##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from  to
 Commission File Number 333-106666
 JAFRA WORLDWIDE HOLDINGS (Lux) S.àR.L.
 
  Luxembourg
(State or other jurisdiction of
Incorporation or organization)
    
    98-0399297
(I.R.S. Employer
Identification Number)
 382-386 Route de Longwy
L-1940 Luxembourg
Luxembourg
 (352) 226027
 þ o
  o o þ
 o þ




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##### 



JAFRA WORLDWIDE HOLDINGS (Lux) S.àR.L. AND SUBSIDIARIES
    Page No.PART I  FINANCIAL INFORMATIONItem 1. (*) Financial Statements (Unaudited):Consolidated Financial Statements  Jafra Worldwide Holdings (Lux) S.àR.L.Consolidated Balance Sheets
    
    
    4Consolidated Statements of Operations
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Consolidated Financial Statements  Jafra Cosmetics International, Inc. and SubsidiariesConsolidated Balance Sheets
    
    
    15Consolidated Statements of Operations
    
    
    16Consolidated Statements of Cash Flows
    
    
    17Notes to Consolidated Financial Statements
    
    
    18Financial Statements  Distribuidora Comercial Jafra, S.A. de C.V.Balance Sheets
    
    
    24Statements of Operations
    
    
    25Statements of Cash Flows
    
    
    26Notes to Financial Statements
    
    
    27Consolidated Financial Statements  Jafra Cosmetics International, S.A. de C.V. and SubsidiariesConsolidated Balance Sheets
    
    
    32Consolidated Statements of Income
    
    
    33Consolidated Statements of Cash Flows
    
    
    34Notes to Consolidated Financial Statements
    
    
    35Item 1A. Risk Factors
    
    
    39Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    39Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    48Item 4. Controls and Procedures
    
    
    50PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    51Item 6. Exhibits
    
    
    51Signature
    
    
    52Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  2




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3 4 3 4 3 4 3 4 3 4 3 4
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share amounts)
 (Unaudited)
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    40,217
    
    
    $
    24,819Receivables, net
    
    
    43,095
    
    
    
    43,398Inventories, net
    
    
    44,910
    
    
    
    38,930Prepaid income taxes
    
    
    3,569
    
    
    
    2,590Prepaid expenses and other current assets
    
    
    8,316
    
    
    
    8,931Deferred income taxes
    
    
    20,271
    
    
    
    15,278Assets from discontinued operations
    
    
    
    
    
    
    27Total current assets
    
    
    160,378
    
    
    
    133,973Property and equipment, net
    
    
    53,466
    
    
    
    54,412Other assets:Goodwill
    
    
    64,077
    
    
    
    64,794Trademarks
    
    
    42,450
    
    
    
    43,437Deferred financing fees, employee supplemental savings plan and other assets
    
    
    12,184
    
    
    
    11,451Noncurrent assets from discontinued operations
    
    
    
    
    
    
    33Total assets
    
    $
    332,555
    
    
    $
    308,100LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    24,281
    
    
    $
    18,839Accrued liabilities
    
    
    57,688
    
    
    
    58,432Income taxes payable
    
    
    10,999
    
    
    
    4,269Deferred income taxes
    
    
    1,156
    
    
    
    Liabilities from discontinued operations
    
    
    
    
    
    
    40Total current liabilities
    
    
    94,124
    
    
    
    81,580Long-term debt
    
    
    130,000
    
    
    
    130,000Deferred income taxes
    
    
    19,741
    
    
    
    21,072Employee supplemental savings plan and other long-term liabilities
    
    
    7,165
    
    
    
    5,917Total liabilities
    
    
    251,030
    
    
    
    238,569Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Common stock, par value $100; 316,420 authorized,
issued and outstanding in 2006 and 2005
    
    
    31,642
    
    
    
    31,642Additional paid-in capital
    
    
    51,769
    
    
    
    51,769Retained earnings (deficit)
    
    
    5,279
    
    
    
    (8,390
    )Accumulated other comprehensive loss
    
    
    (7,165
    )
    
    
    (5,490
    )Total stockholders equity
    
    
    81,525
    
    
    
    69,531Total liabilities and stockholders equity
    
    $
    332,555
    
    
    $
    308,100
  4




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands)
 (Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Net sales
    
    $
    121,197
    
    
    $
    96,818Cost of sales
    
    
    27,857
    
    
    
    21,565Gross profit
    
    
    93,340
    
    
    
    75,253Selling, general and administrative expenses
    
    
    68,582
    
    
    
    60,196Income from operations
    
    
    24,758
    
    
    
    15,057Other (expense) income:Exchange loss, net
    
    
    (110
    )
    
    
    (493
    )Interest expense
    
    
    (3,885
    )
    
    
    (5,202
    )Interest income
    
    
    315
    
    
    
    110Loss on extinguishment of debt
    
    
    
    
    
    
    (9,753
    )Other expense
    
    
    (1,371
    )
    
    
    (116
    )Other income
    
    
    54
    
    
    
    29Income (loss) before income taxes
    
    
    19,761
    
    
    
    (368
    )Income tax expense
    
    
    6,092
    
    
    
    2,001Income (loss) from continuing operations
    
    
    13,669
    
    
    
    (2,369
    )Loss on discontinued operations, net of income tax
expense of $0.0 in 2005
    
    
    
    
    
    
    (10
    )Net income (loss)
    
    $
    13,669
    
    
    $
    (2,379
    )
  5




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    13,669
    
    
    $
    (2,379
    )Adjustments to reconcile net income (loss) to
net cash provided by operating activities:Depreciation
    
    
    1,207
    
    
    
    3,440Amortization and write off of deferred financing fees
    
    
    282
    
    
    
    2,571Provision for uncollectible accounts receivable
    
    
    1,949
    
    
    
