##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 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
(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
 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
    
    
    16Consolidated Statements of Operations
    
    
    17Consolidated Statements of Cash Flows
    
    
    18Notes to Consolidated Financial Statements
    
    
    19Financial Statements  Distribuidora Comercial Jafra, S.A. de C.V.Balance Sheets
    
    
    26Statements of Operations
    
    
    27Statements of Cash Flows
    
    
    28Notes to Financial Statements
    
    
    29Consolidated Financial Statements  Jafra Cosmetics International, S.A. de C.V. and SubsidiariesConsolidated Balance Sheets
    
    
    34Consolidated Statements of Income
    
    
    35Consolidated Statements of Cash Flows
    
    
    36Notes to Consolidated Financial Statements
    
    
    37Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    42Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    56Item 4. Controls and Procedures
    
    
    58PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    59Item 6. Exhibits
    
    
    59Signature
    
    
    60EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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*
    
    Jafra Worldwide Holdings (Lux) S.àr.l. (the Parent) is the parent company of Distribuidora
Comercial Jafra, S.A. de C.V. (Jafra Distribution) and Jafra Cosmetics International, Inc.
(JCI), which severally issued an original amount of $120 million and $80 million, respectively,
of 103/4% Subordinated Notes of which $78.0 million and $52.0 million, respectively, are currently
outstanding, (the 103/4% Notes). The Parent has fully and unconditionally guaranteed the 103/4%
Notes on a senior subordinated basis. Jafra Distribution and JCI have fully and unconditionally
guaranteed the obligations of the other under the 103/4% Notes on a senior subordinated basis,
subject to a 30-day standstill period prior to enforcement of such guarantees. Jafra Cosmetics
International, S.A. de C.V. and its subsidiaries (Jafra Cosmetics S.A.), indirect subsidiaries
of the Parent, have fully and unconditionally guaranteed the obligations of Jafra Distribution
under the 103/4% Notes. As such, the Parent is filing separate financial statements of JCI, Jafra
Distribution and Jafra Cosmetics S.A. in addition to its own financial statements, in its Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2005. 3




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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)
 June 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,009
    
    
    $
    10,586Receivables, net
    
    
    40,595
    
    
    
    42,904Inventories
    
    
    43,583
    
    
    
    40,375Prepaid income taxes
    
    
    344
    
    
    
    767Prepaid expenses and other current assets
    
    
    6,747
    
    
    
    6,847Deferred income taxes
    
    
    20,194
    
    
    
    16,865Assets from discontinued operations
    
    
    133
    
    
    
    133Total current assets
    
    
    120,605
    
    
    
    118,477Property and equipment, net
    
    
    57,276
    
    
    
    61,763Other assets:Goodwill
    
    
    64,396
    
    
    
    62,838Trademarks
    
    
    42,960
    
    
    
    41,463Deferred financing fees, employee supplemental savings and other, net
    
    
    11,369
    
    
    
    13,877Total assets
    
    $
    296,606
    
    
    $
    298,418LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    17,827
    
    
    $
    17,866Accrued liabilities
    
    
    49,107
    
    
    
    53,499Income taxes payable
    
    
    501
    
    
    
    2,463Deferred income taxes
    
    
    1,314
    
    
    
    1,063Due to Vorwerk
    
    
    
    
    
    
    20,000Liabilities from discontinued operations
    
    
    131
    
    
    
    129Total current liabilities
    
    
    68,880
    
    
    
    95,020Long-term debt
    
    
    152,750
    
    
    
    220,250Deferred income taxes
    
    
    19,965
    
    
    
    18,178Other long-term liabilities
    
    
    5,308
    
    
    
    5,131Total liabilities
    
    
    246,903
    
    
    
    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
    
    
    (24,680
    )
    
    
    (35,001
    )Accumulated other comprehensive loss
    
    
    (9,028
    )
    
    
    (9,471
    )Total stockholders equity (deficit)
    
    
    49,703
    
    
    
    (40,161
    )Total liabilities and stockholders equity (deficit)
    
    $
    296,606
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    102,291
    
    
    $
    103,716
    
    
    $
    199,109
    
    
    $
    206,838Cost of sales
    
    
    21,955
    
    
    
    23,875
    
    
    
    43,520
    
    
    
    48,058Gross profit
    
    
    80,336
    
    
    
    79,841
    
    
    
    155,589
    
    
    
    158,780Selling, general and administrative expenses
    
    
    60,771
    
    
    
    60,952
    
    
    
    120,968
    
    
    
    124,189Transaction related expenses
    
    
    
    
    
    
    26,114
    
    
    
    
    
    
    
    29,523Restructuring and impairment charges
    
    
    
    
    
    
    864
    
    
    
    
    
    
    
    2,773Income (loss) from operations
    
    
    19,565
    
    
    
    (8,089
    )
    
    
    34,621
    
    
    
    2,295Other income (expense):Exchange gain (loss), net
    
    
    2,571
    
    
    
    (5,091
    )
    
    
    2,078
    
    
    
    (4,540
    )Interest expense
    
    
    (4,619
    )
    
    
    (6,942
    )
    
    
    (9,821
    )
    
    
    (13,735
    )Interest income
    
    
    53
    
    
    
    31
    
    
    
    164
    
    
    
    77Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (9,753
    )
    
    
    Other expense
    
    
    (97
    )
    
    
    (184
    )
    
    
    (214
    )
    
    
    (184
    )Other income
    
    
    55
    
    
    
    44
    
    
    
    84
    
    
    
    27Income (loss) before income taxes
    
    
    17,528
    
    
    
    (20,231
    )
    
    
    17,159
    
    
    
    (16,060
    )Income tax expense (benefit)
    
    
    4,820
    
    
    
    (7,069
    )
    
    
    6,821
    
    
    
    (4,123
    )Income (loss) from continuing operations
    
    
    12,708
    
    
    
    (13,162
    )
    
    
    10,338
    
    
    
    (11,937
    )Loss on discontinued operations, net of income tax
expense of $0.0 million in 2005 and 2004
    
    
    (7
    )
    
    
    (46
    )
    
    
    (17
    )
    
    
    (186
    )Net income (loss)
    
    $
    12,701
    
    
    $
    (13,208
    )
    
    $
    10,321
    
    
    $
    (12,123
    )
  5




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JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Six Months EndedJune 30,2005
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    10,321
    
    
    $
    (12,123
    )Loss on discontinued operations, net of income tax
    
    
    17
    
    
    
    186Income (loss) from continuing operations
    
    
    10,338
    
    
    
    (11,937
    )Adjustments to reconcile income (loss) from continuing operations to
net cash provided by (used in) operating activities:Depreciation
    
    
    6,705
    
    
    
    3,270Amortization and write off of deferred financing fees
    
    
    2,737
    
    
    
    980Provision for uncollectible accounts receivable
    
    
    4,043
    
    
    
    4,256Non-cash compensation expense
    
    
    
    
    
    
    4,922Asset impairment charges
    
    
    
    
    
