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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 September 30, 2005
 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
    
    98-0399297(State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    Identification Number)
 382-386 Route de Longwy
L-1940 Luxembourg
Luxembourg
 (352) 226027
 o þ
 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
    
    
    17Consolidated Statements of Operations
    
    
    18Consolidated Statements of Cash Flows
    
    
    19Notes to Consolidated Financial Statements
    
    
    20Financial Statements  Distribuidora Comercial Jafra, S.A. de C.V.Balance Sheets
    
    
    27Statements of Operations
    
    
    28Statements of Cash Flows
    
    
    29Notes to Financial Statements
    
    
    30Consolidated Financial Statements  Jafra Cosmetics International, S.A. de C.V. and SubsidiariesConsolidated Balance Sheets
    
    
    36Consolidated Statements of Income
    
    
    37Consolidated Statements of Cash Flows
    
    
    38Notes to Consolidated Financial Statements
    
    
    39Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    44Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    59Item 4.
    
    Controls and Procedures
    
    
    61PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    62Item 6.
    
    Exhibits
    
    
    62Signature
    
    63Exhibit 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)
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,306
    
    
    $
    10,586Receivables, net
    
    
    38,941
    
    
    
    42,904Inventories, net
    
    
    42,740
    
    
    
    40,375Prepaid income taxes
    
    
    547
    
    
    
    767Prepaid expenses and other current assets
    
    
    9,876
    
    
    
    6,847Deferred income taxes
    
    
    22,635
    
    
    
    16,865Assets from discontinued operations
    
    
    100
    
    
    
    133Total current assets
    
    
    124,145
    
    
    
    118,477Property and equipment, net
    
    
    55,752
    
    
    
    61,763Other assets:Goodwill
    
    
    64,403
    
    
    
    62,838Trademarks
    
    
    42,919
    
    
    
    41,463Deferred financing fees, employee supplemental savings and other, net
    
    
    11,375
    
    
    
    13,877Total assets
    
    $
    298,594
    
    
    $
    298,418LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    19,361
    
    
    $
    17,866Accrued liabilities
    
    
    51,877
    
    
    
    53,499Income taxes payable
    
    
    3,211
    
    
    
    2,463Deferred income taxes
    
    
    815
    
    
    
    1,063Due to Vorwerk
    
    
    
    
    
    
    20,000Liabilities from discontinued operations
    
    
    132
    
    
    
    129Total current liabilities
    
    
    75,396
    
    
    
    95,020Long-term debt
    
    
    140,000
    
    
    
    220,250Deferred income taxes
    
    
    19,817
    
    
    
    18,178Other long-term liabilities
    
    
    5,546
    
    
    
    5,131Total liabilities
    
    
    240,759
    
    
    
    338,579Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity (deficit):Common stock, par value $100; 316,420 and 150 shares
authorized, issued and outstanding in 2005 and 2004, respectively
    
    
    31,642
    
    
    
    15Additional paid-in capital
    
    
    51,769
    
    
    
    4,296Retained deficit
    
    
    (15,732
    )
    
    
    (35,001
    )Accumulated other comprehensive loss
    
    
    (9,844
    )
    
    
    (9,471
    )Total stockholders equity (deficit)
    
    
    57,835
    
    
    
    (40,161
    )Total liabilities and stockholders equity (deficit)
    
    $
    298,594
    
    
    $
    298,418
  4




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands)
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    105,827
    
    
    $
    94,823
    
    
    $
    304,936
    
    
    $
    301,661Cost of sales
    
    
    24,880
    
    
    
    20,372
    
    
    
    68,400
    
    
    
    68,429Gross profit
    
    
    80,947
    
    
    
    74,451
    
    
    
    236,536
    
    
    
    233,232Selling, general and administrative expenses
    
    
    63,645
    
    
    
    59,028
    
    
    
    184,612
    
    
    
    183,244Transaction related expenses
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    29,662Restructuring and impairment charges
    
    
    
    
    
    
    2,244
    
    
    
    
    
    
    
    5,017Income from operations
    
    
    17,302
    
    
    
    13,040
    
    
    
    51,924
    
    
    
    15,309Other income (expense):Exchange (loss) gain, net
    
    
    (371
    )
    
    
    1,702
    
    
    
    1,708
    
    
    
    (2,839
    )Interest expense
    
    
    (4,142
    )
    
    
    (6,866
    )
    
    
    (13,963
    )
    
    
    (20,601
    )Interest income
    
    
    96
    
    
    
    20
    
    
    
    260
    
    
    
    97Loss on extinguishment of debt
    
    
    
    
    
    
    (4,464
    )
    
    
    (9,753
    )
    
    
    (4,464
    )Other expense
    
    
    (102
    )
    
    
    (74
    )
    
    
    (315
    )
    
    
    (258
    )Other income
    
    
    52
    
    
    
    40
    
    
    
    136
    
    
    
    68Income (loss) before income taxes
    
    
    12,835
    
    
    
    3,398
    
    
    
    29,997
    
    
    
    (12,688
    )Income tax expense (benefit)
    
    
    3,888
    
    
    
    2,453
    
    
    
    10,709
    
    
    
    (1,669
    )Income (loss) from continuing operations
    
    
    8,947
    
    
    
    945
    
    
    
    19,288
    
    
    
    (11,019
    )Loss on discontinued operations, net of income tax
expense of $0.0 million in 2005 and 2004
    
    
    (2
    )
    
    
    (25
    )
    
    
    (19
    )
    
    
    (184
    )Net income (loss)
    
    $
    8,945
    
    
    $
    920
    
    
    $
    19,269
    
    
    $
    (11,203
    )
  5




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Nine Months EndedSeptember 30,2005
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    19,269
    
    
    $
    (11,203
    )Loss on discontinued operations, net of income tax
    
    
    19
    
    
    
    184Income (loss) from continuing operations
    
    
    19,288
    
    
    
    (11,019
    )Adjustments to reconcile income (loss) from continuing operations to
net cash provided by (used in) operating activities:Depreciation
    
    
    10,021
    
    
    
    4,838Amortization and write off of deferred financing fees
    
    
    3,028
    
    
    
    5,891Provision for uncollectible accounts receivable
    
    
    6,439
    
    
    
    6,613Non-cash compensation expense
    
    
    
    
    
    
    4,922Asset impairment charges
    
    
    
    
    
    
    423Unrealized foreign exchange and derivative (gains) losses
    
    
    (3,395
    )
    
    
    2,661Deferred income taxes
    
    
    (4,625
    )
    
    
    (3,724
    )Changes in operating assets and liabilities:Receivables
    
    
    (1,205
    )
    
    
    (8,697
    )Inventories
    
    
    (1,214
    )
    
    
    (3,808
    )Prepaid expenses and other current assets
    
    
    92
    
    
    
    (3,550
    )Other assets
    
    
    221
    
    
    
    (106
    )Accounts payable and accrued liabilities
    
    
    (5,967
    )
    
    
    1,778Income taxes payable/prepaid, net
    
    
    652
    
    
    
    (4,918
    )Other long-term liabilities
    
    
    415
    
    
    
    (116
    )Net cash provided by (used in) operating activities
    
    
    23,750
    
    
    
    (8,812
    )Net operating activities of discontinued operations
    
    
    33
    
    
    
    17Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,975
    )
    
    
    (3,980
    )Investment in employee supplemental savings plan
    
    
    (543
    )
    
    
    (21
    )Net cash used in investing activities
    
    
    (3,518
    )
    
    
    (4,001
    )Cash flows from financing activities:Repurchase of subordinated debt
    
    
    (69,500
    )
    