    1,572Unrealized foreign exchange and derivative losses
    
    
    1,763
    
    
    
    664Deferred income taxes
    
    
    (5,190
    )
    
    
    1,484Changes in operating assets and liabilities:Receivables
    
    
    (2,498
    )
    
    
    1,947Inventories
    
    
    (6,761
    )
    
    
    (1,041
    )Prepaid expenses and other current assets
    
    
    (1,015
    )
    
    
    (637
    )Other assets
    
    
    129
    
    
    
    123Accounts payable and accrued liabilities
    
    
    7,597
    
    
    
    (3,445
    )Income taxes payable/prepaid
    
    
    5,836
    
    
    
    (4,665
    )Other long-term liabilities
    
    
    1,146
    
    
    
    433Net operating activities of discontinued operations
    
    
    20
    
    
    
    33Net cash provided by operating activities
    
    
    18,134
    
    
    
    100Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,027
    )
    
    
    (695
    )Other and investments related to employee supplemental savings plan
    
    
    (1,149
    )
    
    
    (515
    )Net cash used in investing activities
    
    
    (2,176
    )
    
    
    (1,210
    )Cash flows from financing activities:Repurchase of subordinated debt
    
    
    
    
    
    
    (69,500
    )Borrowings under revolving credit facility
    
    
    
    
    
    
    43,000Repayments under revolving credit facility
    
    
    
    
    
    
    (29,500
    )Repayment of Vorwerk note
    
    
    
    
    
    
    (20,000
    )Equity contribution from shareholder
    
    
    
    
    
    
    79,100Net cash provided by financing activities
    
    
    
    
    
    
    3,100Effect of exchange rate changes on cash
    
    
    (560
    )
    
    
    (13
    )Net increase in cash and cash equivalents
    
    
    15,398
    
    
    
    1,977Cash and cash equivalents at beginning of period
    
    
    24,819
    
    
    
    10,586Cash and cash equivalents at end of period
    
    $
    40,217
    
    
    $
    12,563
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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (1) Basis of Presentation
 société à responsabilité limitée société anonyme
    New Accounting Pronouncements.
   7




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
   (2) Inventories
  March 31,
    
    
    December 31,2006
    
    
    2005Raw materials and supplies
    
    $
    12,610
    
    
    $
    11,165Finished goods
    
    
    32,300
    
    
    
    27,765Total inventories
    
    $
    44,910
    
    
    $
    38,930
 (3) Property and Equipment
  March 31,
    
    
    December 31,2006
    
    
    2005Land
    
    $
    15,973
    
    
    $
    16,193Buildings
    
    
    18,311
    
    
    
    17,255Machinery, equipment and other
    
    
    45,039
    
    
    
    56,98279,323
    
    
    
    90,430Less accumulated depreciation.
    
    
    25,857
    
    
    
    36,018Property and equipment, net
    
    $
    53,466
    
    
    $
    54,412
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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 (4) Goodwill and Other Intangible Assets.
  United
    
    
    
    
    
    
    
    
    
    
    ConsolidatedGoodwill
    
    States
    
    
    Mexico
    
    
    Europe
    
    
    TotalBalance as of December 31, 2005
    
    $
    32,188
    
    
    $
    27,837
    
    
    $
    4,769
    
    
    $
    64,794Translation effect
    
    
    
    
    
    
    (612
    )
    
    
    (105
    )
    
    
    (717
    )Balance as of March 31, 2006
    
    $
    32,188
    
    
    $
    27,225
    
    
    $
    4,664
    
    
    $
    64,077
 (5) Income Taxes
  (6) Debt
 3 4 3 4 3 4 3 4 3 4
  3 4 3 4 3 4 3 4
 9




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 10
3/4% 3 4
 3 4 3 4 3 4 3 4 3 4
  3 4
  3 4
 10




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  (7) Restructuring Charges
  Three months endedMarch 31,2006
    
    
    2005Opening balance
    
    $
    459
    
    
    $
    2,391Payments against reserves
    
    
    (191
    )
    
    
    (454
    )Ending balance
    
    $
    268
    
    
    $
    1,937
 (8) Comprehensive Income (Loss)
  Three Months EndedMarch 31,2006
    
    
    2005Net income (loss)
    
    $
    13,669
    
    
    $
    (2,379
    )Unrealized and deferred realized gain on derivatives
    
    
    
    
    
    
    3Reclassification of deferred realized loss to
exchange loss
    
    
    
    
    
    
    8Reclassification of deferred realized loss to cost of sales
    
    
    
    
    
    
    12Foreign currency translation adjustments
    
    
    (1,675
    )
    
    
    541Comprehensive income (loss)
    
    $
    11,994
    
    
    $
    (1,815
    )
 11




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 (9) Financial Reporting for Business Segments
    United StatesAnd the
    
    
    
    
    
    
    
    
    
    Corporate,Dominican
    
    
    
    
    
    All
    
    Unallocated
    
    ConsolidatedMexico
    
    Republic
    
    Europe
    
    Others
    
    and Other
    
    Total(in thousands)As of and for the three months
ended March 31, 2006Net sales
    
    $
    90,868
    
    
    $
    22,803
    
    
    $
    7,434
    
    
    $
    92
    
    
    $
    
    
    
    $
    121,197Income (loss) from operations
    
    
    24,672
    
    
    
    3,371
    
    
    
    446
    
    
    
    (370
    )
    
    
    (3,361
    )
    
    
    24,758Depreciation
    
    
    788
    
    
    
    360
    
    
    
    50
    
    
    
    9
    
    
    
    
    
    
    
    1,207Capital expenditures
    
    
    933
    
    
    
    59
    
    
    
    27
    
    
    
    8
    
    
    
    
    
    
    
    1,027Segment assets
    
    
    227,435
    
    
    
    89,222
    
    
    
    15,991
    
    
    
