UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2006

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: 333-114105

Merisant Company

(Exact Name of Registrant as Specified in its Charter)

Delaware		52-2218321
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

10 South Riverside Plaza, Suite 850 Chicago, Illinois		60606
(Address of Principal Executive Offices)		(Zip Code)

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

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

Not applicable.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

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

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

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

MERISANT COMPANY

INDEX TO REPORT

FOR THE QUARTER ENDED SEPTEMBER 30, 2006

PART I—FINANCIAL INFORMATION

Item 1.		Financial Statements of Merisant Company

		Unaudited Consolidated Balance Sheets at December 31, 2005 and September 30, 2006

		Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2005 and 2006

		Unaudited Consolidated Statement of Stockholder’s Deficit for the Nine Months Ended September 30, 2006

		Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2006

		Notes to Unaudited Consolidated Financial Statements

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

Item 3.		Quantitative and Qualitative Disclosures About Market Risk

Item 4.		Controls and Procedures

PART II—OTHER INFORMATION

Item 1.		Legal Proceedings

Item 1A.		Risk Factors

Item 4.		Submission of Matters to a Vote of Security Holders

Item 6.		Exhibits

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements of Merisant Company

MERISANT COMPANY
Unaudited Consolidated Balance Sheets
(Dollars In Thousands, Except Per Share Amounts)

	At December 31,			At September 30,
	2005			2006
ASSETS
Cash and cash equivalents	$	18,064		$	9,692
Trade accounts receivable, net of allowances of $3,616 and $249, respectively	66,323			62,713
Other receivables	10,793			5,881
Inventories	29,201			20,055
Prepaid expenses and other assets	2,753			3,498
Current portion of note receivable from director	970			970
Deferred income taxes	474			773
Total current assets	128,578			103,582
Property and equipment, net	29,681			24,061
Trademarks and other intangible assets, less accumulated amortization of $128,587 and $152,821, respectively	213,432			189,198
Goodwill	107,209			107,209
Deferred financing costs, less accumulated amortization of $5,995 and $6,712, respectively	13,705			14,542
Non-current portion of note receivable from director	3,430			2,596
Investment in equity affiliate	362			383
Other non-current assets	1,309			1,171
Total assets	$	497,706		$	442,742

LIABILITIES AND STOCKHOLDER’S DEFICIT
Accounts payable	$	16,237		$	13,752
Income taxes payable	1,933			1,055
Accrued interest expense	12,855			6,269
Accrued trade and consumer promotions	18,648			12,999
Accrued expenses and other liabilities	18,692			17,588
Current maturities of long-term obligations	25,750			8,187
Total current liabilities	94,115			59,850
Long-term obligations	415,428			429,472
Deferred income tax liabilities	14,317			17,998
Other liabilities	14,257			13,135
Total liabilities	538,117			520,455
Commitments and contingencies (Note 8)
Stockholder’s Deficit:
Common stock, $0.01 par value, 100 shares authorized, issued and outstanding	—			—
Due for purchase of shares in Merisant Worldwide, Inc.	(767		)	(767		)
Retained deficit	(32,613		)	(70,194		)
Accumulated other comprehensive loss	(7,031		)	(6,752		)
Total stockholder’s deficit	(40,411		)	(77,713		)
Total liabilities and stockholder’s deficit	$	497,706		$	442,742

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

MERISANT COMPANY
Unaudited Consolidated Statements of Operations and
Comprehensive Income (Loss)
(Dollars In Thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2006			2005			2006
Net sales	$	75,072		$	68,430		$	230,136		$	216,726
Cost of sales	31,420			29,720			96,157			91,339

Gross profit	43,652			38,710			133,979			125,387

Operating expenses:
Marketing and selling expenses	17,113			17,025			57,987			56,134
Administration expenses	9,514			9,062			31,495			31,543
Amortization of intangible assets	5,554			5,553			16,662			16,661
Transaction fees	—			—			(107		)	3,300
Net loss on long lived assets	301			7,788			301			7,788
Restructuring expenses	342			1,441			2,254			5,037

Total operating expenses	32,824			40,869			108,592			120,463

Income (loss) from operations	10,828			(2,159		)	25,387			4,924

Other expense (income):
Interest income	(137		)	(104		)	(607		)	(468		)
Interest expense	11,697			12,141			34,719			36,882
Other expense (income), net	(1,175		)	(1,094		)	(10,068		)	444

Total other expense	10,385			10,943			24,044			36,858

Income (loss) before income taxes	443			(13,102		)	1,343			(31,934		)
Provision for income taxes	1,376			2,206			5,306			5,147

Net loss	$	(933	)	$	(15,308	)	$	(3,963	)	$	(37,081	)

Net loss from above	$	(933	)	$	(15,308	)	$	(3,963	)	$	(37,081	)
Other comprehensive income (loss)	1,051			(581		)	(2,121		)	279

Total comprehensive income (loss)	$	118		$	(15,889	)	$	(6,084	)	$	(36,802	)

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

MERISANT COMPANY
Unaudited Consolidated Statement of Stockholder’s Deficit
(Dollars In Thousands)