    
    (500
    )Repayments under term loan facility
    
    
    
    
    
    
    (47,500
    )Borrowings under revolving credit facility
    
    
    46,000
    
    
    
    107,000Repayments under revolving credit facility
    
    
    (56,375
    )
    
    
    (73,000
    )(Repayment of) proceeds from issuance of Vorwerk note
    
    
    (20,000
    )
    
    
    20,000Equity contribution from shareholder
    
    
    79,100
    
    
    
    Distribution to Parent
    
    
    
    
    
    
    (626
    )Deferred financing costs
    
    
    
    
    
    
    (737
    )Net cash (used in) provided by financing activities
    
    
    (20,775
    )
    
    
    4,637Effect of exchange rate changes on cash
    
    
    (770
    )
    
    
    456Net decrease in cash and cash equivalents
    
    
    (1,280
    )
    
    
    (7,703
    )Cash and cash equivalents at beginning of period
    
    
    10,586
    
    
    
    16,120Cash and cash equivalents at end of period
    
    $
    9,306
    
    
    $
    8,417
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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
(Unaudited)
   8




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 (2) Inventories
  September 30,
    
    
    December 31,2005
    
    
    2004Raw materials and supplies
    
    $
    10,631
    
    
    $
    10,744Finished goods
    
    
    32,109
    
    
    
    29,631Total inventories, net
    
    $
    42,740
    
    
    $
    40,375
 (3) Property and Equipment
  September 30,
    
    
    December 31,2005
    
    
    2004Land
    
    $
    16,077
    
    
    $
    15,733Buildings
    
    
    17,159
    
    
    
    16,805Machinery, equipment and other
    
    
    55,785
    
    
    
    52,75489,021
    
    
    
    85,292Less accumulated depreciation
    
    
    33,269
    
    
    
    23,529Property and equipment, net
    
    $
    55,752
    
    
    $
    61,763
  (4) Goodwill and Other Intangible Assets
  United
    
    
    
    
    
    
    
    
    
    
    All
    
    
    ConsolidatedGoodwill
    
    States
    
    
    Mexico
    
    
    Europe
    
    
    Others
    
    
    TotalBalance as of December 31, 2004
    
    
    32,188
    
    
    
    26,558
    
    
    
    4,092
    
    
    
    
    
    
    
    62,838Translation effect
    
    
    
    
    
    
    958
    
    
    
    607
    
    
    
    
    
    
    
    1,565Balance as of September 30, 2005
    
    $
    32,188
    
    
    $
    27,516
    
    
    $
    4,699
    
    
    $
    
    
    
    $
    64,403
 9




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 (5) Income Taxes
  (6) 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 3 4 3 4 3 4 3 4
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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 3 4
 3 4
 3 4
  3 4
  11




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 (7) Equity
 3 4
 (8) Transaction Related Expense
  (9) Restructuring Charges
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Opening balance
    
    $
    1,697
    
    
    $
    1,423
    
    
    $
    2,391
    
    
    $
    Additions
    
    
    
    
    
    
    2,244
    
    
    
    
    
    
    
    5,017Charges against reserves
    
    
    (900
    )
    
    
    (616
    )
    
    
    (1,594
    )
    
    
    (1,966
    )Ending balance
    
    $
    797
    
    
    $
    3,051
    
    
    $
    797
    
    
    $
    3,051
 (10) Comprehensive Income (Loss)
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    8,945
    
    
    $
    920
    
    
    $
    19,269
    
    
    $
    (11,203
    )Unrealized and deferred realized loss on derivatives
    
    
    
    
    
    
    (130
    )
    
    
    (74
    )
    
    
    (329
    )Reclassification of deferred realized loss to
exchange gain (loss)
    
    
    
    
    
    
    
    
    
    
    131
    
    
    
    Reclassification of deferred realized loss to cost of sales
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    Foreign currency translation adjustments
    
    
    (816
    )
    
    
    (447
    )
    
    
    (438
    )
    
    
    47Comprehensive income (loss)
    
    $
    8,129
    
    
    $
    343
    
    
    $
    18,896
    
    
    $
    (11,485
    )
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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 (11) 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 September 30, 2005Net sales
    
    $
    76,914
    
    
    $
    22,167
    
    
    $
    6,661
    
    
    $
    85
    
    
    $
    
    
    
    $
    105,827Income (loss) from operations
    
    
    19,696
    
    
    
    2,367
    
    
    
    109
    
    
    
    (204
    )
    
    
    (4,666
    )
    
    
    17,302Depreciation
    
    
    970
    
    
    
    2,280
    
    
    
    59
    
    
    
    7
    
    
    
    
    
    
    
    3,316Segment assets
    
    
    200,226
    
    
    
    82,294
    
    
    
    15,291
    
    
    
    962
    
    
    
    (279
    )
    
    
    298,494Discontinued operations assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    100Goodwill
    
    
    27,516
    
    
    
    32,188
    
    
    
    4,699
    
    
    
    
    
    
    
    
    
    
    
    64,403For the three months ended
September 30, 2004Net sales
    
    $
    63,265
    
    
    $
    23,077
    
    
    $
    7,167
    
    
    $
    1,314
    
    
    $
    
    
    
    $
    94,823Income (loss) from operations
    
    
    15,994
    
    
    
    3,872
    
    
    
    42
    
    
    
    (501
    )
    
    
    (6,367
    )
    
    
    13,040Depreciation
    
    
    654
    
    
    
    780
    
    
    
    110
    
    
    
    24
    
    
    
    
    
    
    
    1,568As of December 31, 2004Segment assets
    
    $
    188,832
    
    
    $
    91,861
    
    
    $
    17,571
    
    
    $
    1,376
    
    
    $
    (1,355
    )
    
    $
    298,285Assets from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133
    
    
    
    
    
    
    
    133Goodwill
    
    
    26,558
    
    
    
    32,188
    
    
    
    4,092
    
    
    
    
    
    
    
    
    
    
    
    62,838For the nine months ended
September 30, 2005Net sales
    
    $
    214,590
    
    
    $
    66,980
    
    
    $
    22,937
    
    
    $
    429
    
    
    $
    
    
    
    $
    304,936Income (loss) from operations
    
    
    57,790
    
    
    
    5,109
    
    
    
    1,481
    
    
    
    (517
    )
    
    
    (11,939
    )
    
    
    51,924Depreciation
    
    
    2,868
    
    
    
    6,885
    
    
    
    247
    
    
    
    21
    
    
    
    
    
    
    
    10,021Capital expenditures
    
    
    2,041
    
    
    
    697
    
    
    
    237
    
    
    
    
    
    
    
    
    
    
    
    2,975For the nine months ended
September 30, 2004Net sales
    
    $
    201,695
    
    
    $
    71,820
    
    
    $
    24,223
    
    
    $
    3,923
    
    
    $
    
    
    
    $
    301,661Income (loss) from operations
    
    
    55,893
    
    
    
    8,116
    
    
    
    807
    
    
    
    (1,786
    )
    
    
    (47,721
    )
    
    
    15,309Depreciation
    
    
    1,835
    
    
    
    2,598
    
    
    
    333
    
    
    
    72
    
    
    
    
    
    
    
    4,838Capital expenditures
    
    
    2,024
    
    
    
    1,797
    
    
    
    119
    
    
    
    40
    
    
    
    
    
    
    
    3,980
 13




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Corporate expenses
    
    $
    (3,618
    )
    
    $
    (2,647
    )
    
    $
    (9,986
    )
    
    $
    (10,286
    )Transaction related expenses
    
    
    
    
    
    
    (139
    )
    
    
    
    
    
    
    (29,662
    )Restructuring charges
    
    
    