    
    423Unrealized foreign exchange and derivative (gains) losses
    
    
    (2,456
    )
    
    
    4,511Deferred income taxes
    
    
    (1,589
    )
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    (424
    )
    
    
    (5,082
    )Inventories
    
    
    (2,019
    )
    
    
    (3
    )Prepaid expenses and other current assets
    
    
    (303
    )
    
    
    (5,753
    )Other assets
    
    
    304
    
    
    
    (362
    )Accounts payable and accrued liabilities
    
    
    (6,682
    )
    
    
    (6,068
    )Income taxes payable/prepaid, net
    
    
    (1,621
    )
    
    
    (5,892
    )Other long-term liabilities
    
    
    177
    
    
    
    107Net cash provided by (used in) operating activities
    
    
    9,209
    
    
    
    (16,628
    )Net operating activities of discontinued operations
    
    
    2
    
    
    
    17Cash flows from investing activities:Purchases of property and equipment
    
    
    (956
    )
    
    
    (3,563
    )Investment in employee supplemental savings plan
    
    
    (421
    )
    
    
    223Net cash used in investing activities
    
    
    (1,377
    )
    
    
    (3,340
    )Cash flows from financing activities:Repurchase of subordinated debt
    
    
    (69,500
    )
    
    
    Repayments under term loan facility
    
    
    
    
    
    
    (3,750
    )Borrowings under revolving credit facility
    
    
    46,000
    
    
    
    28,900Repayments under revolving credit facility
    
    
    (44,000
    )
    
    
    (13,900
    )Repayment of Vorwerk note
    
    
    (20,000
    )
    
    
    Equity contribution from shareholder
    
    
    79,100
    
    
    
    Distribution to Parent
    
    
    
    
    
    
    (626
    )Deferred financing costs
    
    
    
    
    
    
    42Net cash (used in) provided by financing activities
    
    
    (8,400
    )
    
    
    10,666Effect of exchange rate changes on cash
    
    
    (1,011
    )
    
    
    (67
    )Net decrease in cash and cash equivalents
    
    
    (1,577
    )
    
    
    (9,352
    )Cash and cash equivalents at beginning of period
    
    
    10,586
    
    
    
    16,120Cash and cash equivalents at end of period
    
    $
    9,009
    
    
    $
    6,768
  6




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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
  June 30,
    
    
    December 31,2005
    
    
    2004Raw materials and supplies
    
    $
    10,662
    
    
    $
    10,744Finished goods
    
    
    32,921
    
    
    
    29,631Total inventories, net
    
    $
    43,583
    
    
    $
    40,375
 (3) Property and Equipment
  June 30,
    
    
    December 31,2005
    
    
    2004Land
    
    $
    16,087
    
    
    $
    15,733Buildings
    
    
    17,200
    
    
    
    16,805Machinery, equipment and other
    
    
    54,217
    
    
    
    52,75487,504
    
    
    
    85,292Less accumulated depreciation
    
    
    30,228
    
    
    
    23,529Property and equipment, net
    
    $
    57,276
    
    
    $
    61,763
  (4) Goodwill and Other Intangible Assets
  United
    
    
    
    
    
    
    
    
    
    
    All
    
    
    ConsolidatedGoodwill
    
    States
    
    
    Mexico
    
    
    Europe
    
    
    Others
    
    
    TotalBalance as of December 31, 2003
    
    $
    32,188
    
    
    $
    26,428
    
    
    $
    4,480
    
    
    $
    
    
    
    $
    63,096Translation effect
    
    
    
    
    
    
    130
    
    
    
    (388
    )
    
    
    
    
    
    
    (258
    )Balance as of December 31, 2004
    
    
    32,188
    
    
    
    26,558
    
    
    
    4,092
    
    
    
    
    
    
    
    62,838Translation effect
    
    
    
    
    
    
    983
    
    
    
    575
    
    
    
    
    
    
    
    1,558Balance as of June 30, 2005
    
    $
    32,188
    
    
    $
    27,541
    
    
    $
    4,667
    
    
    $
    
    
    
    $
    64,396
 8




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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 3 4
 9




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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
  10




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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
    
    
    Six months endedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Opening balance
    
    $
    1,937
    
    
    $
    1,220
    
    
    $
    2,391
    
    
    $
    Additions
    
    
    
    
    
    
    864
    
    
    
    
    
    
    
    2,773Charges against reserves
    
    
    (240
    )
    
    
    (661
    )
    
    
    (694
    )
    
    
    (1,350
    )Ending balance
    
    $
    1,697
    
    
    $
    1,423
    
    
    $
    1,697
    
    
    $
    1,423
 (10) Comprehensive Income (Loss)
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    12,701
    
    
    $
    (13,208
    )
    
    $
    10,321
    
    
    $
    (12,123
    )Unrealized and deferred realized (loss)
gain on derivatives
    
    
    (77
    )
    
    
    236
    
    
    
    (74
    )
    
    
    (199
    )Reclassification of deferred realized
loss to
exchange gain (loss)
    
    
    123
    
    
    
    
    
    
    
    131
    
    
    
    Reclassification of deferred realized
(gain) loss to cost of sales
    
    
    (4
    )
    
    
    
    
    
    
    8
    
    
    
    Foreign currency translation adjustments
    
    
    (163
    )
    
    
    1,518
    
    
    
    378
    
    
    
    1,058Comprehensive income (loss)
    
    $
    12,580
    
    
    $
    (11,454
    )
    
    $
    10,764
    
    
    $
    (11,264
    )
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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 June 30, 2005Net sales
    
    $
    71,108
    
    
    $
    22,480
    
    
    $
    8,549
    
    
    $
    154
    
    
    $
    
    
    
    $
    102,291Income (loss) from operations
    
    
    20,679
    
    
    
    1,539
    
    
    
    898
    
    
    
    (221
    )
    
    
    (3,330
    )
    
    
    19,565Depreciation
    
    
    889
    
    
    
    2,292
    
    
    
    77
    
    
    
    7
    
    
    
    
    
    
    
    3,265Segment assets
    
    
    195,063
    
    
    
    85,139
    
    
    
    15,890
    
    
    
    899
    
    
    
    (518
    )
    
    
    296,473Discontinued operations assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133
    
    
    
    
    
    
    
    133Goodwill
    
    
    27,541
    
    
    
    32,188
    
    
    
    4,667
    
    
    
    
    
    
    
    
    
    
    
    64,396For the three months ended June
30, 2004Net sales
    
    $
    67,581
    
    
    $
    25,996
    
    
    $
    8,763
    
    
    $
    1,376
    
    
    $
    
    
    
    $
    103,716Income (loss) from operations
    
    
    21,239
    
    
    
    2,180
    
    
    
    498
    
    
    
    (626
    )
    
    
    (31,380
    )
    
    
    (8,089
    )Depreciation
    
    
    601
    
    
    
    923
    
    
    
    112
    
    
    
    23
    
    
    
    
    
    
    
    1,659As 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 six months ended June 30,
2005Net sales
    