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

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

MERISANT COMPANY
Unaudited Consolidated Statements of Cash Flows
(Dollars In Thousands)

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

Cash and cash equivalents at beginning of period	9,096			18,064
Cash and cash equivalents at end of period	$	13,029		$	9,692

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

MERISANT COMPANY
Notes to Unaudited Consolidated Financial Statements
(Dollars In Thousands)

1. Principles of Consolidation

The consolidated financial statements and notes do not contain certain information included in the annual consolidated financial statements and notes of Merisant Company and subsidiaries. Unless otherwise indicated or unless the context otherwise requires, all references to the “Company” mean Merisant Company and its consolidated subsidiaries. The consolidated balance sheet at December 31, 2005 was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The remaining consolidated financial statements are unaudited. In the opinion of management, all normal, recurring adjustments necessary for a fair presentation of such unaudited financial statements have been included therein. For interim reporting purposes, certain marketing and advertising expenses are charged to results of operations as a percentage of sales. Interim results may not be indicative of results for a full year. These unaudited consolidated financial statements and notes should be read in conjunction with the Company’s annual consolidated financial statements.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company adopted FASB No. 123(R), “Share-Based Payment—An Amendment of FASB Statements No. 123 and 95” on January 1, 2006, which requires a fair value approach to expensing the cost of stock-based payments to employees. Adoption of this pronouncement had no impact on the Company’s consolidated financial statements. The Company is in the process of evaluating the impact, if any, that the adoption of FASB Interpretation No. 48, “Accounting for the Uncertainty in Income Taxes” (“FIN 48”), will have on the Company’s consolidated financial statements. The purpose of FIN 48 is to increase the relevance and comparability in financial reporting of income taxes through clarification and consistent criteria in the accounting for uncertainty in income taxes and to require more complete information for users of the financial statements through expanded disclosures. Adoption of FIN 48 is required by the first interim reporting period in 2007.

2. Segment Information

The Company manufactures and markets primarily low-calorie tabletop sweeteners globally. Therefore, the Company’s reportable segments 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 management reviews Operating EBITDA to evaluate segment performance and allocate resources. Operating EBITDA consists of segment earnings before interest expense, income tax expense, depreciation and amortization as well as items such as expenses related to start up costs, restructuring charges, certain significant charges related to new product development and launch costs, costs related to the transition to a new exclusive distributor in the United States and 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, except for the portion of other expense (income), net that relates to the foreign currency transaction gains or losses associated with the Company’s euro-denominated debt (see Note 6), unrealized gains or losses on derivative instruments and certain other non-recurring gains and non-cash losses. Corporate expenses include corporate staff and related amounts. Corporate expenses, interest and other expenses and the provision for income taxes are centrally managed and, accordingly, such items are not presented by segment since they are excluded from the measure of segment performance reviewed by management. The Company launched a new product line in North America in the first quarter of 2006 which management will be evaluating and managing separately from its other North American operations. As such, this item will also be excluded from the measure of segment performance reviewed by management. The Company’s assets, which are principally in the United States and Europe, are also managed geographically. A summary of the Company’s results of operations by reportable segment for the three and nine months ended September 30, 2005 and 2006 is as follows:

For the Three Months Ended September 30, 2005

	North America		EAME		Latin America		Asia/ Pacific		Consolidated
Total net sales for reportable segments	$	29,482	$	31,940	$	8,169	$	5,481	$			75,072

Operating EBITDA	$	11,741	$	10,327	$	2,173	$	1,000	$		25,241
Less (plus):
Corporate expenses									5,497
Restructuring expense									342
Depreciation expense									2,758
Net loss on long lived assets									301
Amortization expense									5,554
Currency gain on euro debt									(428				)
Unrealized gain on derivative instruments									(800				)
Other non-cash expense									14
Other income, net									1,175
Income from operations									10,828
Interest expense, net									11,560
Other income, net									(1,175				)
Income before income taxes									$	443

For the Three Months Ended September 30, 2006

	North America		EAME		Latin America		Asia/ Pacific		Consolidated
Total net sales for reportable segments	$	25,854	$	27,388	$	9,612	$	5,566	$			68,420
Net sales related to new product launch									10
Total consolidated net sales									$			68,430

Operating EBITDA	$	8,983	$	8,097	$	3,093	$	1,380	$		21,553
Less (plus):
Corporate expenses									5,236
Restructuring expense									1,441
Depreciation expense									2,151
Net loss on long lived assets									7,788
Amortization expense									5,553
Currency loss on euro debt									241
Gain on liquidation or sale of subsidiary									(1,119				)
Loss related to new product launch									1,217
Transition costs for new exclusive distributor in the United States									106
Other non-cash expense									4
Other income, net									1,094
Loss from operations									(2,159				)
Interest expense, net									12,037
Other income, net									(1,094				)
Loss before income taxes									$	(13,102			)

For the Nine Months Ended September 30, 2005

	North America		EAME		Latin America		Asia/ Pacific		Consolidated
Total net sales for reportable segments	$	87,020	$	103,751	$	23,800	$	15,565	$		230,136