    
    
    
    (2,244
    )
    
    
    
    
    
    
    (5,017
    )Other charges(1)
    
    
    (648
    )
    
    
    (1,337
    )
    
    
    (1,552
    )
    
    
    (2,756
    )Total corporate, unallocated and other
    
    $
    (4,266
    )
    
    $
    (6,367
    )
    
    $
    (11,538
    )
    
    $
    (47,721
    )
 
 (1)
    
    Other charges include holding company expenses, severance, loss or gain on sale of assets
and other charges not related to the normal operations of the business.  United Statesand theDominican
    
    ConsolidatedMexico
    
    Republic
    
    TotalFor the
six months ended
June 30, 2005Net sales
    
    $
    3,992
    
    
    $
    1,119
    
    
    $
    5,111Income (loss) from operations
    
    $
    1,750
    
    
    $
    531
    
    
    $
    2,281
 (12) Commitments and Contingencies
   (13) Foreign Currency Option Contracts
  14




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##### Table of Contents



JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
       (14) Discontinued Operations
  15




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##### Table of Contents



JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Venezuela
    
    Colombia
    
    Chile
    
    Peru
    
    Total(in thousands)For the three months ended
September 30, 2005Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loss on discontinued operations
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )For the three months ended
September 30, 2004Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loss on discontinued operations
    
    
    (4
    )
    
    
    (18
    )
    
    
    (3
    )
    
    
    
    
    
    
    (25
    )
 Venezuela
    
    Colombia
    
    Chile
    
    Peru
    
    Total(in thousands)For the nine months ended
September 30, 2005Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loss on discontinued operations
    
    
    (3
    )
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )
    
    
    (19
    )For the nine months ended
September 30, 2004Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loss on discontinued operations
    
    
    (91
    )
    
    
    (49
    )
    
    
    (32
    )
    
    
    (12
    )
    
    
    (184
    )
  Venezuela
    
    
    Colombia
    
    
    Chile
    
    
    Peru
    
    
    Total(in thousands)As of September 30, 2005Assets:Cash
    
    $
    
    
    
    $
    43
    
    
    $
    
    
    
    $
    7
    
    
    $
    50Receivables, net
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    21
    
    
    
    50Total assets
    
    $
    
    
    
    $
    72
    
    
    $
    
    
    
    $
    28
    
    
    $
    100Liabilities:Accounts payable
    
    $
    
    
    
    $
    12
    
    
    $
    
    
    
    $
    7
    
    
    $
    19Accrued liabilities
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    113Total liabilities
    
    $
    
    
    
    $
    125
    
    
    $
    
    
    
    $
    7
    
    
    $
    132As of December 31, 2004Assets:Cash
    
    $
    
    
    
    $
    45
    
    
    $
    32
    
    
    $
    7
    
    
    $
    84Receivables, net
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    28Prepaid and other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21Total assets
    
    $
    
    
    
    $
    73
    
    
    $
    32
    
    
    $
    28
    
    
    $
    133Liabilities:Accounts payable
    
    $
    
    
    
    $
    12
    
    
    $
    
    
    
    $
    7
    
    
    $
    19Accrued liabilities
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    110Total liabilities
    
    $
    
    
    
    $
    122
    
    
    $
    
    
    
    $
    7
    
    
    $
    129
 16




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,226
    
    
    $
    5,748Receivables, net
    
    
    3,680
    
    
    
    4,775Inventories
    
    
    10,220
    
    
    
    11,464Receivables from affiliates
    
    
    18,599
    
    
    
    24,644Prepaid expenses and other current assets
    
    
    2,565
    
    
    
    2,934Deferred income taxes
    
    
    12,598
    
    
    
    14,430Total current assets
    
    
    52,888
    
    
    
    63,995Property and equipment, net
    
    
    18,543
    
    
    
    24,988Other assets:Goodwill
    
    
    36,887
    
    
    
    36,280Notes receivable from affiliates
    
    
    12,940
    
    
    
    20,082Deferred financing fees, net
    
    
    1,970
    
    
    
    3,262Employee supplemental savings plan and other assets
    
    
    5,585
    
    
    
    5,276Total assets
    
    $
    128,813
    
    
    $
    153,883LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    1,769
    
    
    $
    3,497Accrued liabilities
    
    
    20,893
    
    
    
    20,389Income taxes payable
    
    
    667
    
    
    
    2,463Payables to affiliates
    
    
    13,854
    
    
    
    18,349Due to Vorwerk
    
    
    
    
    
    
    20,000Total current liabilities
    
    
    37,183
    
    
    
    64,698Long-term debt
    
    
    62,000
    
    
    
    91,800Deferred income taxes
    
    
    6,339
    
    
    
    6,339Employee supplemental savings plan and other liabilities
    
    
    5,546
    
    
    
    5,131Total liabilities
    
    
    111,068
    
    
    
    167,968Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity (deficit):Common stock, par value $.01: 1,000 shares authorized, issued
and outstanding in 2005 and 2004
    
    
    
    
    
    
    Additional paid-in capital
    
    
    35,958
    
    
    
    4,296Retained deficit
    
    
    (16,183
    )
    
    
    (16,275
    )Accumulated other comprehensive loss
    
    
    (2,030
    )
    
    
    (2,106
    )Total stockholders equity (deficit)
    
    
    17,745
    
    
    
    (14,085
    )Total liabilities and stockholders equity (deficit)
    
    $
    128,813
    
    
    $
    153,883
  17




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
 Three Months Ended September 30,
    
    

Nine
Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales to third parties
    
    $
    28,828
    
    
    $
    30,244
    
    
    $
    89,917
    
    
    $
    96,042Sales to affiliates
    
    
    249
    
    
    
    1,822
    
    
    
    640
    
    
    
    7,234Net sales
    
    
    29,077
    
    
    
    32,066
    
    
    
    90,557
    
    
    
    103,276Cost of sales
    
    
    6,660
    
    
    
    8,267
    
    
    
    20,508
    
    
    
    27,916Gross profit
    
    
    22,417
    
    
    
    23,799
    
    
    
    70,049
    
    
    
    75,360Selling, general and administrative expenses
    
    
    24,407
    
    
    
    24,263
    
    
    
    76,539
    
    
    
    80,404Transaction related expenses
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    26,911Restructuring charges
    
    
    
    
    
    
    2,244
    
    
    
    
    
    
    
    4,855Management fee income from affiliates
    
    
    (1,031
    )
    
    
    (2,051
    )
    
    
    (3,097
    )
    
    
    (9,735
    )Royalty income from affiliates, net
    
    
    (5,373
    )
    
    
    (4,779
    )
    
    
    (16,577
    )
    
    
    (15,297
    )Market subsidy expense
    
    
    
    
    
    
    (600
    )
    
    
    
    
    
    
    Income (loss) from operations
    
    
    4,414
    
    
    
    4,583
    
    
    
    13,184
    
    
    
    (11,778
    )Other income (expense):Exchange gain (loss), net
    
    
    1
    
    
    
    86
    
    
    
    (374
    )
    
    
    (153
    )Interest expense
    
    
    (1,745
    )
    
    
    (2,795
    )
    
    
    (5,912
    )
    
    
    (8,179
    )Interest income
    
    
    83
    
    
    
    111
    
    
    
    361
    
    
    
    344Loss on extinguishment of debt
    
    
    
    
    
    
    (1,905
    )
    
    
    (3,963
    )
    
    
    (1,905
    )Other expense
    
    
    (7
    )
    
    
    (48
    )
    
    
    (24
    )
    
    
    (60
    )Other income
    
    
    100
    
    
    
    63
    
    
    