    $
    137,676
    
    
    $
    44,811
    
    
    $
    16,277
    
    
    $
    345
    
    
    $
    
    
    
    $
    199,109Income (loss) from operations
    
    
    38,094
    
    
    
    2,740
    
    
    
    1,374
    
    
    
    (311
    )
    
    
    (7,276
    )
    
    
    34,621Depreciation
    
    
    1,898
    
    
    
    4,605
    
    
    
    188
    
    
    
    14
    
    
    
    
    
    
    
    6,705Capital expenditures
    
    
    407
    
    
    
    386
    
    
    
    163
    
    
    
    
    
    
    
    
    
    
    
    956For the six months ended June 30,
2004Net sales
    
    $
    138,429
    
    
    $
    48,743
    
    
    $
    17,056
    
    
    $
    2,610
    
    
    $
    
    
    
    $
    206,838Income (loss) from operations
    
    
    39,898
    
    
    
    4,244
    
    
    
    765
    
    
    
    (1,284
    )
    
    
    (41,328
    )
    
    
    2,295Depreciation
    
    
    1,180
    
    
    
    1,818
    
    
    
    224
    
    
    
    48
    
    
    
    
    
    
    
    3,270Capital expenditures
    
    
    1,528
    
    
    
    1,922
    
    
    
    74
    
    
    
    39
    
    
    
    
    
    
    
    3,563
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##### Table of Contents



JAFRA WORLDWIDE HOLDINGS (LUX) S.àR.L. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
  Three months ended June 30,
    
    
    Six months ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Corporate expenses
    
    $
    (3,128
    )
    
    $
    (3,595
    )
    
    $
    (6,368
    )
    
    $
    (7,639
    )Transaction related expenses
    
    
    
    
    
    
    (26,114
    )
    
    
    
    
    
    
    (29,523
    )Restructuring charges
    
    
    
    
    
    
    (864
    )
    
    
    
    
    
    
    (2,773
    )Other charges(1)
    
    
    (202
    )
    
    
    (807
    )
    
    
    (908
    )
    
    
    (1,393
    )Total corporate, unallocated and other
    
    $
    (3,330
    )
    
    $
    (31,380
    )
    
    $
    (7,276
    )
    
    $
    (41,328
    )
 
 (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 three and 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
  13




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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
  14




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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 June 30, 2005Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loss on
discontinued operations
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (7
    )For the three months ended June 30, 2004Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loss on
discontinued operations
    
    
    (17
    )
    
    
    (17
    )
    
    
    (1
    )
    
    
    (11
    )
    
    
    (46
    )
 Venezuela
    
    
    Colombia
    
    
    Chile
    
    
    Peru
    
    
    Total(in thousands)For the six months ended June 30, 2005Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loss on
discontinued operations
    
    
    (3
    )
    
    
    (6
    )
    
    
    
    
    
    
    (8
    )
    
    
    (17
    )For the six months ended June 30, 2004Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loss on
discontinued operations
    
    
    (114
    )
    
    
    (31
    )
    
    
    (12
    )
    
    
    (29
    )
    
    
    (186
    )
  Venezuela
    
    
    Colombia
    
    
    Chile
    
    
    Peru
    
    
    Total(in thousands)As of June 30, 2005Assets:Cash
    
    $
    
    
    
    $
    45
    
    
    $
    30
    
    
    $
    7
    
    
    $
    82Receivables, net
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    22
    
    
    
    51Total assets
    
    $
    
    
    
    $
    74
    
    
    $
    30
    
    
    $
    29
    
    
    $
    133Liabilities:Accounts payable
    
    $
    
    
    
    $
    20
    
    
    $
    
    
    
    $
    
    
    
    $
    20Accrued liabilities
    
    
    
    
    
    
    111
    
    
    
    
    
    
    
    
    
    
    
    111Total liabilities
    
    $
    
    
    
    $
    131
    
    
    $
    
    
    
    $
    
    
    
    $
    131As 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
 15




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share amounts)
 (Unaudited)
 June 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,219
    
    
    $
    5,748Receivables, net
    
    
    4,255
    
    
    
    4,775Inventories
    
    
    10,102
    
    
    
    11,464Receivables from affiliates
    
    
    18,756
    
    
    
    24,644Prepaid expenses and other current assets
    
    
    2,618
    
    
    
    2,934Deferred income taxes
    
    
    12,598
    
    
    
    14,430Total current assets
    
    
    54,548
    
    
    
    63,995Property and equipment, net
    
    
    20,685
    
    
    
    24,988Other assets:Goodwill
    
    
    36,855
    
    
    
    36,280Notes receivable from affiliates
    
    
    12,424
    
    
    
    20,082Deferred financing fees, net
    
    
    2,071
    
    
    
    3,262Employee supplemental savings plan and other assets
    
    
    5,376
    
    
    
    5,276Total assets
    
    $
    131,959
    
    
    $
    153,883LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    2,184
    
    
    $
    3,497Accrued liabilities
    
    
    20,454
    
    
    
    20,389Income taxes payable
    
    
    405
    
    
    
    2,463Payables to affiliates
    
    
    8,880
    
    
    
    18,349Due to Vorwerk
    
    
    
    
    
    
    20,000Total current liabilities
    
    
    31,923
    
    
    
    64,698Long-term debt
    
    
    72,000
    
    
    
    91,800Deferred income taxes
    
    
    6,339
    
    
    
    6,339Employee supplemental savings plan and other liabilities
    
    
    5,308
    
    
    
    5,131Total liabilities
    
    
    115,570
    
    
    
    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
    
    
    (17,677
    )
    
    
    (16,275
    )Accumulated other comprehensive loss
    
    
    (1,892
    )
    
    
    (2,106
    )Total stockholders equity (deficit)
    
    
    16,389
    
    
    
    (14,085
    )Total liabilities and stockholders
equity (deficit)
    
    $
    131,959
    
    
    $
    153,883
  16




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands)
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales to third parties
    
    $
    31,029
    
    
    $
    34,759
    
    
    $
    61,088
    
    
    $
    65,799Sales to affiliates
    
    
    171
    
    
    
    2,522
    
    
    
    391
    
    
    
    5,412Net sales
    
    
    31,200
    
    
    
    37,281
    
    
    
    61,479
    
    
    
    71,211Cost of sales
    
    
    7,216
    
    
    
    10,341
    
    
    
    13,848
    
    
    
    19,650Gross profit
    
    
    23,984
    
    
    
    26,940
    
    
    
    47,631
    
    
    
    51,561Selling, general and administrative expenses
    
    
    26,392
    
    
    
    29,013
    
    
    
    52,134
    
    
    
    56,110Transaction related expenses
    
    
    
    
    
    
    23,393
    
    
    
    
    
    
    
    26,802Restructuring charges
    
    
    
    
    
    
    864
    
    
    
    
    
    
    
    2,611Management fee income from affiliates
    
    
    (470
    )
    
    
    (5,765
    )
    
    
    (2,066
    )
    
    
    (7,684
    )Royalty income from affiliates, net
    
    
    (5,618
    )
    
