsetting these declines were improved performance in the EAME andLatin America regions along with the consolidated sales impact of thedevaluation of the U.S. dollar and the resulting currency translation impactwhich accounted for approximately $3.7 million of net sales.  In the EAME region, the UK sales continuedthe momentum achieved in the second half of 2007 as the impact of the late 2006diversion has subsided.  Additionally,Belgium sales increased partially as a result of strong consumer market trends. InLatin America, Mexico reported unusually low sales in the first quarter of 2007as we converted to a direct distribution model, while in the first quarter of2008 we continued to experience the steady sales trend that was reported in thesecond half of 2007.

 

*Cost of sales.*Cost of sales increased, despite the slight decline in sales, due to salesincreases in lower margin products, such as contract manufacturing, the impactof purchasing product in euro for sales in countries with weaker currencies andunfavorable raw material purchase prices. Overall, gross profit as a percentage of net sales declined from 56% forthe three months ended March 31, 2007 to 52% for the three months ended March 31,2008 due to the increases in costs discussed above as well as increased trademarketing in France.

 

*Operating expenses.*Marketingand selling expenses decreased due to lower brand support in EAME and AsiaPacific as well as lower brand support, lower commissions and lower performancebased incentives in North America.  Thesefavorable impacts were partially offset by higher brand support in the LatinAmerican region, unfavorable currency impacts and increased costs related toour new product launch.  Administrationexpenses decreased mainly due to lower litigation and consulting costs.

 

During the first quarter of 2008, 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 $0.1 million in the first quarter of 2008as compared to $0.6 million in the first quarter of 2007. The restructuringcharges incurred in the first quarter of 2008 relate primarily to continuingprovisions for previously notified employees being recorded over their stayperiods and are expected to be substantiallypaid by September 30, 2008. Additional information regarding restructuringcharges and the related liability can be found in Note 3 to the unauditedconsolidated financial statements located elsewhere in this document.

 

*Interest.*Our interest expense decreased as a netresult of lower interest bearing loans under our Amended and Restated CreditAgreement compared to the higher interest bearing loans under our Second LienCredit Agreement, as well as overall decreases in interest rates on variableinterest debt instruments.  Ourborrowings under the Senior Credit Agreement and Second Lien Credit Agreementhad a weighted average interest rate of approximately 10.3% per annum upon theclosing of the Second Lien Credit Agreement. In May 2007, we refinanced and therefore terminated the Second LienCredit Agreement as described below. Offsetting this decrease was interest calculated on a higher accretedbalance on our 12 1⁄4% senior subordinated Discount Notes due 2014 during thefirst quarter of 2008.

 

*Other expense, net*.The $0.7 million increase in other income/expense, net from the first quarterof 2007 compared to the first quarter of 2008 is related to the difference inthe respective period’s currency losses on the euro-denominated debt.  The loss was $0.3 million in the three monthsended March 31, 2007 versus $1.0 million in the three months ended March 31,2008.

 

*Taxes.*For thethree months ended March 31, 2008, we recorded a $2.1 million taxprovision on a loss before income taxes of $8.2 million. The unusualrelationship of our tax provision to the pre-tax loss in the first quarter of2008 relates to a combination of factors. These factors include increased taxloss carryforwards, primarily generated in the United States, for which we havenot recorded a tax benefit, as well as **provisions for future tax costs which may beincurred upon the potential repatriation of certain 2008 foreign earningsthat are not deemed to be permanently reinvested. **Withregard to the deferred income tax assets on the tax loss carryforwards, wedetermined that we have not satisfied the “more likely than not” test and weincreased our total valuation allowance by $1.8 million in the first quarter of2008 to a total of $89.3 million. We will continue to assess the valuationallowances, and, to the extent we determine that such allowances are no longerrequired, these deferred income tax assets will be recognized in the future.