    767
    
    
    
    (860
    )
    
    
    332,555Goodwill
    
    
    27,225
    
    
    
    32,188
    
    
    
    4,664
    
    
    
    
    
    
    
    
    
    
    
    64,077As of December 31, 2005Segment assets
    
    $
    210,868
    
    
    $
    82,448
    
    
    $
    15,009
    
    
    $
    776
    
    
    $
    (1,061
    )
    
    $
    308,040Assets from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    60Goodwill
    
    
    27,837
    
    
    
    32,188
    
    
    
    4,769
    
    
    
    
    
    
    
    
    
    
    
    64,794For the three months ended March
31, 2005Net sales
    
    $
    66,568
    
    
    $
    22,332
    
    
    $
    7,728
    
    
    $
    190
    
    
    $
    
    
    
    $
    96,818Income (loss) from operations
    
    
    17,415
    
    
    
    1,202
    
    
    
    474
    
    
    
    (92
    )
    
    
    (3,942
    )
    
    
    15,057Depreciation
    
    
    1,009
    
    
    
    2,313
    
    
    
    112
    
    
    
    6
    
    
    
    
    
    
    
    3,440Capital expenditures
    
    
    242
    
    
    
    403
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    695
 12




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Three months ended March 31,2006
    
    
    2005Corporate expenses
    
    $
    (3,291
    )
    
    $
    (3,241
    )Unusual charges(1)
    
    
    (70
    )
    
    
    (701
    )Total corporate, unallocated and other
    
    $
    (3,361
    )
    
    $
    (3,942
    )
 
 (1)
    
    Unusual charges include severance, loss or gain on sale of assets, holding company expenses and
other charges not related to the normal operations of the business. (10) Foreign Currency Option Contracts
      13




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 (11) Discontinued Operations and Ceased Operations
   14




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JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share amounts)
 (Unaudited)
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    15,166
    
    
    $
    9,479Receivables, net
    
    
    3,777
    
    
    
    3,852Inventories,
net
    
    
    9,914
    
    
    
    9,398Receivables from affiliates
    
    
    9,094
    
    
    
    8,251Prepaid expenses and other current assets
    
    
    3,316
    
    
    
    2,344Deferred income taxes
    
    
    10,527
    
    
    
    10,511Total current assets
    
    
    51,794
    
    
    
    43,835Property and equipment, net
    
    
    16,851
    
    
    
    17,118Other assets:Goodwill
    
    
    36,852
    
    
    
    36,957Notes receivable from affiliates
    
    
    13,821
    
    
    
    13,338Deferred financing fees, net
    
    
    1,768
    
    
    
    1,869Employee supplemental savings plans and other assets
    
    
    7,045
    
    
    
    5,938Total assets
    
    $
    128,131
    
    
    $
    119,055LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,966
    
    
    $
    2,728Accrued liabilities
    
    
    20,587
    
    
    
    22,124Income taxes payable
    
    
    4,798
    
    
    
    2,472Payables to affiliates
    
    
    10,287
    
    
    
    6,406Total current liabilities
    
    
    37,638
    
    
    
    33,730Long-term debt
    
    
    52,000
    
    
    
    52,000Deferred income taxes
    
    
    5,852
    
    
    
    5,852Employee supplemental savings plan and other long-term liabilities
    
    
    7,165
    
    
    
    5,917Total liabilities
    
    
    102,655
    
    
    
    97,499Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Common stock, par value $.01: 1,000 shares authorized, issued
and outstanding in 2006 and 2005
    
    
    
    
    
    
    Additional paid-in capital
    
    
    35,958
    
    
    
    35,958Retained deficit
    
    
    (8,182
    )
    
    
    (12,173
    )Accumulated other comprehensive loss
    
    
    (2,300
    )
    
    
    (2,229
    )Total stockholders equity
    
    
    25,476
    
    
    
    21,556Total liabilities and stockholders equity
    
    $
    128,131
    
    
    $
    119,055
  15




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JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands)
 (Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Net sales to third parties
    
    $
    30,237
    
    
    $
    30,060Sales to affiliates
    
    
    538
    
    
    
    220Net sales
    
    
    30,775
    
    
    
    30,280Cost of sales
    
    
    7,998
    
    
    
    6,632Gross profit
    
    
    22,777
    
    
    
    23,648Selling, general and administrative expenses
    
    
    23,567
    
    
    
    25,741Management fee income from affiliates
    
    
    (1,773
    )
    
    
    (1,596
    )Royalty income from affiliates, net
    
    
    (7,188
    )
    
    
    (5,586
    )Income from operations
    
    
    8,171
    
    
    
    5,089Other income (expense):Exchange gain (loss), net
    
    
    128
    
    
    
    (109
    )Interest expense
    
    
    (1,499
    )
    
    
    (2,058
    )Interest income
    
    
    169
    
    
    
    150Loss on extinguishment of debt
    
    
    
    
    
    
    (3,963
    )Other expense
    
    
    (106
    )
    
    
    (1
    )Other income
    
    
    46
    
    
    
    27Income (loss) before income taxes
    
    
    6,909
    
    
    
    (865
    )Income tax expense
    
    
    2,918
    
    
    
    1,489Net income (loss)
    
    $
    3,991
    
    
    $
    (2,354
    )
  16




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JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    3,991
    
    
    $
    (2,354
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation
    
    
    410
    
    
    
    2,425Provision for uncollectible accounts receivable
    
    
    127
    
    
    
    159Amortization and write off of deferred financing fees
    
    
    101
    
    
    
    1,094Unrealized foreign exchange loss
    
    
    5
    
    
    
    66Deferred income taxes
    
    
    (16
    )
    
    
    1,832Changes in operating assets and liabilities:Receivables
    
    
    (13
    )
    
    
    344Inventories
    
    
    (462
    )
    