    170
    
    
    
    171Income (loss) before income taxes
    
    
    2,846
    
    
    
    95
    
    
    
    3,442
    
    
    
    (21,560
    )Income tax expense (benefit)
    
    
    1,356
    
    
    
    2,196
    
    
    
    3,350
    
    
    
    (5,764
    )Net income (loss)
    
    $
    1,490
    
    
    $
    (2,101
    )
    
    $
    92
    
    
    $
    (15,796
    )
  18




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2005
    
    
    2004Cash flows from operating activities:Net Income (loss)
    
    $
    92
    
    
    $
    (15,796
    )Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:Depreciation
    
    
    7,132
    
    
    
    2,931Provision for uncollectible accounts receivable
    
    
    335
    
    
    
    639Non-cash compensation expense
    
    
    
    
    
    
    4,922Write off and amortization of deferred financing fees
    
    
    1,296
    
    
    
    2,519Asset impairment charges
    
    
    
    
    
    
    423Unrealized foreign exchange loss
    
    
    326
    
    
    
    63Deferred income taxes
    
    
    1,832
    
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    760
    
    
    
    (872
    )Inventories
    
    
    1,244
    
    
    
    (386
    )Prepaid expenses and other current assets
    
    
    369
    
    
    
    (3,526
    )Intercompany receivables and payables
    
    
    9,486
    
    
    
    (5,305
    )Other assets
    
    
    234
    
    
    
    183Accounts payable and accrued liabilities
    
    
    (1,224
    )
    
    
    132Income taxes payable/prepaid
    
    
    (1,796
    )
    
    
    (320
    )Other long-term liabilities
    
    
    415
    
    
    
    (116
    )Net cash provided by (used in) operating activities
    
    
    20,501
    
    
    
    (14,509
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (934
    )
    
    
    (1,916
    )Investment in employee supplemental savings plan
    
    
    (543
    )
    
    
    (21
    )Net cash used in investing activities
    
    
    (1,477
    )
    
    
    (1,937
    )Cash flows from financing activities:Repayments of subordinated debt
    
    
    (27,800
    )
    
    
    (200
    )(Repayment of) proceeds from issuance of Vorwerk note
    
    
    (20,000
    )
    
    
    20,000Repayments under term loan facility
    
    
    
    
    
    
    (19,000
    )Borrowings under revolving credit facility
    
    
    43,000
    
    
    
    50,250Repayments under revolving credit facility
    
    
    (45,000
    )
    
    
    (35,000
    )Advances to affiliates
    
    
    (1,120
    )
    
    
    (2,440
    )Equity contribution from Parent
    
    
    31,662
    
    
    
    Distribution to Parent
    
    
    
    
    
    
    (626
    )Deferred financing costs
    
    
    
    
    
    
    (309
    )Net cash (used in) provided by financing activities
    
    
    (19,258
    )
    
    
    12,675Effect of exchange rate changes on cash
    
    
    (288
    )
    
    
    731Net decrease in cash and cash equivalents
    
    
    (522
    )
    
    
    (3,040
    )Cash and cash equivalents at beginning of period
    
    
    5,748
    
    
    
    8,879Cash and cash equivalents at end of period
    
    $
    5,226
    
    
    $
    5,839
  19




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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.
   20




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 (2) Property and Equipment
  September 30,
    
    
    December 31,2005
    
    
    2004Land
    
    $
    6,188
    
    
    $
    6,188Buildings
    
    
    7,220
    
    
    
    7,212Machinery, equipment and other
    
    
    25,183
    
    
    
    25,13138,591
    
    
    
    38,531Less accumulated depreciation
    
    
    20,048
    
    
    
    13,543Property and equipment, net
    
    $
    18,543
    
    
    $
    24,988
  (3) Goodwill and Other Intangible Assets
  United
    
    
    
    
    
    
    ConsolidatedGoodwill
    
    States
    
    
    Europe
    
    
    TotalBalance as of December 31, 2004
    
    $
    32,188
    
    
    
    4,092
    
    
    $
    36,280Translation effect
    
    
    
    
    
    
    607
    
    
    
    607Balance as of September 30, 2005
    
    $
    32,188
    
    
    $
    4,699
    
    
    $
    36,887
 (4) Income Taxes
  (5) Debt
 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4
 21




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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
   22




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 3 4
  (6) Equity
 3 4
 (7) Transaction Related Expenses
  (8) Restructuring Charges
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Opening balance
    
    $
    1,697
    
    
    $
    1,423
    
    
    $
    2,391
    
    
    $
    Additions
    
    
    
    
    
    
    2,244
    
    
    
    
    
    
    
    4,855Charges against reserves
    
    
    (900
    )
    
    
    (616
    )
    
    
    (1,594
    )
    
    
    (1,966
    )Ending balance
    
    $
    797
    
    
    $
    3,051
    
    
    $
    797
    
    
    $
    3,051
 23




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 (9) Comprehensive Income (Loss)
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    1,490
    
    
    $
    (2,101
    )
    
    $
    92
    
    
    $
    (15,796
    )Foreign currency translation adjustments
    
    
    (138
    )
    
    
    467
    
    
    
    76
    
    
    
    305Comprehensive income (loss)
    
    $
    1,352
    
    
    $
    (1,634
    )
    
    $
    168
    
    
    $
    (15,491
    )
 (10) Related Party Transactions
      24




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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
   United Statesand the
    
    
    
    
    
    
    
    
    
    Corporate,Dominican
    
    
    
    
    
    All
    
    Unallocated
    
    ConsolidatedRepublic
    
    Europe (1)
    
    Others
    
    and Other
    
    TotalAs of and for the three
months ended September 30,
2005Net sales
    
    $
    22,167
    
    
    $
    6,661
    
    
    $
    
    
    
    $
    249
    
    
    $
    29,077Income (loss) from operations
    
    
    2,367
    
    
    
    109
    
    
    
    
    
    
    
    1,938
    
    
    
    4,414Depreciation
    
    
    2,280
    
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    2,339Segment assets
    
    
    82,294
    
    
    
    14,973
    
    
    
    7
    
    
    
    31,539
    
    
    
    128,813Goodwill
    
    
    32,188
    
    
    
    4,699
    
    
    
    
    
    
    
    
    
    
    
    36,887For the three months ended
September 30, 2004Net sales
    
    $
    23,077
    
    
    $
    7,167
    
    
    $
    
    
    
    $
    1,822
    
    
    $
    32,066Income (loss) from operations
    
    
    3,872
    
    
    
    42
    
    
    
    
    
    
    
    669
    
    
    
    4,583Depreciation
    
    
    780
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    890As of December 31, 2004Segment assets
    
    $
    91,861
    
    
    $
    17,233
    
    
    $
    63
    
    
    $
    44,726
    
    
    $
    153,883Goodwill
    
    
    32,188
    
    
    
    4,092
    
    
    
    
    
    
    
    
    
    
    
    36,280For the nine months ended
September 30, 2005Net sales
    
    $
    66,980
    
    
    $
    22,937
    
    
    $
    
    
    
    $
    640
    
    
    $
    90,557Income (loss) from operations
    
    
    5,109
    
    
    
    1,481
    
    
    
    
    
    
    
    6,594
    
    
    
    13,184Depreciation
    
    
    6,885
    
    
    
    247
    
    
    
    
    
    
    
    
    
    
    
    7,132Capital expenditures
    
    
    697
    
    
    
    238
    
    
    
    
    
    
    
    
    
    
    
    935For the nine months ended
September 30, 2004Net sales
    
    $
    71,820
    
    
    $
    24,222
    
    
    $
    
    
    