    
    (5,070
    )
    
    
    (11,204
    )
    
    
    (10,518
    )Market subsidy expense
    
    
    
    
    
    
    350
    
    
    
    
    
    
    
    600Income (loss) from operations
    
    
    3,680
    
    
    
    (15,845
    )
    
    
    8,767
    
    
    
    (16,360
    )Other income (expense):Exchange loss, net
    
    
    (266
    )
    
    
    (200
    )
    
    
    (375
    )
    
    
    (239
    )Interest expense
    
    
    (2,109
    )
    
    
    (2,733
    )
    
    
    (4,167
    )
    
    
    (5,384
    )Interest income
    
    
    127
    
    
    
    144
    
    
    
    278
    
    
    
    234Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (3,963
    )
    
    
    Other expense
    
    
    (17
    )
    
    
    (12
    )
    
    
    (18
    )
    
    
    (12
    )Other income
    
    
    43
    
    
    
    68
    
    
    
    70
    
    
    
    107Income (loss) before income taxes
    
    
    1,458
    
    
    
    (18,578
    )
    
    
    592
    
    
    
    (21,654
    )Income tax expense (benefit)
    
    
    505
    
    
    
    (6,854
    )
    
    
    1,994
    
    
    
    (7,961
    )Net income (loss)
    
    $
    953
    
    
    $
    (11,724
    )
    
    $
    (1,402
    )
    
    $
    (13,693
    )
  17




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Six Months EndedJune 30,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (1,402
    )
    
    $
    (13,693
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:Depreciation
    
    
    4,793
    
    
    
    2,042Provision for uncollectible accounts receivable
    
    
    250
    
    
    
    435Non-cash compensation expense
    
    
    
    
    
    
    4,922Write off and amortization of deferred financing fees
    
    
    1,195
    
    
    
    426Asset impairment charges
    
    
    
    
    
    
    423Unrealized foreign exchange loss
    
    
    328
    
    
    
    174Deferred income taxes
    
    
    1,832
    
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    270
    
    
    
    (712
    )Inventories
    
    
    1,362
    
    
    
    972Prepaid expenses and other current assets
    
    
    316
    
    
    
    (5,380
    )Intercompany receivables and payables
    
    
    4,353
    
    
    
    (751
    )Other assets
    
    
    321
    
    
    
    (306
    )Accounts payable and accrued liabilities
    
    
    (1,248
    )
    
    
    (1,746
    )Income taxes payable/prepaid
    
    
    (2,058
    )
    
    
    (305
    )Other long-term liabilities
    
    
    177
    
    
    
    107Net cash provided by (used in)
operating activities
    
    
    10,489
    
    
    
    (13,392
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (549
    )
    
    
    (1,996
    )Investment in employee supplemental savings plan
    
    
    (421
    )
    
    
    223Net cash used in investing activities
    
    
    (970
    )
    
    
    (1,773
    )Cash flows from financing activities:Repayments of subordinated debt
    
    
    (27,800
    )
    
    
    Repayment of Vorwerk note
    
    
    (20,000
    )
    
    
    Repayments under term loan facility
    
    
    
    
    
    
    (1,500
    )Borrowings under revolving credit facility
    
    
    43,000
    
    
    
    28,900Repayments under revolving credit facility
    
    
    (35,000
    )
    
    
    (13,900
    )Repayments from (advances to) affiliates
    
    
    (604
    )
    
    
    (1,797
    )Equity contribution from Parent
    
    
    31,662
    
    
    
    Distribution to parent
    
    
    
    
    
    
    (626
    )Deferred financing costs
    
    
    
    
    
    
    42Net cash (used in) provided by
financing activities
    
    
    (8,742
    )
    
    
    11,119Effect of exchange rate changes on cash
    
    
    (306
    )
    
    
    278Net increase (decrease) in cash and cash equivalents
    
    
    471
    
    
    
    (3,768
    )Cash and cash equivalents at beginning of period
    
    
    5,748
    
    
    
    8,879Cash and cash equivalents at end of period
    
    $
    6,219
    
    
    $
    5,111
  18




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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.
  19




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)
 (Unaudited)
 (2) Property and Equipment
  June 30,
    
    
    December 31,2005
    
    
    2004Land
    
    $
    6,188
    
    
    $
    6,188Buildings
    
    
    7,252
    
    
    
    7,212Machinery, equipment and other
    
    
    25,165
    
    
    
    25,13138,605
    
    
    
    38,531Less accumulated depreciation.
    
    
    17,920
    
    
    
    13,543Property and equipment, net
    
    $
    20,685
    
    
    $
    24,988
  (3) Goodwill and Other Intangible Assets
  United
    
    
    
    
    
    
    ConsolidatedGoodwill
    
    States
    
    
    Europe
    
    
    TotalBalance as of December 31, 2003
    
    $
    32,188
    
    
    $
    4,480
    
    
    $
    36,668Translation effect
    
    
    
    
    
    
    (388
    )
    
    
    (388
    )Balance as of December 31, 2004
    
    $
    32,188
    
    
    $
    4,092
    
    
    $
    36,280Translation effect
    
    
    
    
    
    
    575
    
    
    
    575Balance as of June 30, 2005
    
    $
    32,188
    
    
    $
    4,667
    
    
    $
    36,855
 (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
 20




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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
   21




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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
    
    
    Six months endedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Opening balance
    
    $
    1,937
    
    
    $
    1,220
    
    
    $
    2,391
    
    
    $
    Additions
    
    
    
    
    
    
    864
    
    
    
    
    
    
    
    2,611Charges against reserves
    
    
    (240
    )
    
    
    (661
    )
    
    
    (694
    )
    
    
    (1,188
    )Ending balance
    
    $
    1,697
    
    
    $
    1,423
    
    
    $
    1,697
    
    
    $
    1,423
 22




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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
    
    
    Six months endedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    953
    
    
    $
    (11,724
    )
    
    $
    (1,402
    )
    
    $
    (13,693
    )Foreign currency translation adjustments
    
    
    48
    
    
    
    110
    
    
    
    214
    
    
    
    (162
    )Comprehensive income (loss)
    
    $
    1,001
    
    
    $
    (11,614
    )
    
    $
    (1,188
    )
    
    $
    (13,855
    )
 (10) Related Party Transactions
      23




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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 June 30, 2005Net sales
    
    $
    22,480
    
    
    $
    8,549
    
    
    $
    
    
    
    $
    171
    
    
    $
    31,200Income from operations
    
    
    1,539
    
    
    
    898
    
    
    
    
    
    
    
    1,243
    
    
    
    3,680Depreciation
    
    
    2,292
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    2,369Segment assets
    
    
    85,139
    
    
    
    15,580
    
    
    
    60
    
    
    
    31,180
    
    
    
    131,959Goodwill
    
    
    32,188
    
    
    
    4,667
    
    
    
    
    
    
    
    
    
    
    
    36,855For the three months ended
June 30, 2004Net sales
    
    $
    25,996
    
    
    $
    8,763
    
    
    $
    
    
    