Operating EBITDA	$	30,536	$	29,907	$	6,122	$	4,003	$		70,568
Less (plus):
Corporate expenses									17,829
Restructuring expense									2,254
Depreciation and impairment expense									8,036
Net loss on long lived assets									301
Amortization expense									16,662
Currency gain on euro debt									(5,228			)
Unrealized gain on derivative instruments									(4,783			)
Provision for doubtful accounts excluded from Operating EBITDA									141
Transaction fees									(107			)
Other non-cash expense									8
Other income, net									10,068
Income from operations									25,387
Interest expense, net									34,112
Other income, net									(10,068			)
Income before income taxes									$	1,343

For the Nine Months Ended September 30, 2006

	North America		EAME		Latin America		Asia/ Pacific		Consolidated
Total net sales for reportable segments	$	88,770	$	88,130	$	24,318	$	15,471	$			216,689
Net sales related to new product launch									37
Total consolidated net sales									$			216,726

Operating EBITDA	$	31,831	$	23,816	$	6,719	$	4,742	$		67,108
Less (plus):
Corporate expenses									19,318
Restructuring expense									5,037
Depreciation expense									6,527
Net loss on long lived assets									7,788
Amortization expense									16,661
Currency loss on euro debt									2,169
Realized gain on derivative instruments									(694				)
Gain on liquidation or sale of subsidiary									(975				)
Loss related to new product launch									2,704
Transition costs for new exclusive distributor in the United States									779
Transaction fees									3,300
Other non-cash expense									14
Other expense, net									(444				)
Income from operations									4,924
Interest expense, net									36,414
Other expense, net									444
Loss before income taxes									$	(31,934			)

3. Restructuring Expenses

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

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

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

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

The following table represents restructuring expenses included in each segment and corporate expenses for the three and nine months ended September 30, 2005 and 2006:

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

4. Inventories

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

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

Total	$	29,201		$	20,055

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

5. Net Loss on Long Lived Assets

The Company manufactures and sells product using the NutraSweet® trademark under a license agreement with The NutraSweet Company. The value of this license agreement is classified as an Intangible asset on the balance sheet and was being amortized over a 15 year life commencing in March 2000. The majority of the impairment loss reported for the three and nine months ended September 30, 2006 relates to this license agreement. The license agreement requires the purchase of an annual minimum volume of aspartame from The NutraSweet Company to continue the use of the trademark. In the third quarter of 2006, the Company determined that, as a result of the initiation of a multi-supplier strategy for aspartame to substantially improve the cost efficiency of its aspartame supply, it will not require the minimum purchase volume needed in 2006 to maintain the license agreement. The license agreement will not automatically terminate upon the Company’s failure to meet the minimum purchase requirement; instead, The NutraSweet Company must deliver written notice to the Company of termination, which would be effective six months after such notice or when stock on hand as of the date of the notice is depleted, whichever is later. Although the Company cannot be certain if or when it will receive written notice of termination, it has determined that an adjustment was required to the estimated remaining useful life of the trademark and performed an impairment analysis. After a review of the undiscounted estimated future cash flows of this intangible asset and its carrying value, the Company determined that an impairment existed. The Company recorded an impairment loss relating to this intangible asset during the third quarter of $7,577. The impairment loss was calculated as the difference between the carrying value of the intangible asset and the estimated fair value of the license agreement using a traditional cash flow approach to present value. The impaired intangible asset is reported in the North America and EAME segments. This non-cash accounting loss has no impact on the statement of cash flows or Operating EBITDA and the Company is implementing programs aimed at neutralizing any future cash flow impact from any discontinuation of the NutraSweet® product line.

6. Debt

The Company and its parent, Merisant Worldwide, Inc. (“Merisant Worldwide”), are highly leveraged. At September 30, 2006, Merisant Worldwide and its subsidiaries, including the Company, had $544,086 of long-term debt outstanding, consisting of $106,537 aggregate principal amount of Merisant Worldwide’s 12 ¼% senior subordinated discount notes due 2014, $225,000 aggregate principal amount of the Company’s 9 ½% senior subordinated notes due 2013 (the “Notes”), $127,549 aggregate principal amount outstanding under the Company’s senior credit agreement (the “Senior Credit Agreement”) and $85,000 aggregate principal amount outstanding under the Company’s second lien credit agreement (the “Second Lien Credit Agreement”), excluding capital lease obligations of $110 and unused commitments on the revolving portion of the Senior Credit Agreement.

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

At September 30, 2006, borrowings under the Second Lien Credit Agreement included $85,000 aggregate principal amount of term loans bearing annual interest of 13.98%.