    $
    7,234
    
    
    $
    103,276Income (loss) from operations
    
    
    8,116
    
    
    
    807
    
    
    
    
    
    
    
    (20,701
    )
    
    
    (11,778
    )Depreciation
    
    
    2,598
    
    
    
    333
    
    
    
    
    
    
    
    
    
    
    
    2,931Capital expenditures
    
    
    1,797
    
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    1,916
 25




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 
 (1)
    
    excludes Jafra Poland sp.zo.o, an indirect wholly-owned subsidiary of the Parent and
affiliate of JCI  Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Corporate expenses
    
    $
    (4,093
    )
    
    $
    (4,210
    )
    
    $
    (12,259
    )
    
    $
    (12,420
    )Transaction related expenses
    
    
    
    
    
    
    (139
    )
    
    
    
    
    
    
    (26,911
    )Transaction with affiliates
    
    
    6,404
    
    
    
    7,432
    
    
    
    19,674
    
    
    
    25,035Restructuring charges
    
    
    
    
    
    
    (2,244
    )
    
    
    
    
    
    
    (4,855
    )Other charges(1)
    
    
    (373
    )
    
    
    (170
    )
    
    
    (821
    )
    
    
    (1,550
    )Total corporate, unallocated and other
    
    $
    1,938
    
    
    $
    669
    
    
    $
    6,594
    
    
    $
    (20,701
    )
 
 (1)
    
    Other 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.  United Statesand theDominican
    
    ConsolidatedRepublic
    
    TotalFor the
three and six months ended
June 30, 2005Net sales
    
    $
    1,119
    
    
    $
    1,119Income (loss) from operations
    
    $
    531
    
    
    $
    531
 (12) Commitments and Contingencies
  26




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
 
 BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash
    
    $
    52
    
    
    $
    83Receivables
    
    
    270
    
    
    
    297Inventories
    
    
    32,943
    
    
    
    29,583Receivables from affiliates
    
    
    14,509
    
    
    
    18,073Prepaid income taxes
    
    
    4,180
    
    
    
    1,267Prepaid expenses and other current assets
    
    
    6,803
    
    
    
    2,690Total current assets
    
    
    58,757
    
    
    
    51,993Machinery and equipment, net
    
    
    1,992
    
    
    
    2,095Other assets:Deferred financing fees, net
    
    
    2,494
    
    
    
    4,119Investment in preferred shares of affiliated company
    
    
    131,231
    
    
    
    126,663Other
    
    
    2,446
    
    
    
    2,664Total assets
    
    $
    196,920
    
    
    $
    187,534LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    13,869
    
    
    $
    12,014Accrued liabilities
    
    
    3,178
    
    
    
    1,892Payables to affiliates
    
    
    379
    
    
    
    2,535Deferred income taxes
    
    
    815
    
    
    
    1,063Total current liabilities
    
    
    18,241
    
    
    
    17,504Long-term debt
    
    
    78,000
    
    
    
    128,450Deferred income taxes
    
    
    3,359
    
    
    
    1,820Total liabilities
    
    
    99,600
    
    
    
    147,774Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Series B common stock, no par value: 151 shares authorized,
issued and outstanding in 2005 and 2004
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    47,490
    
    
    
    Retained earnings
    
    
    51,968
    
    
    
    45,338Accumulated other comprehensive loss
    
    
    (2,143
    )
    
    
    (5,583
    )Total stockholders equity
    
    
    97,320
    
    
    
    39,760Total liabilities and stockholders equity
    
    $
    196,920
    
    
    $
    187,534
  27




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
 
 STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Third party net sales
    
    $
    4
    
    
    $
    
    
    
    $
    17
    
    
    $
    Sales to affiliates
    
    
    42,898
    
    
    
    34,408
    
    
    
    118,650
    
    
    
    110,451Net sales
    
    
    42,902
    
    
    
    34,408
    
    
    
    118,667
    
    
    
    110,451Cost of sales
    
    
    27,493
    
    
    
    21,424
    
    
    
    72,902
    
    
    
    73,107Gross profit
    
    
    15,409
    
    
    
    12,984
    
    
    
    45,765
    
    
    
    37,344Selling, general and administrative expenses
    
    
    326
    
    
    
    602
    
    
    
    1,017
    
    
    
    1,591Management fee expense to affiliate
    
    
    272
    
    
    
    744
    
    
    
    816
    
    
    
    3,113Service fee expense to affiliate
    
    
    7,390
    
    
    
    4,764
    
    
    
    24,115
    
    
    
    19,410Income from operations
    
    
    7,421
    
    
    
    6,874
    
    
    
    19,817
    
    
    
    13,230Other expense:Exchange (loss) gain, net
    
    
    (61
    )
    
    
    15,600
    
    
    
    2,614
    
    
    
    12,336Interest expense
    
    
    (2,358
    )
    
    
    (4,011
    )
    
    
    (7,892
    )
    
    
    (12,216
    )Interest income
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    34Loss on
extinguishment of debt
    
    
    
    
    
    
    (2,559
    )
    
    
    (5,790
    )
    
    
    (2,559
    )Other expense
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    Other income
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    29Income before income taxes
    
    
    4,999
    
    
    
    15,933
    
    
    
    8,767
    
    
    
    10,854Income tax expense
    
    
    545
    
    
    
    2,555
    
    
    
    2,137
    
    
    
    2,555Net income
    
    $
    4,454
    
    
    $
    13,378
    
    
    $
    6,630
    
    
    $
    8,299
  28




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
 
 STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    6,630
    
    
    $
    8,299Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    538
    
    
    
    497Write off and amortization of deferred financing fees
    
    
    1,732
    
    
    
    3,372Unrealized foreign exchange and derivative (loss) gain
    
    
    (2,901
    )
    
    
    1,989Deferred income taxes
    
    
    1,163
    
    
    
    2,594Changes in operating assets and liabilities:Receivables
    
    
    37
    
    
    
    (170
    )Inventories
    
    
    (2,220
    )
    
    
    (3,670
    )Prepaid expenses and other current assets
    
    
    (72
    )
    
    
    (78
    )Value-added tax receivables
    
    
    
    
    
    
    Intercompany receivables and payables
    
    
    2,084
    
    
    
    (9,126
    )Other assets
    
    
    
    
    
    
    51Accounts payable and accrued liabilities and value added taxes
    
    
    (1,324
    )
    
    
    10,460Income taxes payable
    
    
    (2,809
    )
    
    
    (3,902
    )Other long-term liabilities
    
    
    
    
    
    
    Net cash provided by operating activities
    
    
    2,858
    
    
    
    10,316Cash flows from investing activities:Purchases of property and equipment
    
    
    (10
    )
    
    
    (391
    )Net cash used in investing activities
    
    
    (10
    )
    
    
    (391
    )Cash flows from financing activities:Repurchase of subordinated debt
    
    
    (41,700
    )
    
    
    (300
    )Borrowings under revolving credit facility
    
    
    3,000
    
    
    
    56,750Repayments under revolving credit facility
    
    
    (11,375
    )
    
    
    (38,000
    )Deferred financing costs
    
    
    
    
    
    
    (428
    )Contribution from shareholders
    
    
    47,490
    
    
    
    Repayments under term loan facility
    
    
    
    
    
    
    (28,500
    )Net cash used in financing activities
    
    
    (2,585
    )
    
    
    (10,478
    )Effect of exchange rate changes on cash
    
    
    (294
    )
    
    
    50Net decrease in cash
    
    
    (31
    )
    
    
    (503
    )Cash at beginning of period
    
    
    83
    
    
    