 

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**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  March 31,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** | **Three Months  Ended  March 31,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **               | ** ** | **2007**                                     | ** ** | **2008**                                      | ** ** | **$** | ** ** | **%** | ** ** | **2007** | ** ** | **2008** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **               | ** ** | **(in millions)**                       | ** ** | **(in millions)**                        | ** ** |
| ** **               | ** ** | ** **                                   | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| North America  (2)       |       | $                                            | 28.9       |                                          | $          | 23.2 |   | $ | (5.8 | ) | (20 | )% | $ | 10.3 |   | $ | 6.2 |   | $ | (4.1 | ) | (40 | )% |
| Operating EBITDA  Margin |       |                                         |       |                                          |       |   |   |   |   | 36 | % | 28 | % | (8 | )% |   |   |
| EAME                     |       | 26.6                                         |       | 32.2                                          |       | 5.6 |   | 21 | % | 7.0 |   | 10.6 |   | 3.6 |   | 52 | % |
| Operating EBITDA  Margin |       |                                         |       |                                          |       |   |   |   |   | 26 | % | 33 | % | 6 | % |   |   |
| Latin America            |       | 5.3                                          |       | 7.6                                           |       | 2.3 |   | 44 | % | 1.1 |   | 2.2 |   | 1.1 |   | 101 | % |
| Operating EBITDA  Margin |       |                                         |       |                                          |       |   |   |   |   | 21 | % | 29 | % | 8 | % |   |   |
| Asia/Pacific             |       | 8.5                                          |       | 5.9                                           |       | (2.6 | ) | (31 | )% | 4.1 |   | 2.5 |   | (1.6 | ) | (39 | )% |
| Operating EBITDA  Margin |       |                                         |       |                                          |       |   |   |   |   | 48 | % | 42 | % | (6 | )% |   |   |
|                          |            |                                              |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

(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. Our definitionof Operating EBITDA largely mirrors the definition of Bank EBITDA under ourSenior Credit Facility.  That definitionchanged in the May 2007 amendment of those credit facilities, and thatchange is reflected prospectively in our computation of Operating EBITDA forthe 2007 period.  See Note 2 to theunaudited consolidated financial statements for a description of OperatingEBITDA and a reconciliation of Operating EBITDA to income (loss) before incometaxes. Operating EBITDA margin represents Operating EBITDA as a percentage ofnet sales.

 

(2)             NorthAmerica segment results exclude immaterial sales and $1.3 million of negativeOperating EBITDA related to a new product launch which management evaluatesseparately from this geographical segment for the three month period ended March 31,2008.

 

***North America***

 

*Net sales.*  In North America, net sales declined due todecreased sales volume and consumer consumption in the club, foodservice, andretail channels slightly offset by decreased trade marketing spending.   The timing of our promotional activities inthe club channel varied when compared to 2007 resulting in lower shipments inthe three months ended March 31, 2008 compared to the same period in2007.  Our distributor inventory levelswere higher than usual at December 31, 2007 in the foodservice channelwhich resulted in a decrease in shipments during the first quarter of 2008compared to the first quarter of 2007.

 

On January 29, 2008, we delivered noticeto ACH that the distribution agreement between Merisant US, Inc. and ACHwould terminate on July 27, 2008 with respect only to the retail grocerychannel.  We have partially terminatedthe distribution agreement so that we can pursue a direct distribution modelfor retail customers in the United States.  We will handle order processing, warehousingand trade marketing internally and through a third-party broker and logisticsproviders for retail grocery and drug customers in the United States which weanticipate will reduce our operating costs, improve the efficiency of our inventory management and distributioncapabilities, and provide more transparency in customer relations.  On March 4, 2008, Merisant and ACHagreed that Merisant will pay $0.3 million to ACH and that commissions will not increase in connection with thepartial termination of the distribution agreement.  This expense is included in operatingexpenses for the three months ended March 31, 2008.