    
    1,121Prepaid expenses and other current assets
    
    
    (944
    )
    
    
    (231
    )Receivables and payables from affiliates
    
    
    2,963
    
    
    
    (74
    )Other assets
    
    
    145
    
    
    
    153Accounts payable and accrued liabilities
    
    
    (2,360
    )
    
    
    (2,545
    )Income taxes payable
    
    
    2,318
    
    
    
    (2,005
    )Other long-term liabilities
    
    
    1,146
    
    
    
    433Net cash provided by operating activities
    
    
    7,411
    
    
    
    418Cash flows from investing activities:Purchases of property and equipment
    
    
    (86
    )
    
    
    (453
    )Other and investments related to employee supplemental savings plan
    
    
    (1,149
    )
    
    
    (515
    )Net cash used in investing activities
    
    
    (1,235
    )
    
    
    (968
    )Cash flows from financing activities:Repayments of subordinated debt
    
    
    
    
    
    
    (27,800
    )Repayment of Vorwerk note
    
    
    
    
    
    
    (20,000
    )Borrowings under revolving credit facility
    
    
    
    
    
    
    43,000Repayments under revolving credit facility
    
    
    
    
    
    
    (27,500
    )(Advances to) repayments on notes from affiliates
    
    
    (483
    )
    
    
    1,489Equity contribution from Parent
    
    
    
    
    
    
    31,662Net cash (used in) provided by financing activities
    
    
    (483
    )
    
    
    851Effect of exchange rate changes on cash
    
    
    (6
    )
    
    
    85Net increase in cash and cash equivalents
    
    
    5,687
    
    
    
    386Cash and cash equivalents at beginning of period
    
    
    9,479
    
    
    
    5,748Cash and cash equivalents at end of period
    
    $
    15,166
    
    
    $
    6,134
  17




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (1) Basis of Presentation
 société à responsabilité limitée société
anonyme .
    New Accounting Pronouncements.
    18




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
   (2) Property and Equipment
  March 31,
    
    
    December 31,2006
    
    
    2005Land
    
    $
    6,188
    
    
    $
    6,188Buildings
    
    
    8,477
    
    
    
    7,200Machinery, equipment and other
    
    
    13,080
    
    
    
    25,17427,745
    
    
    
    38,562Less accumulated depreciation
    
    
    10,894
    
    
    
    21,444Property and equipment, net
    
    $
    16,851
    
    
    $
    17,118
 (3) Goodwill and Other Intangible Assets
  United
    
    
    
    
    
    
    ConsolidatedGoodwill
    
    States
    
    
    Europe
    
    
    TotalBalance as of December 31, 2005
    
    $
    32,188
    
    
    $
    4,769
    
    
    $
    36,957Translation effect
    
    
    
    
    
    
    (105
    )
    
    
    (105
    )Balance as of March 31, 2006
    
    $
    32,188
    
    
    $
    4,664
    
    
    $
    36,852
 (4) Income Taxes
  (5) Debt
 3 4 3 4 3 4 3 4 3 4
  19




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  3 4 3 4 3 4 3 4 3 4 3 4
 3 4 3 4 3 4 3 4 3 4
  3 4
   20




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 3 4
  (6) Restructuring Charges
  Three months endedMarch 31,2006
    
    
    2005Opening balance
    
    $
    459
    
    
    $
    2,391Payments against reserves
    
    
    (191
    )
    
    
    (454
    )Ending balance
    
    $
    268
    
    
    $
    1,937
 (7) Comprehensive Income (Loss)
  Three months endedMarch 31,2006
    
    
    2005Net income (loss)
    
    $
    3,991
    
    
    $
    (2,354
    )Foreign currency translation adjustments
    
    
    (71
    )
    
    
    166Comprehensive income (loss)
    
    $
    3,920
    
    
    $
    (2,188
    )
 (8) Related Party Transactions
  21




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
     (11) Financial Reporting for Business Segments
   22




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  United Statesand the
    
    
    
    
    
    
    
    
    
    Corporate,Dominican
    
    
    
    
    
    All
    
    Unallocated
    
    ConsolidatedRepublic
    
    Europe (1)
    
    Others
    
    and Other
    
    TotalAs of and for the three
months ended March 31, 2006Net sales
    
    $
    22,803
    
    
    $
    7,434
    
    
    $
    
    
    
    $
    538
    
    
    $
    30,775Income from operations
    
    
    3,171
    
    
    
    446
    
    
    
    
    
    
    
    4,554
    
    
    
    8,171Depreciation
    
    
    360
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    410Capital expenditures
    
    
    59
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    86Segment assets
    
    
    89,222
    
    
    
    15,991
    
    
    
    3
    
    
    
    22,915
    
    
    
    128,131Goodwill
    
    
    32,188
    
    
    
    4,664
    
    
    
    
    
    
    
    
    
    
    
    36,852As of December 31, 2005Segment assets
    
    $
    82,448
    
    
    $
    15,009
    
    
    $
    9
    
    
    $
    21,589
    
    
    $
    119,055Goodwill
    
    
    32,188
    
    
    
    4,769
    
    
    
    
    
    
    
    
    
    
    
    36,957For the three months ended
March 31, 2005Net sales
    
    $
    22,332
    
    
    $
    7,728
    
    
    $
    
    
    
    $
    220
    
    
    $
    30,280Income from operations
    
    
    1,202
    
    
    
    474
    
    
    
    
    
    
    
    3,413
    
    
    
    5,089Depreciation
    
    
    2,313
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    2,425Capital expenditures
    
    
    403
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    453
 
 (1)
    
    excludes Jafra Poland sp.zo.o, an indirect wholly-owned subsidiary of the Parent and affiliate of JCI  Three months ended March 31,2006
    
    
    2005Corporate expenses
    
    $
    (4,197
    )
    