    523Cash at end of period
    
    $
    52
    
    
    $
    20
  29




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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 a responsabilité limitée société ananyme
     New Accounting Pronouncements.
  30




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS   (continued)
(Unaudited)
   (2) Inventories
  September 30,
    
    
    December 31,2005
    
    
    2004Raw materials and supplies
    
    $
    10,580
    
    
    $
    10,682Finished goods
    
    
    22,363
    
    
    
    18,901Total inventories, net
    
    $
    32,943
    
    
    $
    29,583
 (3) Machinery and Equipment
  September 30,
    
    
    December 31,2005
    
    
    2004Machinery, equipment and other
    
    $
    2,696
    
    
    $
    2,559Less accumulated depreciation
    
    
    704
    
    
    
    464Machinery and equipment, net
    
    $
    1,992
    
    
    $
    2,095
 (4) Investment in Affiliated Company
 .
 (5) Income Taxes
  (6) Debt
 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4
 31




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS   (continued)
(Unaudited)
 3 4
 32




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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
 33




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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) Equity
 3 4
 (8) Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    4,454
    
    
    $
    13,378
    
    
    $
    6,630
    
    
    $
    8,299Foreign currency translation adjustments
    
    
    (121
    )
    
    
    354
    
    
    
    3,440
    
    
    
    (319
    )Comprehensive income
    
    $
    4,333
    
    
    $
    13,732
    
    
    $
    10,070
    
    
    $
    7,980
 (9) Related Party Transactions
  34




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##### Table of Contents



DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS   (continued)
(Unaudited)
    (10) Foreign Currency Forward Contracts
  (11) Commitments and Contingencies
  35




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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)
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,511
    
    
    $
    4,153Receivables, net
    
    
    34,547
    
    
    
    37,146Receivables from affiliates
    
    
    7,407
    
    
    
    3,499Current deferred income taxes
    
    
    10,037
    
    
    
    2,435Prepaid expenses and other current assets
    
    
    475
    
    
    
    2,272Total current assets
    
    
    55,977
    
    
    
    49,505Property and equipment, net
    
    
    35,150
    
    
    
    34,600Other assets:Goodwill
    
    
    27,516
    
    
    
    26,558Trademarks
    
    
    42,803
    
    
    
    41,314Other
    
    
    1,588
    
    
    
    1,520Total assets
    
    $
    163,034
    
    
    $
    153,497LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,680
    
    
    $
    2,200Accrued liabilities
    
    
    26,570
    
    
    
    30,040Income taxes payable
    
    
    6,339
    
    
    
    929Payables to affiliates
    
    
    24,670
    
    
    
    32,516Other current liabilities
    
    
    339
    
    
    
    371Total current liabilities
    
    
    61,598
    
    
    
    66,056Deferred income taxes
    
    
    10,120
    
    
    
    10,019Other long-term liabilities
    
    
    2,446
    
    
    
    2,664Total liabilities
    
    
    74,164
    
    
    
    78,739Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Series B common stock, no par value: 139,373 shares authorized,
issued and outstanding in 2005 and 2004
    
    
    
    
    
    
    Series C preferred stock, no par value: 13,642 shares authorized,
issued and outstanding in 2005 and 2004
    
    
    
    
    
    
    Additional paid-in capital
    
    
    54,334
    
    
    
    54,334Retained earnings
    
    
    41,142
    
    
    
    29,878Accumulated other comprehensive loss
    
    
    (6,606
    )
    
    
    (9,454
    )Total stockholders equity
    
    
    88,870
    
    
    
    74,758Total liabilities and stockholders equity
    
    $
    163,034
    
    
    $
    153,497
  36




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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 Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    76,910
    
    
    $
    63,265
    
    
    $
    214,573
    
    
    $
    201,694Cost of sales
    
    
    32,400
    
    
    
    25,082
    
    
    
    90,753
    
    
    
    79,746Gross profit
    
    
    44,510
    
    
    
    38,183
    
    
    
    123,820
    
    
    
    121,948Selling, general and administrative expenses
    
    
    40,181
    
    
    
    32,914
    
    
    
    109,733
    
    
    
    102,567Management fee expense to affiliates
    
    
    761
    
    
    
    1,307
    
    
    
    2,284
    
    
    
    6,621Service fee income from affiliate
    
    
    (7,390
    )
    
    
    (4,764
    )
    
    
    (24,115
    )
    
    
    (19,410
    )Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162Royalty expense to affiliates, net
    
    
    5,374
    
    
    
    4,779
    
    
    
    16,577
    
    
    
    15,297Income from operations
    
    
    5,584
    
    
    
    3,947
    
    
    
    19,341
    
    
    
    16,711Other income (expense):Exchange loss, net
    
    
    (882
    )
    
    
    (14,791
    )
    
    
    (2,650
    )
    
    
    (15,303
    )Interest expense
    
    
    (16
    )
    
    
    (27
    )
    
    
    (132
    )
    
    
    (173
    )Interest income
    
    
    88
    
    
    
    20
    
    
    
    190
    
    
    
    97Other expense
    
    
    (88
    )
    
    
    (69
    )
    
    
    (277
    )
    
    
    (241
    )Income (loss) before income taxes
    
    
    4,686
    
    
    
    (10,920
    )
    
    
    16,472
    
    
    
    1,091Income tax expense (benefit)
    
    
    1,982
    
    
    
    (2,298
    )
    
    
    5,208
    
    
    
    1,540Net income (loss)
    
    $
    2,704
    
    
    $
    (8,622
    )
    
    $
    11,264
    
    
    $
    (449
    )
  37




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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)
 Nine Months EndedSeptember 30,2005
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    11,264
    
    
    $
    (449
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    2,330
    
    
    
    1,338Provision for uncollectible accounts receivable
    
    
    6,104
    
    
    
    5,515Unrealized foreign exchange and derivative loss
    
    
    1,295
    
    
    
    888Deferred income taxes
    
    
    (7,620
    )
    
    
    (6,318
    )Changes in operating assets and liabilities:Receivables
    
    
    (2,244
    )
    
    
    (7,493
    )Inventories
    
    
    706
    
    
    
    Prepaid expenses and other current assets
    
    
    (68
    )
    
    
    75Intercompany receivables and payables
    
    
    (12,359
    )
    
    
    14,750Other assets
    
    
    (13
    )
    
    
    (340
    )Accounts payable and accrued liabilities
    
    
    (3,366
    )
    
    
    (9,815
    )Income taxes payable/prepaid, net
    
    
    5,269
    
    
    
    (683
    )Net cash provided by (used in) operating activities
    
    
    1,298
    
    
    
    (2,532
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,031
    )
    
    
    (1,633
    )Net cash used in investing activities
    
    
    (2,031
    )
    
    
    (1,633
    )Effect of exchange rate changes on cash
    
    
    91
    
    
    
    271Net decrease in cash and cash equivalents
    
    
    (642
    )
    
    
    (3,894
    )Cash and cash equivalents at beginning of period
    
    
    4,153
    
    
    
    5,833Cash and cash equivalents at end of period
    
    $
    3,511
    
    
    $
    1,939
  38




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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 Pronouncements.
 39




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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
  September 30,
    
    
    December 31,2005
    
    
    2004Land
    
    $
    9,889
    
    
    $
    9,545Buildings
    
    
    9,939
    
    
    
    9,593Machinery, equipment and other
    
    
    27,671
    
    
    
    24,84247,499
    
    
    
    43,980Less accumulated depreciation
    
    
    12,349
    
    
    
    9,380Property and equipment, net
    
    $
    35,150
    
    
    $
    34,600
 (3)
    
    Goodwill and Other Intangible Assets.
  (4)
    