 

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*Operating EBITDA.*Thedecrease in Operating EBITDA and Operating EBITDA margin were primarily relatedto the margin impact of lower net sales and unfavorable sales mix.  These unfavorable impacts were partiallyoffset by lower overall brand support and lower sales and marketingadministration costs.

 

***EAME***

 

*Net sales.*In theEAME region, the increase in net sales was driven primarily by the UK andBelgium along with the positive currency translation impact. In the firstquarter of 2007, as a result of diversion of product into the retailchannel we discontinued sales to certain distributors in an effort to stop thediversion.  In the first quarter of 2008,sales in the UK continued to perform at levels realized in the second half of2007 after stopping the diversion of product. In Belgium, our distributor carried higher inventories than expected at December 31,2006, negatively impacting sales in the first quarter of 2007 and thusreflecting a favorable quarter to quarter comparison along with recent marketstrengthening.   Continued softness in consumer demand as wellas increased trade spending reduced sales in France.  Thedevaluation of the U.S. dollar and the resulting currency translation effect onour financial statements accounted for approximately $2.9 million of the netsales increase in the EAME region.

 

*Operating EBITDA.* Operating EBITDA increased mainly due tohigher net sales and lower brand support in France and the UK, along withreduced general administrative costs due mainly to savings from restructuringactions and facility related changes in France. The increase in Operating EBITDA margin was primarily due to highersales driven by the UK favorable sales variances and reduced selling andgeneral and administrative costs offset by a slight decrease in gross margin asa percent of sales.

 

***Latin America***

 

*Net sales.* Improved sales in the first quarter of 2008relates primarily to our transition in Mexico from a distributor model to adirect model in the first quarter of 2007 which resulted in lower sales, inpart because of delayed shipments. During the first quarter of 2008, our Mexico operations achieved salesat levels comparable to the level of sales achieved prior to the change indistribution models.   In addition,Argentina sales volume increased due to shipments for upcoming salespromotions.

 

*Operating EBITDA.*OperatingEBITDA and Operating EBITDA margin increased due to the positive impact ofhigher sales.

 

***Asia/Pacific***

 

*Net sales.*Netsales in the Asia/Pacific region decreased primarily due to unusually highsales in the first quarter of 2007 related to shipments to new distributors inAustralia and India to establish beginning inventory levels which did notrepeat in 2008.

 

*Operating EBITDA.*OperatingEBITDA and Operating EBITDA margin decreased primarily due to the decreasedsales coupled with higher cost of goods sold and  lower brand support against significantlylower sales.

 

**Corporate Expenses**

 

Corporate expenses decreased from $9.3 million in thefirst quarter of 2007 to $6.2 million in the first quarter of 2008, primarilydue to lower litigation costs relating to our lawsuit against McNeil and costsrelating to our *Sweet Simplicity®* line that wereexcluded from corporate expenses in the first quarter of 2008 but included incorporate expenses in the first quarter of 2007 as required by our EBITDAdefinition in effect for the period. These decreases were offset by higher facility related expenses in thefirst quarter of 2008.

 

**Liquidity and Capital Resources**

 

Our liquidity needs areprimarily met through internally generated cash flow supplemented in 2007 by aone-time  payment received pursuant to anagreement with a third party. As needed, Merisant also borrows money under therevolving credit facility of the Amended and Restated Credit Agreement.  Our primary uses of cash are cost of sales,operating expenses, debt service, capital expenditures and distributions to ourstockholder. Foreign subsidiaries generatedapproximately 59% of consolidated net sales during the year ended December 31,2007, and we have relied upon the repatriation of cash from 

 

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our foreign subsidiaries to satisfy many of ourdomestic cash requirements. Historically, we had received a vast majority offunds from foreign subsidiaries through our Swiss subsidiary in the form ofpayments pursuant to a promissory note. This promissory note was repaid in fullin January 2006. On March 30, 2006, Merisant issued a revolver noteto our Swiss subsidiary, which will mature in 2011. Merisant may borrow up to$200 million from our Swiss subsidiary during the term of the revolver note,and we expect to repatriate cash to the United States through borrowings underthis revolver note. The principal balance relating to this revolving note as ofMarch 31, 2008 was $78 million.