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

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

On June 23, 2006, the Company entered into the Second Lien Credit Agreement. The Second Lien Credit Agreement consists of an aggregate of $85,000 principal amount of term loans, the net proceeds of which were used to prepay $9,540 of euro-denominated Term A loans, prepay $53,320 of Term B loans and to repay $15,000 of revolving loans, in each case, outstanding under the Senior Credit Agreement. The maturity date of the term loans outstanding under the Second Lien Credit Agreement is June 11, 2010. The Second Lien Credit Agreement satisfied the Company’s refinancing obligation under the Fourth Amendment and the interest rate on loans under the Senior Credit Agreement reverted to euro-LIBOR or LIBOR plus 325 basis points upon the completion of the Second Lien Credit Agreement. In conjunction with the Second Lien Credit Agreement, the Company incurred fees of approximately $7,451, of which $4,151 are being amortized over the term of the loan and $3,300 were recorded as transaction fees. The extinguishment of the debt under the Senior Credit Agreement resulted in a write-off of existing deferred financing fees totaling $2,478. Depending on the type of borrowing by the Company, the applicable interest rate under the Second Lien Credit Agreement is calculated as a per annum rate equal to (a) LIBOR plus 850 basis points or (b) (i) the greater of (x) the prime rate or (y) the federal funds effective rate plus 0.5% plus (ii) 750 basis points.

The Second Lien Credit Agreement contains provisions for mandatory prepayments of outstanding loans with 100% of the net cash proceeds of asset sales, recovery events and debt issuances and 50% of the net cash proceeds of equity issuances, subject to certain exceptions. The Company may prepay the term loans under the Second Lien Credit Agreement in whole or in part at any time. If the Company makes any such prepayments during the first three years of the credit facility, it must pay a premium of 3%, 2% and 1% of the aggregate principal amount of term loans prepaid in the first, second and third years of the Second Lien Credit Agreement, respectively, except that these prepayment premiums will be reduced to 1.5%, 1% and 0.5%, respectively, on the first $25,500 aggregate principal amount of the term loans prepaid with the net cash proceeds from an equity issuance by Merisant Worldwide.

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

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

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

7. Transactions with Related Parties

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

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

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

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

On March 28, 2006, the Company acquired from Pegasus Partners II, L.P., which controls the principal stockholder of Merisant Worldwide, all of the issued and outstanding limited liability interests of Whole Earth Sweetener Company LLC for $1. At the time of the acquisition, the only assets of Whole Earth Sweetener Company LLC were trademark applications for the Sweet Simplicity trademark.

During the nine months ended September 30, 2005 and 2006, the Company made distributions of $1,023 and $500, respectively, to its sole stockholder, Merisant Worldwide.

8. Commitments and Contingencies

The Company has an investment in an affiliate located in the Philippines that is accounted for using the equity method. The affiliate, a 50/50 joint venture, distributes sugar substitute sweeteners for the international consumer food markets, primarily under the Equal® and Nutrasweet® brands. In addition to its investment in the joint venture, the Company is committed to a 50% share in any new borrowings of the joint venture. As of December 31, 2005 and September 30, 2006, there were no additional joint venture borrowings.

Merisant Europe B.V.B.A., the Company’s Belgium subsidiary, entered into a co-branding agreement with Galleria Srl, a company through which the Italian designer Elio Fiorucci operates. Under this co-branding arrangement, Merisant Europe produced a line of Canderel® tablet dispensers that featured designs and trademarks from Mr. Fiorucci’s “Love Therapy by Elio Fiorucci” collection. The co-branding arrangement contains a representation and warranty that Galleria owns all rights in the name “Love Therapy by Elio Fiorucci” and associated designs and further provides that Galleria will indemnify and hold Merisant Europe and its affiliates harmless against damages resulting from or related to their use of the name and designs pursuant to the agreement. Beginning in 2005, Merisant Europe sold tablet dispensers with the “Love Therapy by Elio Fiorucci” designs in Italy. Edwin & Co. Ltd. has claimed that it owns all rights in Mr. Fiorucci’s name and in the designs used by the Company and has filed suit against Merisant Europe in Milan, Italy. On or about March 17, 2006, the court in Milan enjoined Merisant Europe from producing or selling the tablet dispensers after the date of the court order. The Company no longer produces the dispensers and has stopped selling dispensers to its distributor in Italy and to customers through the Internet. Merisant Europe has filed an appeal and will vigorously oppose the court’s order. Merisant Europe will also enforce its indemnification rights under its co-branding arrangement with Galleria Srl.

H. J. Heinz Company (“Heinz”) and Merisant US, Inc. entered into a termination agreement dated March 31, 2006 pursuant to which the Heinz retail grocery and foodservice distribution agreements were terminated effective May 4, 2006. In accordance with the termination agreement, the Company placed $2,500 into an escrow account on May 3, 2006 for the purpose of reimbursing Heinz for expenses incurred by Heinz relating to trade promotion programs associated with products distributed by Heinz prior to May 4, 2006 and that had been approved by the Company. Unused funds and earned interest totaling $1,512 and $29, respectively, were remitted from the escrow account to the Company in the third quarter of 2006 and the escrow account was closed as of September 30, 2006. At September 30, 2006, the Company believes that sufficient reserves are in place to address any remaining obligations to Heinz. ACH Food Companies, Inc. became the Company’s exclusive distributor in the United States effective May 5, 2006.

The Company has an obligation to indemnify Monsanto, the Company’s prior owner, for certain liabilities that may arise out of the business or assets purchased on March 17, 2000. The Company does not believe that this indemnification obligation will have a material adverse effect on the Company’s consolidated financial position or results of operations.