    $
    (3,544
    )Transaction with affiliates
    
    
    8,961
    
    
    
    7,182Unusual charges(1)
    
    
    (210
    )
    
    
    (225
    )Total corporate, unallocated and other
    
    $
    4,554
    
    
    $
    3,413
 
 (1)
    
    Unusual charges include severance, loss or gain on sale of assets, holding company expenses
and other charges not related to the normal operations of the business. 23




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
 
 BALANCE SHEETS
 (In thousands, except share amounts)
 (Unaudited)
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,018
    
    
    $
    505Receivables
    
    
    288
    
    
    
    366Inventories,
net
    
    
    36,155
    
    
    
    30,697Receivables from affiliates
    
    
    15,114
    
    
    
    18,143Prepaid income taxes
    
    
    3,433
    
    
    
    2,465Prepaid expenses and other current assets
    
    
    3,546
    
    
    
    5,232Deferred income taxes
    
    
    
    
    
    
    1,109Total current assets
    
    
    70,554
    
    
    
    58,517Machinery and equipment, net
    
    
    2,504
    
    
    
    2,667Other assets:Trademarks
    
    
    1,237
    
    
    
    1,311Deferred financing fees, net
    
    
    2,163
    
    
    
    2,393Investment in preferred shares of affiliated company
    
    
    129,843
    
    
    
    132,763Other
    
    
    2,239
    
    
    
    2,368Total assets
    
    $
    208,540
    
    
    $
    200,019LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    18,523
    
    
    $
    12,623Accrued liabilities
    
    
    3,565
    
    
    
    1,794Payables to affiliates
    
    
    387
    
    
    
    3,143Deferred income taxes
    
    
    1,156
    
    
    
    Total current liabilities
    
    
    23,631
    
    
    
    17,560Long-term debt
    
    
    78,000
    
    
    
    78,000Deferred income taxes
    
    
    4,356
    
    
    
    5,412Total liabilities
    
    
    105,987
    
    
    
    100,972Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Series B common stock, no par value: 151 shares authorized,
issued and outstanding in 2006 and 2005
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    47,490
    
    
    
    47,490Retained earnings
    
    
    58,376
    
    
    
    52,495Accumulated other comprehensive loss
    
    
    (3,318
    )
    
    
    (943
    )Total stockholders equity
    
    
    102,553
    
    
    
    99,047Total liabilities and stockholders equity
    
    $
    208,540
    
    
    $
    200,019
  24




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
 
 STATEMENTS OF OPERATIONS
 (In thousands)
 (Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Third party net sales
    
    $
    33
    
    
    $
    Sales to affiliates
    
    
    50,331
    
    
    
    36,806Net sales
    
    
    50,364
    
    
    
    36,806Cost of sales
    
    
    30,687
    
    
    
    22,290Gross profit
    
    
    19,677
    
    
    
    14,516Selling, general and administrative expenses
    
    
    463
    
    
    
    697Management fee expense to affiliate
    
    
    484
    
    
    
    398Service fee expense to affiliate
    
    
    7,020
    
    
    
    6,703Income from operations
    
    
    11,710
    
    
    
    6,718Other expense:Exchange loss, net
    
    
    (1,436
    )
    
    
    (517
    )Interest expense
    
    
    (2,378
    )
    
    
    (3,088
    )Interest income
    
    
    54
    
    
    
    21Loss on extinquishment of debt
    
    
    
    
    
    
    (5,790
    )Other expense
    
    
    
    
    
    
    3Income (loss) before income taxes
    
    
    7,950
    
    
    
    (2,653
    )Income tax expense (benefit)
    
    
    2,069
    
    
    
    (15
    )Net income (loss)
    
    $
    5,881
    
    
    $
    (2,638
    )
  25




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
 
 STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    5,881
    
    
    $
    (2,638
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    245
    
    
    
    186Write off and amortization of deferred financing fees
    
    
    181
    
    
    
    1,477Unrealized foreign exchange and derivative loss
    
    
    1,793
    
    
    
    375Deferred income taxes
    
    
    1,209
    
    
    
    (341
    )Changes in operating assets and liabilities:Receivables
    
    
    72
    
    
    
    79Inventories
    
    
    (6,293
    )
    
    
    (2,727
    )Prepaid expenses and other current assets
    
    
    529
    
    
    
    73Intercompany receivables and payables
    
    
    (98
    )
    
    
    138Other assets
    
    
    (43
    )
    
    
    (17
    )Accounts payable and accrued liabilities
    
    
    9,280
    
    
    
    (956
    )Prepaid income taxes
    
    
    (1,050
    )
    
    
    325Net cash provided by (used in) operating activities
    
    
    11,706
    
    
    
    (4,026
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    
    
    
    
    (80
    )Net cash used in investing activities
    
    
    
    
    
    
    (80
    )Cash flows from financing activities:Repurchase of subordinated debt
    
    
    
    
    
    
    (41,700
    )Repayments under revolving credit facility
    
    
    
    
    
    
    (2,000
    )Contribution from shareholders
    
    
    
    
    
    
    47,490Net cash provided by financing activities
    
    
    
    
    
    
    3,790Effect of exchange rate changes on cash
    
    
    (193
    )
    
    
    254Net increase (decrease) in cash
    
    
    11,513
    
    
    
    (62
    )Cash at beginning of period
    
    
    505
    
    
    
    83Cash and cash equivalents at end of period
    
    $
    12,018
    
    
    $
    21
  26




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
 
 NOTES TO FINANCIAL STATEMENTS
 (Unaudited)
 (1) Basis of Presentation
 sociedad anonima de capital variable société à responsabilité limitée société anonyme
   New Accounting Standards.
    27




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS   (continued)
(Unaudited)
 (2) Inventories
  March 31,
    