 

We had $46.0million of cash and cash equivalents as of March 31, 2008 compared to$51.1 million of cash and cash equivalents at December 31, 2007.  The decrease is related to scheduled debt andinterest payments along with first quarter operating cash expenditures.  The decrease was offset with $8.0 million inborrowings from our revolving credit facility. Merisant was required to prepay$15.2 million of the principal amount of term loans outstanding under itsAmended and Restated Credit Agreement five business days after filing itsAnnual Report with excess cash as required and calculated under the terms ofour Amended and Restated Credit Agreement. This prepayment was made on April 4, 2008 and decreased our cashbalance accordingly.

 

Accounts receivablelevels, time to payment and inventory levels impact the amount of internallygenerated cash flow. The following table shows information with respect toaccounts receivable and inventory as of December 31, 2007 and March 31,2008.  Accountsreceivable decreased in the three months ended March 31, 2008 primarilydue to higher sales in the fourth quarter of 2007 compared to the first quarterof 2008 and timing of collection from ACH, our largest customer.  Inventory levels increased in the three monthsended March 31, 2008 as compared to December 31, 2008, primarily dueto planned increases in finished goods quantities on hand in our foreignsubsidiaries related to supply chain synchronization efforts to decrease leadtimes.

 
| ** **                         | ** ** | **December 31, 2007** | ** ** | **March 31, 2008** | ** ** |
|------------------------------------|------------|---------------------------------|------------|------------------------------|------------|
|                               |       |                            |       |                         |       |
| Accounts  receivable (in millions) |       | $                               | 74.4       |                         | $          | 71.5 |   |
| Days sales  outstanding            |       | 92                              |       | 89                           |       |
| Inventory (in  millions)           |       | $                               | 13.5       |                         | $          | 20.7 |   |
| Days sales in  inventory           |       | 38                              |       | 57                           |       |

 

***Three Months Ended March 31, 2008 Compared toThree Months Ended March 31, 2007***

 

Forthe three months ended March 31, 2008, net cash used by operatingactivities was $7.9 million compared to cash provided of $0.6 million for thethree months ended March 31, 2007. Operating cash flows decreased $8.5million versus the three months ended March 31, 2007, due to a decrease inthe contribution from working capital of $10.5 million and increased net incomeafter adjusting for non-cash items of $2.0 million.

 

Netcash used in investing activities totaled $2.8 million for the three monthsended March 31, 2008 compared to $0.2 million for the three months ended March 31,2007 due to increased spending on capital expenditures.

 

For the three months ended March 31,2008, financing activities provided $5.4 million in cash as compared to using$2.0 million in cash for the three months ended March 31, 2007.  For the three months ended March 31,2008, Merisant used cash to pay its scheduled principal payments under theAmended and Restated Credit Agreement and borrowed $8 million under itsrevolving credit facility.   In the threemonths ended March 31, 2007, Merisant used cash to pay its scheduledprincipal payments under the Amended and Restated Credit Agreement  Borrowings under Merisant’s revolving loanfacility were $0 at December 31, 2007 and $8 million at March 31,2008.

 

***Capital Expenditures***

 

Capitalexpenditures in 2008 are expected to be in the range of $21 million to$24 million, relating to forecasted purchases of equipment and capitalimprovements necessary to further optimize our manufacturing operations. Webelieve that internally generated cash flow, together with borrowing availableunder Merisant’s Amended and Restated Credit Agreement, will be sufficient tofund capital expenditures during the remainder of 2008. We anticipate that wewill seek to refinance our existing Amended and Restated Credit Agreement priorto the scheduled maturity of our revolver credit facility in January 2009. Ifwe are unable to obtain a new revolver credit facility or extend the maturityof our current credit facility we may be required to reduce our planned capitalexpenditures for 2009.