The Company is subject to various other claims, pending and possible legal actions for product liability and other damages, and other matters arising out of the conduct of the Company’s business, including tax uncertainties arising from doing business in various European jurisdictions. The Company believes, based on current knowledge, recorded accruals,

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

9. Consolidating Guarantor and Non-Guarantor Financial Information

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

Unaudited Consolidating Statement of Operations
For the Three Months Ended September 30, 2005

	Merisant Company			Guarantor Companies			Non-Guarantor Companies			Consolidating Eliminations			Consolidated

Net sales	$	—		$	29,983		$	46,410		$	(1,321	)	$	75,072
Cost of sales	—			13,727			19,014			(1,321		)	31,420

Gross profit	—			16,256			27,396			—			43,652

Operating expenses:
Marketing and selling expenses	—			5,407			11,706			—			17,113
Administration expenses	7			6,497			3,010			—			9,514
Amortization of intangible assets	2,164			—			3,390			—			5,554
Net loss on long lived assets	—			143			158			—			301
Restructuring expenses	—			(15		)	357			—			342

Total operating expenses	2,171			12,032			18,621			—			32,824

Income (loss) from operations	(2,171		)	4,224			8,775			—			10,828

Other expense (income):
Interest income	(3,678		)	(4		)	(55		)	3,600			(137		)
Interest expense	11,692			3,250			355			(3,600		)	11,697
Other expense (income), net	(5,576		)	4,336			65			—			(1,175		)

Total other expense (income)	2,438			7,582			365			—			10,385

Income (loss) before income taxes and equity in consolidated subsidiaries	(4,609		)	(3,358		)	8,410			—			443
Provision (benefit) for income taxes	(2,070		)	676			2,770			—			1,376
Equity in consolidated subsidiaries	1,606			5,640			—			(7,246		)	—

Net income (loss)	$	(933	)	$	1,606		$	5,640		$	(7,246	)	$	(933	)

Unaudited Consolidating Statement of Operations
For the Three Months Ended September 30, 2006

	Merisant Company			Guarantor Companies			Non- Guarantor Companies			Consolidating Eliminations			Consolidated

Net sales	$	—		$	28,523		$	41,428		$	(1,521	)	$	68,430
Cost of sales	—			13,312			17,929			(1,521		)	29,720

Gross profit	—			15,211			23,499			—			38,710

Operating expenses:
Marketing and selling expenses	—			6,778			10,247			—			17,025
Administration expenses	10			6,773			2,279			—			9,062
Amortization of intangible assets	2,164			—			3,389			—			5,553
Net loss on long lived assets	3,026			194			4,568			—			7,788
Restructuring expenses	—			488			953			—			1,441

Total operating expenses	5,200			14,233			21,436			—			40,869

Income (loss) from operations	(5,200		)	978			2,063			—			(2,159		)

Other expense (income):
Interest income	(66		)	(36		)	(344		)	342			(104		)
Interest expense	12,453			7			23			(342		)	12,141
Other expense (income), net	298			27			(1,419		)	—			(1,094		)

Total other expense (income)	12,685			(2		)	(1,740		)	—			10,943

Income (loss) before income taxes and equity in consolidated subsidiaries	(17,885		)	980			3,803			—			(13,102		)
Provision for income taxes	202			996			1,008			—			2,206
Equity in consolidated subsidiaries	2,779			2,795			—			(5,574		)	—

Net income (loss)	$	(15,308	)	$	2,779		$	2,795		$	(5,574	)	$	(15,308	)

Unaudited Consolidating Statement of Operations
For the Nine Months Ended September 30, 2005

	Merisant Company			Guarantor Companies			Non- Guarantor Companies			Consolidating Eliminations			Consolidated

Net sales	$	—		$	88,580		$	146,134		$	(4,578	)	$	230,136
Cost of sales	—			41,640			59,095			(4,578		)	96,157

Gross profit	—			46,940			87,039			—			133,979

Operating expenses:
Marketing and selling expenses	—			18,623			39,364			—			57,987
Administration expenses	97			20,848			10,550			—			31,495
Amortization of intangible assets	6,492			—			10,170			—			16,662
Transaction fees	(107		)	—			—			—			(107		)
Net loss on long lived assets	—			143			158			—			301
Restructuring expenses	—			354			1,900			—			2,254

Total operating expenses	6,482			39,968			62,142			—			108,592

Income (loss) from operations	(6,482		)	6,972			24,897			—			25,387

Other expense (income):
Interest income	(10,336		)	(205		)	(169		)	10,103			(607		)
Interest expense	34,693			8,674			1,455			(10,103		)	34,719
Other expense (income), net	(23,027		)	12,979			(20		)	—			(10,068		)

Total other expense (income)	1,330			21,448			1,266			—			24,044

Income (loss) before income taxes and equity in consolidated subsidiaries	(7,812		)	(14,476		)	23,631			—			1,343
Provision (benefit) for income taxes	(2,070		)	3,098			4,278			—			5,306
Equity in consolidated subsidiaries	1,779			19,353			—			(21,132		)	—