    
    December 31,2006
    
    
    2005Raw materials and supplies
    
    $
    12,764
    
    
    $
    11,061Finished goods
    
    
    23,391
    
    
    
    19,636Total inventories
    
    $
    36,155
    
    
    $
    30,697
 (3) Machinery and Equipment
  March 31,
    
    
    December 31,2006
    
    
    2005Machinery, equipment and other
    
    $
    3,348
    
    
    $
    3,454Less accumulated depreciation
    
    
    844
    
    
    
    787Machinery and equipment, net
    
    $
    2,504
    
    
    $
    2,667
 (4) Investment in Affiliated Company
  (5) Income Taxes
  (6) Debt
 3 4 3 4 3 4 3 4 3 4
  28




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS   (continued)
(Unaudited)
 3 4 3 4 3 4 3 4 3 4 3 4
 3 4 3 4 3 4 3 4 3 4
  3 4
   29




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS   (continued)
(Unaudited)
  3 4 3 4 3 4
 (7) Comprehensive Income (Loss)
  Three Months EndedMarch 31,2006
    
    
    2005Net income (loss)
    
    $
    5,881
    
    
    $
    (2,638
    )Foreign currency translation adjustments
    
    
    (2,375
    )
    
    
    99Comprehensive income (loss)
    
    $
    3,506
    
    
    $
    (2,539
    )
 (8) Related Party Transactions
   30




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS   (continued)
(Unaudited)
  31




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share amounts)
 (Unaudited)
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,559
    
    
    $
    14,400Receivables, net
    
    
    38,931
    
    
    
    39,035Receivables from affiliates
    
    
    3,354
    
    
    
    4,579Current deferred income taxes
    
    
    9,744
    
    
    
    3,658Prepaid expenses and other current assets
    
    
    1,362
    
    
    
    1,475Total current assets
    
    
    65,950
    
    
    
    63,147Property and equipment, net
    
    
    34,040
    
    
    
    34,564Other assets:Goodwill
    
    
    27,225
    
    
    
    27,837Trademarks
    
    
    42,351
    
    
    
    43,303Other
    
    
    1,423
    
    
    
    1,535Total assets
    
    $
    170,989
    
    
    $
    170,386LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,897
    
    
    $
    3,595Accrued liabilities
    
    
    32,258
    
    
    
    33,342Income taxes payable
    
    
    6,201
    
    
    
    1,797Payables to affiliates
    
    
    15,226
    
    
    
    19,839Other current liabilities
    
    
    306
    
    
    
    328Total current liabilities
    
    
    57,888
    
    
    
    58,901Deferred income taxes
    
    
    9,904
    
    
    
    10,201Other long-term liabilities
    
    
    2,239
    
    
    
    2,368Total liabilities
    
    
    70,031
    
    
    
    71,470Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Series B common stock, no par value: 139,373 shares authorized,
issued and outstanding in 2006 and 2005
    
    
    
    
    
    
    Series C preferred stock, no par value: 13,642 shares authorized,
issued and outstanding in 2006 and 2005
    
    
    
    
    
    
    Additional paid-in capital
    
    
    54,334
    
    
    
    54,334Retained earnings
    
    
    54,437
    
    
    
    50,087Accumulated other comprehensive loss
    
    
    (7,813
    )
    
    
    (5,505
    )Total stockholders equity
    
    
    100,958
    
    
    
    98,916Total liabilities and stockholders equity
    
    $
    170,989
    
    
    $
    170,386
  32




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (In thousands)
 (Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Net sales
    
    $
    90,835
    
    
    $
    66,567Cost of sales
    
    
    38,119
    
    
    
    28,492Gross profit
    
    
    52,716
    
    
    
    38,075Selling, general and administrative expenses
    
    
    46,151
    
    
    
    34,093Management fee expense to affiliates
    
    
    1,289
    
    
    
    1,198Service fee income from affiliate
    
    
    (7,020
    )
    
    
    (6,703
    )Royalty expense to affiliates, net
    
    
    7,188
    
    
    
    5,586Income from operations
    
    
    5,108
    
    
    
    3,901Other income (expense):Exchange gain (loss), net
    
    
    231
    
    
    
    (158
    )Interest expense
    
    
    
    
    
    
    (31
    )Interest income
    
    
    192
    
    
    
    55Other expense
    
    
    (105
    )
    
    
    (112
    )Income before income taxes
    
    
    5,426
    
    
    
    3,655Income tax expense
    
    
    1,076
    
    
    
    526Net income
    
    $
    4,350
    
    
    $
    3,129
  33




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    4,350
    
    
    $
    3,129Adjustments to reconcile net income to net cash
(used in) provided by operating activities:Depreciation and amortization
    
    
    590
    
    
    
    823Provision for uncollectible accounts receivable
    
    
    1,822
    
    
    
    1,413Unrealized foreign exchange and derivative (gain) loss
    
    
    (239
    )
    
    
    71Deferred income taxes
    
    
    (6,383
    )
    
    
    1,410Changes in operating assets and liabilities:Receivables
    
    
    (2,605
    )
    
    
    1,427Inventories
    
    
    
    
    
    
    693Prepaid expenses and other current assets
    
    
    (259
    )
    
    
    (408
    )Intercompany receivables and payables
    
    
    (3,124
    )
    
    
    (2,708
    )Other assets
    
    
    80
    
    
    
    (14
    )Accounts payable and accrued liabilities and value added taxes
    
    
    614
    
    
    
    29Income taxes payable
    
    
    4,567
    
    
    
    (4,402
    )Net cash (used in) provided by operating activities
    
    
    (587
    )
    
    
    1,463Cash flows from investing activities:Purchases of property and equipment
    
    
    (933
    )
    
    
    (162
    )Net cash used in investing activities
    
    
    (933
    )
    
    
    (162
    )Effect of exchange rate changes on cash
    
    
    (321
    )
    