    Income Taxes
  (5)
    
    Restructuring Charges
  (6)
    
    Debt
 3 4 3 4 3 4 3 4 3 4
 3 4 3 4
 40




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 3 4 3 4 3 4
 3 4 3 4 3 4
 (7)
    
    Comprehensive Income (Loss)
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    2,704
    
    
    $
    (8,622
    )
    
    $
    11,264
    
    
    $
    (449
    )Unrealized and deferred realized (loss)
gain on derivatives
    
    
    
    
    
    
    (130
    )
    
    
    (74
    )
    
    
    (329
    )Reclassification of deferred realized
loss (gain) to
exchange loss
    
    
    
    
    
    
    
    
    
    
    131
    
    
    
    Reclassification of deferred realized
(gain) loss to cost of sales
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    Foreign currency translation adjustments
    
    
    (78
    )
    
    
    656
    
    
    
    2,783
    
    
    
    (1,211
    )Comprehensive income (loss)
    
    $
    2,626
    
    
    $
    (8,096
    )
    
    $
    14,112
    
    
    $
    (1,989
    )
 (8)
    
    Related Party Transactions
    41




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
   (9)
    
    Foreign Currency Forward and Option Contracts
      42




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
    (10)
    
    Commitments and Contingencies
  43




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 General
 société à responsabilité limitée
   Foreign Operations
   44




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45




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##### Table of Contents



Information Concerning Forward-Looking Statements
   Results of Operations
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    105.8
    
    
    
    100.0
    %
    
    $
    94.8
    
    
    
    100.0
    %
    
    $
    304.9
    
    
    
    100.0
    %
    
    $
    301.7
    
    
    
    100.0
    %Cost of sales
    
    
    24.9
    
    
    
    23.5
    
    
    
    20.4
    
    
    
    21.5
    
    
    
    68.4
    
    
    
    22.4
    
    
    
    68.5
    
    
    
    22.7Gross profit
    
    
    80.9
    
    
    
    76.5
    
    
    
    74.4
    
    
    
    78.5
    
    
    
    236.5
    
    
    
    77.6
    
    
    
    233.2
    
    
    
    77.3Selling, general and administrative expenses
    
    
    63.6
    
    
    
    60.1
    
    
    
    59.0
    
    
    
    62.2
    
    
    
    184.6
    
    
    
    60.6
    
    
    
    183.2
    
    
    
    60.7Transaction related expenses
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    29.7
    
    
    
    9.8Restructuring and impairment charges
    
    
    
    
    
    
    
    
    
    
    2.3
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    5.0
    
    
    
    1.7Income from operations
    
    
    17.3
    
    
    
    16.4
    
    
    
    13.0
    
    
    
    13.7
    
    
    
    51.9
    
    
    
    17.0
    
    
    
    15.3
    
    
    
    5.1Exchange (loss) gain, net
    
    
    (0.4
    )
    
    
    (0.5
    )
    
    
    1.7
    
    
    
    1.8
    
    
    
    1.7
    
    
    
    0.6
    
    
    
    (2.8
    )
    
    
    (0.9
    )Interest expense
    
    
    (4.1
    )
    
    
    (3.8
    )
    
    
    (6.8
    )
    
    
    (7.2
    )
    
    
    (14.0
    )
    
    
    (4.7
    )
    
    
    (20.6
    )
    
    
    (6.8
    )Interest income
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (4.5
    )
    
    
    (4.7
    )
    
    
    (9.8
    )
    
    
    (3.2
    )
    
    
    (4.5
    )
    
    
    (1.5
    )Other expense
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.4
    )
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    (0.1
    )Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    Income (loss) before income taxes
    
    
    12.8
    
    
    
    12.1
    
    
    
    3.3
    
    
    
    3.5
    
    
    
    30.0
    
    
    
    9.8
    
    
    
    (12.7
    )
    
    
    (4.2
    )Income tax expense (benefit)
    
    
    3.9
    
    
    
    3.7
    
    
    
    2.4
    
    
    
    2.6
    
    
    
    10.7
    
    
    
    3.5
    
    
    
    (1.7
    )
    
    
    (0.6
    )Income (loss) from continuing operations
    
    
    8.9
    
    
    
    8.4
    
    
    
    0.9
    
    
    
    0.9
    
    
    
    19.3
    
    
    
    6.3
    
    
    
    (11.0
    )
    
    
    (3.6
    )Loss on discontinued operations,
net of income tax expense
of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    (0.1
    )Net income (loss)
    
    $
    8.9
    
    
    
    8.4
    %
    
    $
    0.9
    
    
    
    0.9
    %
    
    $
    19.3
    
    
    
    6.3
    %
    
    $
    (11.2
    )
    
    
    (3.7
    )%
 46




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##### Table of Contents



Three months ended September 30, 2005 compared to the three months ended September 30, 2004
 UnitedStatesand the
    
    
    
    
    
    
    
    
    
    
    Corporate,Dominican
    
    
    
    
    
    
    
    
    
    
    Unallocated
    
    
    ConsolidatedDollars in millions
    
    Mexico
    
    
    Republic
    
    
    Europe
    
    
    All Others
    
    
    and Other
    
    
    TotalThree Months Ended September 30, 2005Net sales
    
    $
    76.9
    
    
    $
    22.2
    
    
    $
    6.6
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    105.8Cost of sales
    
    
    18.9
    
    
    
    4.7
    
    
    
    1.2
    
    
    
    0.1
    
    
    
    
    
    
    
    24.9Gross profit
    
    
    58.0
    
    
    
    17.5
    
    
    
    5.4
    
    
    
    
    
    
    
    
    
    
    
    80.9Selling, general and
administrative expenses
    
    
    38.3
    
    
    
    15.1
    
    
    
    5.3
    
    
    
    0.2
    
    
    
    4.7
    
    
    
    63.6Income (loss) from operations
    
    $
    19.7
    
    
    $
    2.4
    
    
    $
    0.1
    
    
    $
    (0.2
    )
    
    $
    (4.7
    )
    
    $
    17.3Three Months Ended September 30, 2004Net sales
    
    $
    63.3
    
    
    $
    23.1
    
    
    $
    7.2
    
    
    $
    1.2
    
    
    $
    
    
    
    $
    94.8Cost of sales
    
    
    15.2
    
    
    
    4.9
    
    
    
    1.4
    
    
    
    0.5
    
    
    
    (1.6
    )
    
    
    20.4Gross profit
    
    
    48.1
    
    
    
    18.2
    
    
    
    5.8
    
    
    
    0.7
    
    
    
    1.6
    
    
    
    74.4Selling, general and
administrative expenses
    
    
    32.1
    
    
    
    14.3
    
    
    
    5.8
    
    
    
    1.2
    
    
    
    5.6
    
    
    
    59.0Transaction related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.3
    
    
    
    2.3Income (loss) from operations
    
    $
    16.0
    
    
    $
    3.9
    
    
    $
    0.0
    
    
    $
    (0.5
    )
    
    $
    (6.4
    )
    
    $
    13.0
 Net sales
  47




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48




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Gross
profit.
    Selling, general and administrative expenses.
      Transaction Related Expenses.
 49




---



##### Table of Contents



Restructuring and impairment charges.
 Exchange gain (loss).
 Interest expense, net of interest income. 3 4
 Income tax expense.
 Net
income (loss).
 50




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##### Table of Contents



Nine months ended September 30, 2005 compared to the nine months ended September 30, 2004
 UnitedStates
    
    
    
    
    
    
    
    
    
    
    Corporate,and the Dominican
    
    
    
    
    
    
    
    
    