    $
    2,522
    
    
    $
    37,281Income (loss) from operations
    
    
    2,180
    
    
    
    498
    
    
    
    
    
    
    
    (18,523
    )
    
    
    (15,845
    )Depreciation
    
    
    923
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    1,035As of December 31, 2004Segment assets
    
    $
    91,861
    
    
    $
    17,233
    
    
    $
    63
    
    
    $
    44,726
    
    
    $
    153,883Goodwill
    
    
    32,188
    
    
    
    4,092
    
    
    
    
    
    
    
    
    
    
    
    36,280For the six months ended
June 30, 2005Net sales
    
    $
    44,811
    
    
    $
    16,277
    
    
    $
    
    
    
    $
    391
    
    
    $
    61,479Income from operations
    
    
    2,740
    
    
    
    1,374
    
    
    
    
    
    
    
    4,653
    
    
    
    8,767Depreciation
    
    
    4,605
    
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    4,793Capital expenditures
    
    
    386
    
    
    
    163
    
    
    
    
    
    
    
    
    
    
    
    549For the six months ended
June 30, 2004Net sales
    
    $
    48,743
    
    
    $
    17,056
    
    
    $
    
    
    
    $
    5,412
    
    
    $
    71,211Income (loss) from operations
    
    
    4,244
    
    
    
    765
    
    
    
    
    
    
    
    (21,369
    )
    
    
    (16,360
    )Depreciation
    
    
    1,818
    
    
    
    224
    
    
    
    
    
    
    
    
    
    
    
    2,042Capital expenditures
    
    
    1,922
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    1,996
 
 (1)
    
    excludes Jafra Poland sp.zo.o, an indirect wholly-owned subsidiary of the Parent and
affiliate of JCI 24




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##### Table of Contents



JAFRA COSMETICS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Three months ended June 30,
    
    
    Six months ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Corporate expenses
    
    $
    (4,622
    )
    
    $
    (4,076
    )
    
    $
    (8,166
    )
    
    $
    (8,210
    )Transaction related expenses
    
    
    
    
    
    
    (23,393
    )
    
    
    
    
    
    
    (26,802
    )Transaction with affiliates
    
    
    6,088
    
    
    
    10,488
    
    
    
    13,267
    
    
    
    17,603Restructuring charges
    
    
    
    
    
    
    (864
    )
    
    
    
    
    
    
    (2,611
    )Other charges(1)
    
    
    (223
    )
    
    
    (678
    )
    
    
    (448
    )
    
    
    (1,349
    )Total corporate, unallocated and other
    
    $
    1,243
    
    
    $
    (18,523
    )
    
    $
    4,653
    
    
    $
    (21,369
    )
 
 (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
  25




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##### Table of Contents



DISTRIBUIDORA
COMERCIAL JAFRA, S.A. DE C.V.
 
 BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
 June 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash
    
    $
    5
    
    
    $
    83Receivables
    
    
    354
    
    
    
    297Inventories
    
    
    34,068
    
    
    
    29,583Receivables from affiliates
    
    
    10,328
    
    
    
    18,073Prepaid income taxes
    
    
    4,258
    
    
    
    1,267Prepaid expenses and other current assets
    
    
    6,036
    
    
    
    2,690Total current assets
    
    
    55,049
    
    
    
    51,993Machinery and equipment, net
    
    
    2,035
    
    
    
    2,095Other assets:Deferred financing fees, net
    
    
    2,625
    
    
    
    4,119Investment in preferred shares of affiliated company
    
    
    131,354
    
    
    
    126,663Other
    
    
    2,554
    
    
    
    2,664Total assets
    
    $
    193,617
    
    
    $
    187,534LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    13,249
    
    
    $
    12,014Accrued liabilities
    
    
    1,233
    
    
    
    1,892Payables to affiliates
    
    
    528
    
    
    
    2,535Deferred income taxes
    
    
    1,314
    
    
    
    1,063Total current liabilities
    
    
    16,324
    
    
    
    17,504Long-term debt
    
    
    80,750
    
    
    
    128,450Deferred income taxes
    
    
    3,556
    
    
    
    1,820Total liabilities
    
    
    100,630
    
    
    
    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
    
    
    47,514
    
    
    
    45,338Accumulated other comprehensive loss
    
    
    (2,022
    )
    
    
    (5,583
    )Total stockholders equity
    
    
    92,987
    
    
    
    39,760Total liabilities and stockholders equity
    
    $
    193,617
    
    
    $
    187,534
  26




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##### Table of Contents



DISTRIBUIDORA
COMERCIAL JAFRA, S.A. DE C.V.
 
 STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Third party net sales
    
    $
    12
    
    
    $
    
    
    
    $
    12
    
    
    $
    Sales to affiliates
    
    
    38,946
    
    
    
    36,867
    
    
    
    75,752
    
    
    
    76,043Net sales
    
    
    38,958
    
    
    
    36,867
    
    
    
    75,764
    
    
    
    76,043Cost of sales
    
    
    23,119
    
    
    
    25,276
    
    
    
    45,409
    
    
    
    51,682Gross profit
    
    
    15,839
    
    
    
    11,591
    
    
    
    30,355
    
    
    
    24,361Selling, general and administrative
expenses
    
    
    (6
    )
    
    
    109
    
    
    
    691
    
    
    
    1,014Management fee expense to affiliate
    
    
    145
    
    
    
    1,898
    
    
    
    543
    
    
    
    2,369Service fee expense to affiliate
    
    
    10,022
    
    
    
    8,153
    
    
    
    16,725
    
    
    
    14,622Income from operations
    
    
    5,678
    
    
    
    1,431
    
    
    
    12,396
    
    
    
    6,356Other expense:Exchange gain (loss), net
    
    
    3,193
    
    
    
    (880
    )
    
    
    2,675
    
    
    
    (3,263
    )Interest expense
    
    
    (2,446
    )
    
    
    (4,091
    )
    
    
    (5,534
    )
    
    
    (8,206
    )Interest income
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    34Loss on extinquishment
of debt
    
    
    
    
    
    
    
    
    
    
    (5,790
    )
    
    
    Other expense
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    6,422
    
    
    
    (3,540
    )
    
    
    3,768
    
    
    
    (5,079
    )Income tax expense
    
    
    1,607
    
    
    
    
    
    
    
    1,592
    
    
    
    Net income (loss)
    
    $
    4,815
    
    
    $
    (3,540
    )
    
    $
    2,176
    
    
    $
    (5,079
    )
  27




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DISTRIBUIDORA
COMERCIAL JAFRA, S.A. DE C.V.
 
 STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months EndedJune 30,2005
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    2,176
    
    
    $
    (5,079
    )Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:Depreciation and amortization
    
    
    379
    
    
    
    396Write off and amortization of deferred financing fees
    
    
    1,542
    
    
    
    545Unrealized foreign exchange and derivative (gain) loss
    
    
    (2,683
    )
    
    
    3,796Deferred income taxes
    
    
    1,833
    
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    (46
    )
    
    
    (19
    )Inventories
    
    
    (3,304
    )
    
    
    (1,053
    )Prepaid expenses and other current assets
    
    
    (305
    )
    
    
    99Value-added tax receivables
    
    
    
    
    
    
    Intercompany receivables and payables
    
    
    5,952
    
    
    
    546Other assets
    
    
    (31
    )
    
    
    66Accounts payable and accrued liabilities
    
    
    (2,800
    )
    
    
    5,654Income taxes payable
    
    
    (2,869
    )
    
    
    (2,961
    )Other long-term liabilities
    
    
    
    
    
    
    Net cash (used in) provided by operating activities
    
    
    (156
    )
    
    
    1,990Cash flows from investing activities:Purchases of property and equipment
    
    
    (10
    )
    
    
    (212
    )Net cash used in investing activities
    
    
    (10
    )
    
    
    (212
    )Cash flows from financing activities:Repurchase of subordinated debt
    
    
    (41,700
    )
    
    
    Borrowings under revolving credit facility
    
    
    3,000
    
    
    
    Repayments under revolving credit facility
    
    
    (9,000
    )
    
    
    (2,250
    )Contribution from shareholders
    
    
    47,490
    
    
    
    Net cash used in financing activities
    
    
    (210
    )
    
    
    (2,250
    )Effect of exchange rate changes on cash
    
    
    298
    
    
    
    (40
    )Net decrease in cash
    
    
    (78
    )
    
    
    (512
    )Cash at beginning of period
    
    
    83
    
    
    
    523Cash at end of period
    
    $
    5
    
    
    $
    11
 
 28




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DISTRIBUIDRA 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.
  29




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DISTRIBUIDRA COMERCIAL JAFRA, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS  (continued)
(Unaudited)
 (2) Inventories
  June 30,
    
    
    December 31,2005
    
    
    2004Raw materials and supplies
    
    $
    10,630
    
    
    $
    10,682Finished goods
    
    
    23,438
    
    
    
    18,901Total inventories, net
    
    $
    34,068
    
    
    $
    29,583
 (3) Machinery and Equipment
  June 30,
    
    
    December 31,2005
    
    
    2004Machinery, equipment and other
    
    $
    2,664
    
    
    $
    2,559Less accumulated depreciation
    
    
    629
    
    
    
    464Machinery and equipment, net
    
    $
    2,035
    
    
    $
    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 3 4
 30




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DISTRIBUIDRA 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
 31




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##### Table of Contents



DISTRIBUIDRA 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 (Loss)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    4,815
    
    
    $
    (3,540
    )
    
    $
    2,176
    
    
    $
    (5,079
    )Foreign currency translation adjustments
    
    
    3,462
    
    
    
    (879
    )
    
    
    3,561
    
    
    
    (673
    )Comprehensive income (loss)
    
    $
    8,277
    
    
    $
    (4,419
    )
    
    $
    5,737
    
    
    $
    (5,752
    )
 (9) Related Party Transactions
  32




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##### Table of Contents



DISTRIBUIDRA COMERCIAL JAFRA, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS  (continued)
(Unaudited)
    (10) Foreign Currency Forward Contracts
  (11) Commitments and Contingencies
  33




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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share amounts)
 (Unaudited)
 June 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,509
    
    
    $
    4,153Receivables, net
    
    
    35,505
    
    
    
    37,146Receivables from affiliates
    
    
    4,113
    
    
    
    3,499Current deferred income taxes
    
    
    7,596
    
    
    
    2,435Prepaid expenses and other current assets
    
    
    610
    
    
    
    2,272Total current assets
    
    
    50,333
    
    
    
    49,505Property and equipment, net
    
    
    34,485
    
    
    
    34,600Other assets:Goodwill
    
    
    27,542
    
    
    
    26,558Trademarks
    
    
    42,844
    
    
    
    41,314Other
    
    
    1,564
    
    
    
    1,520Total assets
    
    $
    156,768
    
    
    $
    153,497LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,423
    
    
    $
    2,200Accrued liabilities
    
    
    28,573
    
    
    
    30,040Income taxes payable
    
    
    4,354
    
    
    
    929Payables to affiliates
    
    
    22,197
    
    
    
    32,516Other current liabilities
    
    
    354
    
    
    
    371Total current liabilities
    
    
    57,901
    
    
    
    66,056Deferred income taxes
    
    
    10,070
    
    
    
    10,019Other long-term liabilities
    
    
    2,554
    
    
    
    2,664Total liabilities
    
    
    70,525
    
    
    
    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
    
    
    38,437
    
    
    
    29,878Accumulated other comprehensive loss
    
    
    (6,528
    )
    
    
    (9,454
    )Total stockholders equity
    
    
    86,243
    
    
    
    74,758Total liabilities and stockholders equity
    
    $
    156,768
    
    
    $
    153,497
  34




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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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    71,096
    
    
    $
    67,581
    
    
    $
    137,664
    
    
    $
    138,430Cost of sales
    
    
    29,861
    
    
    
    25,909
    
    
    
    58,353
    
    
    
    54,664Gross profit
    
    
    41,235
    
    
    
    41,672
    
    
    
    79,311
    
    
    
    83,766Selling, general and administrative expenses
    
    
    35,457
    
    
    
    34,416
    
    
    
    69,553
    
    
    
    69,628Management fee expense to affiliates
    
    
    325
    
    
    
    3,867
    
    
    
    1,523
    
    
    
    5,315Service fee income from affiliate
    
    
    (10,022
    )
    
    
    (8,153
    )
    
    
    (16,725
    )
    
    
    (14,622
    )Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162Royalty expense to affiliates, net
    
    
    5,618
    
    
    
    5,070
    
    
    
    11,204
    
    
    
    10,518Income from operations
    
    
    9,857
    
    
    
    6,472
    
    
    
    13,756
    
    
    
    12,765Other income (expense):Exchange loss, net
    
    
    (1,610
    )
    
    
    (3,483
    )
    
    
    (1,768
    )
    
    
    (512
    )Interest expense
    
    
    (85
    )
    
    
    (127
    )
    
    
    (115
    )
    
    
    (146
    )Interest income
    
    
    46
    
    
    
    31
    
    
    
    102
    
    
    
    76Other expense
    
    
    (77
    )
    
    
    (115
    )
    
    
    (189
    )
    
    
    (172
    )Income before income taxes
    
    
    8,131
    
    
    
    2,778
    
    
    
    11,786
    
    
    
    12,011Income tax expense (benefit)
    
    
    2,701
    
    
    
    (215
    )
    
    
    3,227
    
    
    
    3,838Net income
    
    $
    5,430
    
    
    $
    2,993
    
    
    $
    8,559
    
    
    $
    8,173
  35




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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Six Months EndedJune 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    8,559
    
    
    $
    8,173Adjustments to reconcile net income to net cash
used in operating activities:Depreciation and amortization
    
    
    1,519
    
    
    
    784Provision for uncollectible accounts receivable
    
    
    3,793
    
    
    
    3,585Unrealized foreign exchange and derivative loss
    
    
    1,441
    
    
    