    
    17Net (decrease ) increase in cash and cash equivalents
    
    
    (1,841
    )
    
    
    1,318Cash and cash equivalents at beginning of period
    
    
    14,400
    
    
    
    4,153Cash and cash equivalents at end of period
    
    $
    12,559
    
    
    $
    5,471
  34




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (1) Basis of Presentation
 sociedad anonima de capital variable société à responsabilité limitée société ananyme
   New Accounting Standards.
   35




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 (2) Property and Equipment
  March 31,
    
    
    December 31,2006
    
    
    2005Land
    
    $
    9,785
    
    
    $
    10,004Buildings
    
    
    9,833
    
    
    
    10,056Machinery, equipment and other
    
    
    28,430
    
    
    
    28,12048,048
    
    
    
    48,180Less accumulated depreciation
    
    
    14,008
    
    
    
    13,616Property and equipment, net
    
    $
    34,040
    
    
    $
    34,564
 (3) Goodwill and Other Intangible Assets.
  (4) Income Taxes
  (5) Debt
 3 4 3 4 3 4 3 4 3 4
 3 4 3 4 3 4 3 4 3 4
 3 4 3 4 3 4
 36




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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  (6) Comprehensive Income
  Three Months EndedMarch 31,2006
    
    
    2005Net income
    
    $
    4,350
    
    
    $
    3,129Unrealized and deferred realized gain on derivatives
    
    
    
    
    
    
    3Reclassification of deferred realized loss to
exchange gain (loss)
    
    
    
    
    
    
    8Reclassification of deferred realized loss to cost of sales
    
    
    
    
    
    
    12Foreign currency translation adjustments
    
    
    (2,308
    )
    
    
    (151
    )Comprehensive income
    
    $
    2,042
    
    
    $
    3,001
 (7) Related Party Transactions
      37




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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 (8) Foreign Currency Forward and Option Contracts
      38




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##### Table of Contents



ITEM 1A. RISK FACTORS
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
 société à responsabilité limitée
 Foreign Operations
     Information Concerning Forward-Looking Statements
  39




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##### Table of Contents



Results of Operations
  Three Months Ended March 31,2006
    
    
    2005Net sales
    
    $
    121.2
    
    
    
    100.0
    %
    
    $
    96.8
    
    
    
    100.0
    %Cost of sales
    
    
    27.9
    
    
    
    23.1
    
    
    
    21.5
    
    
    
    22.2Gross profit
    
    
    93.3
    
    
    
    76.9
    
    
    
    75.3
    
    
    
    77.8Selling, general and administrative expenses
    
    
    68.5
    
    
    
    56.5
    
    
    
    60.2
    
    
    
    62.2Income from operations
    
    
    24.8
    
    
    
    20.4
    
    
    
    15.1
    
    
    
    15.6Exchange loss, net
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.5
    )
    
    
    (0.5
    )Interest expense
    
    
    (3.9
    )
    
    
    (3.2
    )
    
    
    (5.2
    )
    
    
    (5.4
    )Interest income
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (9.8
    )
    
    
    (10.1
    )Other expense
    
    
    (1.4
    )
    
    
    (1.0
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Other income
    
    
    0.1
    
    
    
    0.0
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    19.8
    
    
    
    16.3
    
    
    
    (0.4
    )
    
    
    (0.4
    )Income tax expense
    
    
    6.1
    
    
    
    5.0
    
    
    
    2.0
    
    
    
    2.1Income (loss) from continuing operations
    
    
    13.7
    
    
    
    11.3
    
    
    
    (2.4
    )
    
    
    (2.5
    )Loss on discontinued operations,
net of income tax expense of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    13.7
    
    
    
    11.3
    %
    
    $
    (2.4
    )
    
    
    (2.5
    )%
 Three months ended March 31, 2006 compared to the three months ended March 31, 2005
 Corporate,United
    
    
    
    
    
    
    
    
    
    
    Unallocated
    
    
    ConsolidatedDollars in millions
    
    Mexico
    
    
    States
    
    
    Europe
    
    
    All Others
    
    
    and Other
    
    
    TotalThree Months Ended March 31, 2006Net sales
    
    $
    90.9
    
    
    $
    22.8
    
    
    $
    7.4
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    121.2Cost of sales
    
    
    21.8
    
    
    
    5.6
    
    
    
    1.3
    
    
    
    0.1
    
    
    
    (0.9
    )
    
    
    27.9Gross profit
    
    
    69.1
    
    
    
    17.2
    
    
    
    6.1
    
    
    
    
    
    
    
    0.9
    
    
    
    93.3Selling, general and
administrative expenses
    
    
    44.2
    
    
    
    14.1
    
    
    
    5.7
    
    
    
    0.4
    
    
    
    4.1
    
    
    
    68.5Income (loss) from operations
    
    $
    24.9
    
    
    $
    3.1
    
    
    $
    0.4
    
    
    $
    (0.4
    )
    
    $
    (3.2
    )
    
    $
    24.8Three Months Ended March 31, 2005Net sales
    
    $
    66.6
    
    
    $
    22.3
    
    
    $
    7.7
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    96.8Cost of sales
    
    
    15.9
    
    
    
    4.7
    
    
    
    1.2
    
    
    
    0.1
    
    
    
    (0.4
    )
    
    
    21.5Gross profit
    
    
    50.7
    
    
    
    17.6
    
    
    
    6.5
    
    
    
    0.1
    
    
    
    0.4
    
    
    
    75.3Selling, general and
administrative expenses
    
    
    33.3
    
    
    
    16.4
    
    
    
    6.0
    
    
    
    0.2
    
    
    
    4.3
    
    
    
    60.2Income (loss) from operations
    
    $
    17.4
    
    
    $
    1.2
    
    
    $
    0.5
    
    
    $
    (0.1
    )
    
    $
    (3.9
    )
    