 

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***Financing***

 

On November 12, 2003, we issued $136.0 millionstated aggregate principal amount at maturity of our Discount Notes and on July 11,2003, Merisant issued $225.0 million principal amount of their Notes and Merisantrefinanced its credit facility with the Senior Credit Agreement.  A portion of the proceeds of the DiscountNotes, the Notes and the Senior Credit Agreement were used to pay a dividend toour stockholders.

 

The Discount Notes are unsecured obligations and aresubordinated in right of payment to all of our existing and future seniorindebtedness.  The Discount Notes had aninitial accreted value of principal of $.551 per $1 fully accreted statedprincipal amount at maturity.  Theaccreted value of principal of each Discount Note increases from the date ofissuance until November 15, 2008 at the rate equal to the interest ratethen in effect.  The stated rate ofinterest for the Discount Notes is 12.25% per annum.  Interest is payable semiannually in arrearson May 15th and November 15th, commencing on May 15, 2009.

 

The Notes are unsecured obligations and aresubordinated in right of payment to all existing and future senior indebtednessof Merisant. The Notes mature on July 15, 2013. The stated rate ofinterest for the Notes is 91¤2%per annum. Interest is payable semi-annually in arrears on January 15thand July 15th.

 

The Senior Credit Agreement, as of March 31, 2008, provides foraggregate commitments of up to $310.0 million, consisting of a revolving loanfacility of $35.0 million, of which a portion is available at Merisant’s optionin euro or dollars or in the form of letters of credit denominated in dollarsor euro, as well as term loan facilities of $275.0 million, consisting of aeuro Term Loan A of an original amount of $50.0 million, and a Term Loan B ofan original amount of $225.0 million, denominated in dollars. The euro Term LoanA and the revolving loan facility mature in 2009 while the Term Loan B maturesin 2010. The Senior Credit Agreement is guaranteed by our company and each ofMerisant’s domestic subsidiaries. The Senior Credit Agreement and theguarantees of the guarantors are secured by a first-prioritysecurity interest in substantially all of Merisant’s assets and the assets ofthe 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 May 9,2007, 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 borrowed the full $85.0 million ofadditional Tranche B Term Loans and used the proceeds plus cash on hand toprepay the principal of all loans outstanding under the Second Lien CreditAgreement totaling $85.0 million, plus all outstanding interest of $1.4 millionand 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.

 

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’seffective interest rate on variable interest rate debt decreased from 10.63%per annum prior to the closing of this transaction to 8.73% per annum subsequentto this transaction.  As of March 31,2008, Merisant had $210.3 million in borrowings outstanding under the Amendedand Restated Credit Agreement with an effective interest rate of 7.31%.  As a result of the $15.2 million prepaymentof term loans under the Amended and Restated Credit Agreement and a reductionof the LIBOR, we anticipate that our cash interest expense will decrease byapproximately $4 million for the year ending December 31, 2008 compared tothe year ended December 31, 2007.

 

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**Bank EBITDA**.  The Amended and Restated Credit Agreementrequires Merisant to maintain compliance with a consolidated first-lienleverage ratio covenant, a consolidated leverage ratio covenant and aconsolidated interest coverage ratio covenant. These ratios are measured on thebasis of Bank EBITDA for the four fiscal quarters ending at least 45 days priorto the payment date.  Bank EBITDA isdiscussed here because it is the measure upon which the covenants contained inthe Amended and Restated Credit Agreement are measured.  However, Bank EBITDA is not a measure ofliquidity under GAAP. Accordingly, while providing useful information withrespect to assessing compliance with covenants under our primary debtobligations, this measure should not be considered in isolation from, or as asubstitute for, consolidated statement of cash flow data prepared in accordancewith GAAP as an indication of liquidity. In addition, the Bank EBITDA measurepresented may differ from, and may not be comparable to, similarly titledmeasures 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:

 

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

 

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

 

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

 

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

 

·                                          any cashexpenses incurred in connection with any waiver of a Default or Event ofDefault and any amendment to the Amended and Restated Credit Agreement;

 

·                                          any non-cashforeign currency translation adjustments;

 

·                                          anyextraordinary or non-recurring cash losses or expenses arising fromrestructuring not to exceed in the aggregate (A) if such period ends prior to January 1, 2006, $14,600,000,or (B) if such period begins on or after January 1, 2006, (x) $11,000,000with respect to any such non-recurring cash losses or expenses arising from theimplementation of Merisant’s plan known as “Project Arrow” and relatedrestructuring, (y) $4,000,000 with respect to any such non-recurring cashlosses or expenses arising from the transition from Heinz to ACH as Merisant’sexclusive distributor in the United States; and (z) any cash expensesincurred 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) thenegotiation, execution and closing of the Second Lien Credit Agreement and anywaiver of a default or event of default and any amendment to the Second Lien CreditAgreement including the fees and expenses of any attorneys and financialadvisers retained by the administrative agent with respect to any such waiveror amendment;

 

·                                          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 to January 1,2009 in an amount not to exceed in the aggregate $15,000,000; and

 

·                                          expensesincurred between January 1, 2007 and December 31, 2007 in connectionwith our litigation against McNeil and McNeil-PPC, Inc. in an amount notto exceed $4,000,000.

 

Bank EBITDA for the three monthsended March 31, 2008 under the Amended and Restated Credit Agreement was$15.3 million as compared to $16.1 million for the three months ended March 31,2007, adjusted to reflect litigation costs and *SweetSimplicity®*product launch costson a comparable basis with the current definition of Bank EBITDA.  Merisant was in compliance with the covenantsunder the Amended and Restricted Credit Agreement at March 31, 2008.

 

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The following table illustrates the reconciliation of Bank EBITDA tocash flow from operating activities, which management believes is the mostnearly equivalent GAAP measure:

 
| ** **                                                        | ** ** | **Three Months  Ended  March 31, 2008** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                        | ** ** | **(in millions)**                                 | ** ** |
| Net cash used by  operating activities                            |       | $                                                      | (7.9       | ) |
| Provision for  income taxes, net of deferred income tax provision |       | 0.7                                                    |       |
| Interest  expense, net of non-cash interest expense               |       | 9.0                                                    |       |
| Restructuring  expenses (a)                                       |       | 0.6                                                    |       |
| Other non-cash  items                                             |       | 1.8                                                    |       |
| Equity in  (income) loss of affiliates                            |       | 0.1                                                    |       |
| Net change in  operating assets and liabilities                   |       | 11.0                                                   |       |
| Bank EBITDA                                                       |       | $                                                      | 15.3       |   |

 

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(a)                                  The charges principally relate to continuingprovisions for previously notified employees and specified projectimplementation costs.

 

***ForwardLooking Statements***

 

Certaininformation included or incorporated in this report may be deemed to be “forward-lookingstatements” within the meaning of Section 27A of the Securities Act and Section 21Eof the Exchange Act. All statements, other than statements of historical facts,included or incorporated in this report, are forward-looking statements. Inparticular, statements made under the heading “Management’s Discussion andAnalysis of Financial Condition and Results of Operations,” relating to overallvolume trends, pricing trends and industry forces, anticipated results,expectations for funding capital expenditures and operations and increasedmarket share and the sufficiency of capital to meet working capital, capitalexpenditures requirements and strategies are forward-looking statements. Whenused in this document, the words “anticipate,” “estimate,” “project” andsimilar expressions are intended to identify forward-looking statements.