Net income (loss)	$	(3,963	)	$	1,779		$	19,353		$	(21,132	)	$	(3,963	)

Unaudited Consolidating Statement of Operations
For the Nine Months Ended September 30, 2006

	Merisant Company			Guarantor Companies			Non- Guarantor Companies			Consolidating Eliminations			Consolidated

Net sales	$	—		$	95,040		$	125,085		$	(3,399	)	$	216,726
Cost of sales	—			42,132			52,606			(3,399		)	91,339

Gross profit	—			52,908			72,479			—			125,387

Operating expenses:
Marketing and selling expenses	—			23,715			32,419			—			56,134
Administration expenses	145			22,669			8,729			—			31,543
Amortization of intangible assets	6,492			—			10,169			—			16,661
Transaction fees	3,300			—			—			—			3,300
Net loss on long lived assets	3,026			194			4,568			—			7,788
Restructuring expenses	—			673			4,364			—			5,037

Total operating expenses	12,963			47,251			60,249			—			120,463

Income (loss) from operations	(12,963		)	5,657			12,230			—			4,924

Other expense (income):
Interest income	(198		)	(83		)	(770		)	583			(468		)
Interest expense	37,430			5			30			(583		)	36,882
Other expense (income), net	1,548			399			(1,503		)	—			444

Total other expense (income)	38,780			321			(2,243		)	—			36,858

Income (loss) before income taxes and equity in consolidated subsidiaries	(51,743		)	5,336			14,473			—			(31,934		)
Provision for income taxes	1,546			1,903			1,698			—			5,147
Equity in consolidated subsidiaries	16,208			12,775			—			(28,983		)	—

Net income (loss)	$	(37,081	)	$	16,208		$	12,775		$	(28,983	)	$	(37,081	)

Condensed Consolidating Balance Sheet
At December 31, 2005

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

Unaudited Condensed Consolidating Balance Sheet
at September 30, 2006

	Merisant Company			Guarantor Companies		Non- Guarantor Companies			Consolidating Eliminations			Consolidated
Assets
Cash and cash equivalents	$	68		$	1,088	$	8,536		$	—		$	9,692
Trade accounts receivable, net of allowances	—			12,717		49,996			—			62,713
Other receivables and intercompany receivables	151			5,091		5,537			(4,898		)	5,881
Inventories	—			12,356		7,699			—			20,055
Other current assets	626			2,794		1,821			—			5,241
Total current assets	845			34,046		73,589			(4,898		)	103,582
Property and equipment, net	—			17,688		6,373			—			24,061
Trademarks and other intangible assets, less accumulated amortization	70,193			—		119,005			—			189,198
Goodwill	—			107,209		—			—			107,209
Deferred financing costs, less accumulated amortization	14,542			—		—			—			14,542
Other non-current assets	2,596			515		656			—			3,767
Investment in subsidiary and intercompany debt	316,539			216,598		383			(533,137		)	383
Total assets	$	404,715		$	376,056	$	200,006		$	(538,035	)	$	442,742

Liabilities
Accounts payable and intercompany payable	$	34,881		$	9,843	$	6,879		$	(37,851	)	$	13,752
Income taxes payable	—			—		1,055			—			1,055
Accrued expenses and other liabilities	6,322			13,952		16,582			—			36,856
Current maturities of long-term obligations	8,146			42		(1		)	—			8,187
Total current liabilities	49,349			23,837		24,515			(37,851		)	59,850
Long-term obligations and intercompany debt	429,404			176,610		—			(176,542		)	429,472
Other liabilities	3,675			27,147		311			—			31,133
Total liabilities	482,428			227,594		24,826			(214,393		)	520,455
Stockholder’s Equity (Deficit)
Total stockholder’s equity (deficit)	(77,713		)	148,462		175,180			(323,642		)	(77,713		)
Total liabilities and stockholder’s equity (deficit)	$	404,715		$	376,056	$	200,006		$	(538,035	)	$	442,742

Unaudited Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2005

	Merisant Company			Guarantor Companies			Non- Guarantor Companies			Consolidating Eliminations			Consolidated

Operating activities
Net cash provided by (used in) operating activities	$	(14,357	)	$	(18,300	)	$	58,879		$	(21,132	)	$	5,090

Investing activities
Proceeds from sale of fixed assets	—			—			96			—			96
Purchases of property and equipment	—			(1,302		)	(1,814		)	—			(3,116		)

Net cash used in investing activities	—			(1,302		)	(1,718		)	—			(3,020		)

Financing activities
Borrowings under revolving credit agreement	12,000			—			—			—			12,000
Principal payments on long-term obligations	(7,166		)	(155		)	—			—			(7,321		)
Payment of deferred financing costs	(1,399		)	—			—			—			(1,399		)
Receivable/payable, parent company	11,744			21,961			(54,837		)	21,132			—
Distribution to stockholder	(1,023		)	—			—			—			(1,023		)

Net cash provided by (used in) financing activities	14,156			21,806			(54,837		)	21,132			2,257

Effect of exchange rate on cash	—			—			(394		)	—			(394		)