    $
    15.1
 40




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Net sales
      41




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##### Table of Contents



Gross profit.
    Selling, general and administrative expenses.
      Exchange loss.
 42




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##### Table of Contents



Interest expense, net of interest income. 3 4
 Loss on extinguishment of debt. 3 4
 Other Expense, net.
 Income
tax expense.
 Loss on discontinued operations.
 Net income (loss).
 43




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##### Table of Contents



Liquidity and Capital Resources
 Overview
  Liquidity
 3 4 3 4 3 4 3 4 3 4
  3 4 3 4 3 4 3 4 3 4 3 4
 3 4 3 4 3 4 3 4 3 4
  44




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3 4
  3 4
   45




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Cash Flows
     Recent Accounting Pronouncements
     46




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Business Trends and Initiatives
     47




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign Currency Risk
    48




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##### Table of Contents



Coverage inMexican
    
    
    Average Strike
    
    
    Fair Value inForeign Currency
    
    Pesos
    
    
    Price
    
    
    U.S. Dollars(1)
    
    
    Maturity DateAt March 31, 2006:Purchased puts (Company may sell
peso/buy USD)Mexican peso
    
    
    176,000
    
    
    
    11.87-12.87
    
    
    $
    (315
    )
    
    Apr.-June 2006Mexican peso
    
    
    162,000
    
    
    
    11.55-12.73
    
    
    
    (195
    )
    
    July-Sept. 2006Mexican peso
    
    
    187,000
    
    
    
    11.66-12.28
    
    
    
    (144
    )
    
    Oct.-Dec. 2006Mexican peso
    
    
    80,000
    
    
    
    12.29-12.34
    
    
    
    (106
    )
    
    Jan.-Mar. 2007Mexican peso
    
    
    73,000
    
    
    
    11.86-11.90
    
    
    
    (12
    )
    
    Apr.-June 2007678,000
    
    
    
    
    
    
    $
    (772
    )Written calls (Counterparty may
buy peso/sell USD)Mexican peso
    
    
    176,000
    
    
    
    10.78-11.65
    
    
    $
    (240
    )
    
    Apr.-June 2006Mexican peso
    
    
    162,000
    
    
    
    10.47-11.48
    
    
    
    (255
    )
    
    July-Sept. 2006Mexican peso
    
    
    187,000
    
    
    
    10.56-11.54
    
    
    
    (60
    )
    
    Oct.-Dec. 2006Mexican peso
    
    
    80,000
    
    
    
    11.19-11.24
    
    
    
    (119
    )
    
    Jan.-Mar. 2007Mexican peso
    
    
    73,000
    
    
    
    10.75-10.78
    
    
    
    (3
    )
    
    Apr.-June 2007678,000
    
    
    
    
    
    
    $
    (677
    )
  Coverage inMexican
    
    
    Average Strike
    
    
    Fair Value inForeign Currency
    
    Pesos
    
    
    Price
    
    
    U.S. Dollars(1)
    
    
    Maturity DateAt December 31, 2005:Purchased puts (Company may sell
peso/buy USD)Mexican peso
    
    
    150,000
    
    
    
    12.40-13.19
    
    
    $
    (225
    )
    
    Jan.-Mar. 2006Mexican peso
    
    
    176,000
    
    
    
    11.87-12.87
    
    
    
    (309
    )
    
    Apr.-June 2006Mexican peso
    
    
    162,000
    
    
    
    11.55-12.73
    
    
    
    (190
    )
    
    July-Sept. 2006Mexican peso
    
    
    187,000
    
    
    
    11.66-12.28
    
    
    
    (136
    )
    
    Oct.-Dec. 2006Mexican peso
    
    
    80,000
    
    
    
    12.29-12.34
    
    
    
    (103
    )
    
    Jan.-Mar. 2007Mexican peso
    
    
    73,000
    
    
    
    11.86-11.90
    
    
    
    (5
    )
    
    Apr.-June 2007828,000
    
    
    
    
    
    
    $
    (968
    )Written calls (Counterparty may
buy peso/sell USD)Mexican peso
    
    
    150,000
    
    
    
    11.23-11.95
    
    
    $
    (805
    )
    
    Jan.-Mar. 2006Mexican peso
    
    
    176,000
    
    
    
    10.78-11.65
    
    
    
    (472
    )
    
    Apr.-June 2006Mexican peso
    
    
    162,000
    
    
    
    10.47-11.54
    
    
    
    (378
    )
    
    July-Sept. 2006Mexican peso
    
    
    187,000
    
    
    
    10.56-11.12
    
    
    
    (151
    )
    
    Oct.-Dec. 2006Mexican peso
    
    
    80,000
    
    
    
    11.19-11.24
    
    
    
    (149
    )
    
    Jan.-Mar. 2007Mexican peso
    
    
    73,000
    
    
    
    10.75-10.78
    
    
    
    (21
    )
    
    Apr.-June 2007828,000
    
    
    
    
    
    
    $
    (1,976
    )
 
 (1)
    
    The Fair Value of the option contracts presented above, an unrealized loss of $1,449,000 and
$2,944,000 at March 31, 2006 and December 31, 2005, respectively, represents the carrying
value and was recorded in accrued liabilities in the consolidated balance sheets. 49




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ITEM 4. CONTROLS AND PROCEDURES
   50




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
  
 Item 6. Exhibits
  ExhibitNumber31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.3
    
    Certification furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 51




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SIGNATURE
  Jafra Worldwide Holdings (Lux) S.àr.l./s/ RONALD B. CLARKRonald B. ClarkChief Executive Officer/s/ ENRIQUE MARCOEnrique MarcoChief Financial Officer (Principal Financial Accounting
Officer)/s/ STACY WOLFStacy WolfCorporate Controller (Principal Accounting Officer)Date May 15, 2006
 52