 

These statements arebased on assumptions and assessments made by management in light of theirexperience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Any forward-looking statements are not guarantees of future performance and aresubject to risks and uncertainties that could cause actual results,developments and business decisions to differ materially from thosecontemplated by such forward-looking statements. We disclaim any duty to updateany forward-looking statements. Some of the factors that may cause actualresults, developments and business decisions to differ materially from thosecontemplated by such forward-looking statements include the following:  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.

 

**Item 3.  Quantitative andQualitative Disclosures About Market Risk**

 

***ForeignOperations***

 

With approximately 57 %and 65% of consolidated total net sales generated by subsidiaries outside ofthe United States in the three months ended March 31, 2007 and March 31,2008, respectively, our ability to obtain funds necessary to meet our domesticobligations is subject to applicable laws, foreign taxes and intercompanypricing laws, including those relating to the flow of funds between our foreignaffiliates pursuant to, for example, purchase agreements, licensing agreementsor other arrangements.  Historically, wereceived a vast majority of funds from foreign affiliates through our Swisssubsidiary in the form of payments pursuant to a promissory note.  The note was repaid in full in January 2006.On March 30, 2006, Merisant issued a revolver note to its Swisssubsidiary, which will mature in 2011. Merisant may borrow up to $200 millionfrom our Swiss subsidiary during the term of the revolver note.  Merisant is repatriating cash to the UnitedStates through borrowings under this revolver note, which total $78 million asof March 31, 2008. Regulators in the United States and other foreigncountries where we operate may closely monitor our corporate structure and howit effects intercompany fund transfers.

 

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In addition, as of March 31,2008, foreign affiliates comprised approximately 49% of our consolidated totalassets.  Accordingly, we have experiencedand will continue to be exposed to foreign exchange risk.

 

***ForeignCurrency 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 was obtained 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 are offset by 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 offsets the increase in the eurodenominated debt obligations (i.e., foreign currency transaction loss) andinterest 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 three months ended March 31, 2008, 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$2.1 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 March 31, 2008.

 

***InflationRisk***

 

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.

 

**Item 4T.  Controls and Procedures**

 

# *Evaluation of Disclosure Controls and Procedures*

#  

We conducted anevaluation, under the supervision of the Chief Executive Officer and VicePresident, Finance, Controller (Principal Financial Officer), of theeffectiveness as of March 31, 2008 of our disclosure controls and procedures(as defined in Exchange Act Rule 15d-15(e)). Based on this evaluation, theChief Executive Officer and Principal Financial Officer concluded that, as of March 31,2008, our disclosure controls and procedures were effective.

 

***Changes inInternal 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.

 

**PART II**—**OTHER INFORMATION**

 

**Item 1.Legal Proceedings**

 

From time to time, our company is involved inlitigation concerning its business operations.

 

Our company is subject to various otherclaims, pending and possible legal actions for product liability and other 

 

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damages, and other matters arising out of theconduct of our business, including tax uncertainties arising from doingbusiness in various European and Latin American jurisdictions. We believe,based on current knowledge and consultation with counsel, that the outcome ofsuch claims and actions will not have a material adverse effect on ourconsolidated financial position or results of operations.

 

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

 

Themost significant risk factors applicable to our company are described in Part I,Item 1A “Risk Factors” of our Annual Report on Form 10-K for the yearended December 31, 2007. There have been no material changes from the riskfactors previously disclosed 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 Julie Wool 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 Julie Wool pursuant to 18 U.S.C.  Section 1350.                                |

 

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SIGNATURES

 

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

 
|                          | MERISANT WORLDWIDE,  INC. |
|--------------------------|---------------------------|
|                     |                      |   |
|                     |                      |   |
| Date: May 14,  2008 | By:                       |   /s/ Julie Wool |
|                     |                      | Julie Wool |
|                     |                      | Vice President,  Finance, Controller |
|                     |                      | (on behalf of the  Company and in capacity |
|                     |                      | of principal financial  officer) |

 

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