    
    Unallocated and
    
    
    ConsolidatedDollars in millions
    
    Mexico
    
    
    Republic
    
    
    Europe
    
    
    All Others
    
    
    Other
    
    
    TotalNine Months Ended September 30, 2005Net sales
    
    $
    214.6
    
    
    $
    67.0
    
    
    $
    22.9
    
    
    $
    0.4
    
    
    $
    
    
    
    $
    304.9Cost of sales
    
    
    51.6
    
    
    
    14.6
    
    
    
    3.8
    
    
    
    0.2
    
    
    
    (1.8
    )
    
    
    68.4Gross profit
    
    
    163.0
    
    
    
    52.4
    
    
    
    19.1
    
    
    
    0.2
    
    
    
    1.8
    
    
    
    236.5Selling, general and
administrative expenses
    
    
    105.2
    
    
    
    47.3
    
    
    
    17.6
    
    
    
    0.8
    
    
    
    13.7
    
    
    
    184.6Income (loss) from operations
    
    $
    57.8
    
    
    $
    5.1
    
    
    $
    1.5
    
    
    $
    (0.6
    )
    
    $
    (11.9
    )
    
    $
    51.9Nine Months Ended September 30, 2004Net sales
    
    $
    201.7
    
    
    $
    71.8
    
    
    $
    24.2
    
    
    $
    4.0
    
    
    $
    
    
    
    $
    301.7Cost of sales
    
    
    48.9
    
    
    
    15.8
    
    
    
    4.6
    
    
    
    1.5
    
    
    
    (2.3
    )
    
    
    68.5Gross profit
    
    
    152.8
    
    
    
    56.0
    
    
    
    19.6
    
    
    
    2.5
    
    
    
    2.3
    
    
    
    233.2Selling, general and
administrative expenses
    
    
    96.9
    
    
    
    47.9
    
    
    
    18.8
    
    
    
    4.3
    
    
    
    15.3
    
    
    
    183.2Transaction related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29.7
    
    
    
    29.7Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.0
    
    
    
    5.0Income (loss) from operations
    
    $
    55.9
    
    
    $
    8.1
    
    
    $
    0.8
    
    
    $
    (1.8
    )
    
    $
    (47.7
    )
    
    $
    15.3
 Net sales
    51




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Gross
profit.
    Selling, general and administrative expenses.
 52




---



##### Table of Contents



Transaction Related Expenses.
 Restructuring and impairment charges.
 53




---



##### Table of Contents



Exchange gain (loss).
 Interest expense, net of interest income. 3 4 3 4
 Loss on extinguishment of debt. 3 4 3 4
 Income tax expense.
 Loss on discontinued operations.
 Net income (loss).
 Liquidity and Capital Resources
 Overview
   54




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##### Table of Contents



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 3 4 3 4
 3 4
 3 4
  55




---



##### Table of Contents



3 4
  3 4
  Cash Flows
  56




---



##### Table of Contents



3 4
 Recent Accounting Pronouncements
    Business Trends and Initiatives
     57




---



##### Table of Contents



58




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign Currency Risk
    59




---



##### Table of Contents



Coverage inMexican
    
    
    Average Strike
    
    
    Fair Value inForeign Currency
    
    Pesos
    
    
    Price
    
    
    U.S. Dollars(1)
    
    
    Maturity DateAt September 30, 2005:Purchased puts (Company may sell
peso/buy USD)Mexican peso
    
    
    211,000
    
    
    
    12.09-13.31
    
    
    $
    (393
    )
    
    Oct.-Dec. 2005Mexican peso
    
    
    150,000
    
    
    
    12.40-13.19
    
    
    
    (223
    )
    
    Jan.-Mar. 2006Mexican peso
    
    
    176,000
    
    
    
    11.87-12.87
    
    
    
    (243
    )
    
    Apr.-June 2006Mexican peso
    
    
    75,000
    
    
    
    12.61-12.73
    
    
    
    (103
    )
    
    July-Sept. 2006Mexican peso
    
    
    97,000
    
    
    
    12.18-12.28
    
    
    
    (60
    )
    
    Oct.-Dec. 2006709,000
    
    
    
    
    
    
    $
    (1,022
    )Written calls (Counterparty may
buy peso/sell USD)Mexican peso
    
    
    211,000
    
    
    
    10.96-12.06
    
    
    $
    (873
    )
    
    Oct.-Dec. 2005Mexican peso
    
    
    150,000
    
    
    
    11.23-11.95
    
    
    
    (518
    )
    
    Jan.-Mar. 2006Mexican peso
    
    
    176,000
    
    
    
    10.78-11.65
    
    
    
    (233
    )
    
    Apr.-June 2006Mexican peso
    
    
    75,000
    
    
    
    11.42-11.54
    
    
    
    (167
    )
    
    July-Sept. 2006Mexican peso
    
    
    97,000
    
    
    
    11.03-11.12
    
    
    
    (46
    )
    
    Oct.-Dec. 2006709,000
    
    
    
    
    
    
    $
    (1,837
    )
  Coverage inMexican
    
    
    Average Strike
    
    
    Fair Value inForeign Currency
    
    Pesos
    
    
    Price
    
    
    U.S. Dollars(1)
    
    
    Maturity DateAt December 31, 2004:Purchased puts (Company may sell
peso/buy USD)Mexican peso
    
    
    107,000
    
    
    
    12.62-12.76
    
    
    $
    (298
    )
    
    Jan.-Mar. 2005Mexican peso
    
    
    179,000
    
    
    
    12.50-12.94
    
    
    
    (443
    )
    
    Apr.-June 2005Mexican peso
    
    
    81,000
    
    
    
    12.68-13.07
    
    
    
    (87
    )
    
    July-Sept. 2005Mexican peso
    
    
    108,000
    
    
    
    13.21-13.32
    
    
    
    (163
    )
    
    Oct.-Dec. 2005Mexican peso
    
    
    70,000
    
    
    
    12.99-13.19
    
    
    
    (23
    )
    
    Jan.-Mar. 2006545,000
    
    
    
    
    
    
    $
    (1,014
    )Written calls (Counterparty may
buy peso/sell USD)Mexican peso
    
    
    107,000
    
    
    
    11.44-11.56
    
    
    $
    29
    
    
    Jan.-Mar. 2005Mexican peso
    
    
    179,000
    
    
    
    11.34-11.73
    
    
    
    131
    
    
    Apr.-June 2005Mexican peso
    
    
    81,000
    
    
    
    11.48-11.84
    
    
    
    (136
    )
    
    July-Sept. 2005Mexican peso
    
    
    108,000
    
    
    
    11.97-12.06
    
    
    
    (210
    )
    
    Oct.-Dec. 2005Mexican peso
    
    
    70,000
    
    
    
    11.77-11.95
    
    
    
    (233
    )
    
    Jan.-Mar. 2006545,000
    
    
    
    
    
    
    $
    (419
    )
 
 (1)
    
    The Fair Value of the option contracts presented above, an unrealized loss of $2,859,000 and
$1,433,000 at September 30, 2005 and December 31, 2004, respectively, represents the carrying
value and was recorded in accrued liabilities in the consolidated balance sheets.
 60




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   61




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##### Table of Contents



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 2002.32.1
    
    Certification furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 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.
 62




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##### Table of Contents



SIGNATURE
  Jafra Worldwide Holdings (Lux) S.àr.l./s/ RONALD B. CLARKRonald B. ClarkChief Executive Officer/s/ GARY ESHLEMANGary EshlemanChief Financial Officer (Principal Financial
Accounting Officer)/s/ STACY WOLFStacy WolfCorporate Controller (Principal Accounting Officer)Date November 14, 2005
 63