    33Deferred income taxes
    
    
    (5,254
    )
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    (853
    )
    
    
    (4,115
    )Inventories
    
    
    702
    
    
    
    Prepaid expenses and other current assets
    
    
    (203
    )
    
    
    (451
    )Intercompany receivables and payables
    
    
    (11,838
    )
    
    
    1,598Other assets
    
    
    14
    
    
    
    (122
    )Accounts payable and accrued liabilities
    
    
    (2,481
    )
    
    
    (10,044
    )Income taxes payable/prepaid, net
    
    
    3,304
    
    
    
    (2,615
    )Net cash used in operating activities
    
    
    (1,297
    )
    
    
    (3,174
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (397
    )
    
    
    (1,316
    )Net cash used in investing activities
    
    
    (397
    )
    
    
    (1,316
    )Effect of exchange rate changes on cash
    
    
    50
    
    
    
    (173
    )Net decrease in cash and cash equivalents
    
    
    (1,644
    )
    
    
    (4,663
    )Cash and cash equivalents at beginning of period
    
    
    4,153
    
    
    
    5,833Cash and cash equivalents at end of period
    
    $
    2,509
    
    
    $
    1,170
  36




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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
 
 NOTES CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 (1) Basis of Presentation
 sociedad anonima de capital variable société à responsabilité limitée société ananyme
    New Accounting Pronouncements.
  37




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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
NOTES CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
 (2) Property and Equipment
  June 30,
    
    
    December 31,2005
    
    
    2004Land
    
    $
    9,899
    
    
    $
    9,545Buildings
    
    
    9,948
    
    
    
    9,593Machinery, equipment and other
    
    
    26,162
    
    
    
    24,84246,009
    
    
    
    43,980Less accumulated depreciation
    
    
    11,524
    
    
    
    9,380Property and equipment, net
    
    $
    34,485
    
    
    $
    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 3 4 3 4 3 4
 38




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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
NOTES CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
 3 4 3 4 3 4
 (7) Comprehensive Income
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    5,430
    
    
    $
    2,993
    
    
    $
    8,559
    
    
    $
    8,173Unrealized and deferred realized (loss)
 on derivatives
    
    
    (77
    )
    
    
    236
    
    
    
    (74
    )
    
    
    (199
    )Reclassification of deferred realized
loss to
exchange loss
    
    
    123
    
    
    
    
    
    
    
    131
    
    
    
    Reclassification of deferred realized
(gain) loss to cost of sales
    
    
    (4
    )
    
    
    
    
    
    
    8
    
    
    
    Foreign currency translation adjustments
    
    
    2,861
    
    
    
    (2,208
    )
    
    
    3,012
    
    
    
    (1,867
    )Comprehensive income
    
    $
    8,333
    
    
    $
    1,021
    
    
    $
    11,636
    
    
    $
    6,107
 (8) Related Party Transactions
     39




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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
NOTES CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
  (9) Foreign Currency Forward and Option Contracts
       40




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JAFRA COSMETICS INTERNATIONAL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
   (10) Commitments and Contingencies
  41




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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
    42




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##### Table of Contents



Information Concerning Forward-Looking Statements
   Results of Operations
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    102.3
    
    
    
    100.0
    %
    
    $
    103.7
    
    
    
    100.0
    %
    
    $
    199.1
    
    
    
    100.0
    %
    
    $
    206.8
    
    
    
    100.0
    %Cost of sales
    
    
    22.0
    
    
    
    21.5
    
    
    
    23.9
    
    
    
    23.0
    
    
    
    43.5
    
    
    
    21.8
    
    
    
    48.0
    
    
    
    23.2Gross profit
    
    
    80.3
    
    
    
    78.5
    
    
    
    79.8
    
    
    
    77.0
    
    
    
    155.6
    
    
    
    78.2
    
    
    
    158.8
    
    
    
    76.8Selling, general and administrative expenses
    
    
    60.7
    
    
    
    59.3
    
    
    
    60.9
    
    
    
    58.7
    
    
    
    121.0
    
    
    
    60.8
    
    
    
    124.2
    
    
    
    60.1Transaction related expenses
    
    
    
    
    
    
    
    
    
    
    26.1
    
    
    
    25.2
    
    
    
    
    
    
    
    
    
    
    
    29.5
    
    
    
    14.3Restructuring and impairment charges
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    2.8
    
    
    
    1.3Income (loss) from operations
    
    
    19.6
    
    
    
    19.2
    
    
    
    (8.1
    )
    
    
    (7.8
    )
    
    
    34.6
    
    
    
    17.4
    
    
    
    2.3
    
    
    
    1.1Exchange gain (loss), net
    
    
    2.6
    
    
    
    2.5
    
    
    
    (5.1
    )
    
    
    (4.9
    )
    
    
    2.1
    
    
    
    1.1
    
    
    
    (4.5
    )
    
    
    (2.1
    )Interest expense
    
    
    (4.6
    )
    
    
    (4.5
    )
    
    
    (6.9
    )
    
    
    (6.7
    )
    
    
    (9.8
    )
    
    
    (4.9
    )
    
    
    (13.7
    )
    
    
    (6.6
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.8
    )
    
    
    (4.9
    )
    
    
    
    
    
    
    Other expense
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.1
    )Other income
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    17.5
    
    
    
    17.1
    
    
    
    (20.2
    )
    
    
    (19.5
    )
    
    
    17.1
    
    
    
    8.6
    
    
    
    (16.0
    )
    
    
    (7.7
    )Income tax expense (benefit)
    
    
    4.8
    
    
    
    4.7
    
    
    
    (7.1
    )
    
    
    (6.9
    )
    
    
    6.8
    
    
    
    3.4
    
    
    
    (4.1
    )
    
    
    (2.0
    )Income (loss) from continuing operations
    
    
    12.7
    
    
    
    12.4
    
    
    
    (13.1
    )
    
    
    (12.6
    )
    
    
    10.3
    
    
    
    5.2
    
    
    
    (11.9
    )
    
    
    (5.7
    )Loss on discontinued operations,
net of income tax expense
of $0
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    (0.1
    )Net income (loss)
    
    $
    12.7
    
    
    
    12.4
    %
    
    $
    (13.2
    )
    
    
    (12.7
    )%
    
    $
    10.3
    
    
    
    5.2
    %
    
    $
    (12.1
    )
    
    
    (5.8
    )%
 43




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##### Table of Contents



Three months ended June 30, 2005 compared to the three months ended June 30, 2004
 Corporate,United
    
    
    
    
    
    
    
    
    
    
    Unallocated
    
    
    ConsolidatedDollars in millions
    
    Mexico
    
    
    States
    
    
    Europe
    
    
    All Others
    
    
    and Other
    
    
    TotalThree Months Ended June 30, 2005Net sales
    
    $
    71.1
    
    
    $
    22.5
    
    
    $
    8.5
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    102.3Cost of sales
    
    
    16.8
    
    
    
    5.1
    
    
    
    1.5
    
    
    