Net (decrease) increase in cash and cash equivalents	(201		)	2,204			1,930			—			3,933

Cash and cash equivalents at beginning of period	245			—			8,851			—			9,096

Cash and cash equivalents at end of period	$	44		$	2,204		$	10,781		$	—		$	13,029

Unaudited Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2006

	Merisant Company			Guarantor Companies			Non- Guarantor Companies			Consolidating Eliminations			Consolidated

Operating activities
Net cash provided by (used in) operating activities	$	(42,358	)	$	16,793		$	58,903		$	(28,983	)	$	4,355

Investing activities
Proceeds from sale of property and equipment	—			—			207			—			207
Purchases of property and equipment	—			(1,371		)	(281		)	—			(1,652		)

Net cash used in investing activities	—			(1,371		)	(74		)	—			(1,445		)

Financing activities
Net payments under revolving credit agreement	(16,000		)	—			—			—			(16,000		)
Borrowings under long-term obligations	85,000			95			—			—			85,095
Principal payments on long-term obligations, excluding revolving credit facility	(74,408		)	(109		)	—			—			(74,517		)
Payment of deferred financing costs	(5,644		)	—			—			—			(5,644		)
Receivable/payable, parent company	53,880			(15,244		)	(67,619		)	28,983			—
Distribution to stockholder	(500		)	—			—			—			(500		)

Net cash provided by (used in) financing activities	42,328			(15,258		)	(67,619		)	28,983			(11,566		)

Effect of exchange rate on cash	—			—			284			—			284

Net increase (decrease) in cash and cash equivalents	(30		)	164			(8,506		)	—			(8,372		)

Cash and cash equivalents at beginning of period	98			924			17,042			—			18,064

Cash and cash equivalents at end of period	$	68		$	1,088		$	8,536		$	—		$	9,692

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

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

Overview

Merisant is a worldwide leader in the marketing of low-calorie tabletop sweeteners, with an estimated 24% dollar share as of December 31, 2005 of a growing global retail market, which the Company estimates at $1.5 billion. Merisant believes that it has the leading dollar market share as of December 31, 2005 in approximately half of what it estimates as the top 20 markets for low-calorie tabletop sweetener sales. The Company’s premium-priced brands, Equal® and Canderel®, are among the most recognized low-calorie tabletop sweetener products in the world, with aided brand awareness estimated at between 77% and 97% in the Company’s four top markets. In addition to Equal® and Canderel®, Merisant markets its products under approximately 20 other regional brands that enjoy significant brand recognition in their target markets. Merisant sells its brands in over 85 countries.

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

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

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

Sales Trends and Strategy

Merisant’s premium-priced brands had enjoyed a dominant market position among low-calorie sweeteners in many of the Company’s key markets. In recent years, however, the Company has faced significant competition from McNeil Nutritionals LLC, a subsidiary of Johnson & Johnson (“McNeil”), which markets and distributes the artificial sweetener Splenda®. Splenda ® is sweetened with sucralose, which is produced by Tate & Lyle PLC through a complex chemical process that converts sucrose molecules into a synthetic compound. Between December 2002 and December 2005, Splenda®’s dollar share of the United States retail grocery low-calorie sweetener market has grown from approximately 15% to 60% and has surpassed that of Equal ® to become the number one premium low-calorie sweetener in the United States. While the Company believes that the introduction of Splenda® has increased the size of the market for low-calorie sweeteners in general, the Company’s net sales have declined during this period, particularly in North America which had accounted for 46% and 37% of its net sales in 2003 and 2005, respectively. As a result of declining net sales, Merisant has experienced significant declines in its Bank EBITDA from $110.2 million in 2003 to $68.0 million in 2005. For a description of Bank EBITDA and a reconciliation of Bank EBITDA to cash flow from operating activities, see “—Liquidity and Capital Resources”.

Management believes that there are opportunities for future growth in the low-calorie tabletop sweetener and sweetened food category and that the Company is positioned to pursue these opportunities. Despite recent declines in net sales, the Company’s premium brands Equal ® and Canderel ® are among the most recognized low-calorie tabletop sweetener products in the world, with aided brand awareness estimated between 77% and 97% in its top four markets.

Paul Block was appointed Chief Executive Officer in November 2004 and has led an initiative to strengthen the Company’s core brands, improve the efficiency of the its operations, reduce costs and transform the Company into a consumer focused sweetener and sweetened food company. Mr. Block has recruited individuals from outside the Company and promoted individuals from within the organization to form a new senior management team with the goal of developing a culture of innovation with a focus on invasive marketing campaigns combined with the development and launch of new products designed to revitalize the existing consumer base and attract new consumers.

The Company seeks to stabilize and then grow revenues through the following four strategic initiatives:

· Promote new usage among existing consumers and expand the Equal ® and Canderel ® brand positioning to attract new consumers through invasive marketing campaigns and improved sales execution.

· Increase the pace of product innovation to bring new aspartame sweetened products and brand extensions to the market. The Company plans to launch several new products in 2006 with numerous additional products in the development pipeline.

· Dedicate significant resources to improving the efficiency of operations by, among other things, implementing supply chain-based programs to streamline manufacturing capabilities and improving the efficiency of certain support services. The Company has successfully reduced costs and made its business more efficient, which has resulted in a significant positive contribution to Bank EBITDA in 2006.

· Develop and test products that have the potential to transform the Company’s brand portfolio. The Company has developed an all-natural, zero-calorie sweetener, which can now be found on-shelf in all Wild Oats retail outlets in the United States. Nearly all divisions of Whole Foods have also accepted the product with stores beginning to order inventory recently and this product has also been sold into approximately 100 independent organic retail outlets across the United States. This innovative product is being marketed under the Sweet Simplicity™ brand for the Whole Earth Sweetener Company LLC, a newly formed entity and wholly owned subsidiary of Merisant.

Management believes that the development and introduction of new products under its Equal ® and Canderel ® brands may help to stabilize its core business while innovative, all-natural sweeteners and sweetened food products under its Sweet Simplicity™ brand for the Whole Earth Sweetener Company present growth opportunities for the Company. However, the Company may be constrained in its ability to realize fully the value of these new products as a result of its current capital structure. The successful launch of new products and marketing of its core brands requires capital, and Merisant must use a significant portion of its cash flows from operations to service its outstanding debt. The Company had an aggregate of $437.6 million of long-term debt outstanding at September 30, 2006 and paid $41.9 million in interest costs for the year ended December 31, 2005, $23.0 million of which represented interest payments on Merisant’s 9 ½% senior subordinated notes due 2013 (the “Notes”). If the Company cannot generate cash flows from operations significantly in excess of its short-term debt obligations, it may not have the resources required to fully realize the value of its strategic initiatives.

Recent Financing Activities

Merisant’s Bank EBITDA declined from $110.2 million in 2003 to $68.0 million in 2005. As a result of this decline, the Company faced an issue in the first quarter of 2006 with a possible immediate default under its senior credit agreement (the “Senior Credit Agreement”). Merisant succeeded in negotiating amendments to the Senior Credit Agreement which may afford the Company time to stabilize its core business, improve operating efficiencies and provide more flexibility to address the Company’s capital structure and long-term capital needs. Merisant also refinanced a portion of loans outstanding under the Senior Credit Agreement with the proceeds of loans under a senior credit facility that is secured by a second lien on all the collateral that secures loans outstanding under the Senior Credit Agreement (the “Second Lien Credit Agreement”). For a description of Bank EBITDA and a reconciliation of Bank EBITDA to cash flows from operating activities, see “—Liquidity and Capital Resources”.

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

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

Results of Operations

For each of the periods discussed below, the information set forth under the caption “Consolidated Results” represents an overview of the Company’s results of operations on a consolidated basis. Additional detail regarding the results of operations can be found under the caption “—Segment Results” for each period discussed below.

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

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

	Three Months Ended September 30,						Three Months Ended September 30,
	2005			2006			2005		2006		Better/(Worse) than Prior Year
	(in millions)						As% of Net Sales				Dollars			%
Net sales	$	75.1		$	68.4		100	%	100	%	$	(6.6	)	(9	)%
Cost of sales	31.4			29.7			42	%	43	%	1.7			5	%
Gross profit	43.7			38.7			58	%	57	%	(4.9		)	(11	)%

Operating expenses:
Marketing and selling expenses	17.1			17.0			23	%	25	%	0.1			1	%
Administration expenses	9.1			8.5			12	%	12	%	0.6			6	%
Research and development expenses	0.4			0.5			1	%	1	%	(0.1		)	(37	)%
Amortization of intangibles	5.6			5.6			7	%	8	%	0.0			0	%
Net loss on long lived assets	0.3			7.8			0	%	11	%	(7.5		)	(2487	)%
Restructuring expenses	0.3			1.4			0	%	2	%	(1.1		)	(321	)%
Total operating expenses	32.8			40.9			44	%	60	%	(8.0		)	(25	)%

Income (loss) from operations	10.8			(2.2		)	14	%	(3	)%	(13.0		)	(120	)%

Other expenses (income):
Interest income	(0.1		)	(0.1		)	(0	)%	(0	)%	(0.0		)	(24	)%
Interest expense	11.7			12.1			16	%	18	%	(0.4		)	(4	)%
Other expense (income), net	(1.2		)	(1.1		)	(2	)%	(2	)%	(0.1		)	(7	)%
Total other expenses	10.4			10.9			14	%	16	%	(0.6		)	(5	)%

Income (loss) before income taxes	0.4			(13.1		)	1	%	(19	)%	(13.5		)	(3058	)%

Provision for income taxes	1.4			2.2			2	%	3	%	(0.8		)	(60	)%
Net loss	$	(0.9	)	$	(15.3	)	(1	)%	(22	)%	$	(14.4	)	(1541	)%

Consolidated Results

Net sales. Overall, net sales declined in the third quarter of 2006 compared to the third quarter of 2005. The decline was related to lower sales in the North America and EAME regions. In North America, increased trade marketing in the grocery and food service channels and unfavorable s

MERISANT CO 10-Q