    0.1
    
    
    
    (1.5
    )
    
    
    22.0Gross profit
    
    
    54.3
    
    
    
    17.4
    
    
    
    7.0
    
    
    
    0.1
    
    
    
    1.5
    
    
    
    80.3Selling, general and administrative expenses
    
    
    33.6
    
    
    
    15.9
    
    
    
    6.1
    
    
    
    0.3
    
    
    
    4.8
    
    
    
    60.7Income (loss) from operations
    
    $
    20.7
    
    
    $
    1.5
    
    
    $
    0.9
    
    
    $
    (0.2
    )
    
    $
    (3.3
    )
    
    $
    19.6Three Months Ended June 30, 2004Net sales
    
    $
    67.6
    
    
    $
    26.0
    
    
    $
    8.8
    
    
    $
    1.3
    
    
    $
    
    
    
    $
    103.7Cost of sales
    
    
    16.5
    
    
    
    5.9
    
    
    
    1.7
    
    
    
    0.5
    
    
    
    (0.7
    )
    
    
    23.9Gross profit
    
    
    51.1
    
    
    
    20.1
    
    
    
    7.1
    
    
    
    0.8
    
    
    
    0.7
    
    
    
    79.8Selling, general and administrative expenses
    
    
    29.9
    
    
    
    17.9
    
    
    
    6.6
    
    
    
    1.4
    
    
    
    5.1
    
    
    
    60.9Transaction related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26.1
    
    
    
    26.1Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    0.9Income (loss) from operations
    
    $
    21.2
    
    
    $
    2.2
    
    
    $
    0.5
    
    
    $
    (0.6
    )
    
    $
    (31.4
    )
    
    $
    (8.1
    )
 Net sales
   44




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Gross profit.
 45




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##### Table of Contents



Selling, general and administrative expenses.
      Transaction Related Expenses.
 46




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##### Table of Contents



Restructuring and impairment charges.
 Exchange gain (loss).
 Interest expense, net of interest income. 3 4
 Income tax expense.
 Loss on discontinued operations.
 Net income (loss).
 47




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Six months ended June 30, 2005 compared to the six months ended June 30, 2004
 Corporate,United
    
    
    
    
    
    
    
    
    
    
    Unallocated
    
    
    ConsolidatedDollars in millions
    
    Mexico
    
    
    States
    
    
    Europe
    
    
    All Others
    
    
    and Other
    
    
    TotalSix Months Ended June 30, 2005Net sales
    
    $
    137.7
    
    
    $
    44.8
    
    
    $
    16.3
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    199.1Cost of sales
    
    
    32.6
    
    
    
    9.8
    
    
    
    2.6
    
    
    
    0.1
    
    
    
    (1.6
    )
    
    
    43.5Gross profit
    
    
    105.1
    
    
    
    35.0
    
    
    
    13.7
    
    
    
    0.2
    
    
    
    1.6
    
    
    
    155.6Selling, general and administrative expenses
    
    
    67.0
    
    
    
    32.3
    
    
    
    12.3
    
    
    
    0.5
    
    
    
    8.9
    
    
    
    121.0Income (loss) from operations
    
    $
    38.1
    
    
    $
    2.7
    
    
    $
    1.4
    
    
    $
    (0.3
    )
    
    $
    (7.3
    )
    
    $
    34.6Six Months Ended June 30, 2004Net sales
    
    $
    138.4
    
    
    $
    48.7
    
    
    $
    17.1
    
    
    $
    2.6
    
    
    $
    
    
    
    $
    206.8Cost of sales
    
    
    33.9
    
    
    
    10.9
    
    
    
    3.2
    
    
    
    0.9
    
    
    
    (0.9
    )
    
    
    48.0Gross profit
    
    
    104.5
    
    
    
    37.8
    
    
    
    13.9
    
    
    
    1.7
    
    
    
    0.9
    
    
    
    158.8Selling, general and administrative expenses
    
    
    64.6
    
    
    
    33.6
    
    
    
    13.1
    
    
    
    3.0
    
    
    
    9.9
    
    
    
    124.2Transaction related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29.5
    
    
    
    29.5Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.8
    
    
    
    2.8Income (loss) from operations
    
    $
    39.9
    
    
    $
    4.2
    
    
    $
    0.8
    
    
    $
    (1.3
    )
    
    $
    (41.3
    )
    
    $
    2.3
 Net sales
    48




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Gross profit.
    Selling, general and administrative expenses.
 49




---



##### Table of Contents



Transaction Related Expenses.
 Restructuring and impairment charges.
 Exchange gain (loss).
 50




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##### Table of Contents



Interest expense, net of interest income. 3 4
 Loss on extinguishment of debt. 3 4
 Income tax expense.
 Loss on discontinued operations.
 Net income (loss).
 Liquidity and Capital Resources
 Overview
  51




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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
  52




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##### Table of Contents



3 4
  3 4
  Cash Flows
  53




---



##### Table of Contents



3 4
 Recent Accounting Pronouncements
   Business Trends and Initiatives
      54




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##### Table of Contents



55




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign Currency Risk
    56




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##### Table of Contents



Coverage inMexican
    
    
    Average Strike
    
    
    Fair Value inForeign Currency
    
    Pesos
    
    
    Price
    
    
    U.S. Dollars(1)
    
    
    Maturity DateAt June 30, 2005:Purchased puts (Company may sell
peso/buy USD)Mexican peso
    
    
    116,000
    
    
    
    11.98-12.06
    
    
    $
    (156
    )
    
    July-Sept. 2005Mexican peso
    
    
    211,000
    
    
    
    12.09-13.31
    
    
    
    (385
    )
    
    Oct.-Dec. 2005Mexican peso
    
    
    150,000
    
    
    
    12.40-13.19
    
    
    
    (203
    )
    
    Jan.-Mar. 2005Mexican peso
    
    
    96,000
    
    
    
    12.58-12.87
    
    
    
    (168
    )
    
    Apr.-June 2006Mexican peso
    
    
    75,000
    
    
    
    12.61-12.73
    
    
    
    (71
    )
    
    July-Sept. 2006648,000
    
    
    
    
    
    
    $
    (983
    )Written calls (Counterparty may
buy peso/sell USD)Mexican peso
    
    
    116,000
    
    
    
    10.93-11.84
    
    
    $
    (250
    )
    
    July-Sept. 2005Mexican peso
    
    
    211,000
    
    
    
    10.96-12.06
    
    
    
    (688
    )
    
    Oct.-Dec. 2005Mexican peso
    
    
    150,000
    
    
    
    11.23-11.95
    
    
    
    (296
    )
    
    Jan.-Mar. 2005Mexican peso
    
    
    96,000
    
    
    
    11.39-11.65
    
    
    
    (162
    )
    
    Apr.-June 2006Mexican peso
    
    
    75,000
    
    
    
    11.42-11.54
    
    
    
    (303
    )
    
    July-Sept. 2006648,000
    
    
    
    
    
    
    $
    (1,699
    )
  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
    
    
    
    
    
    
    $
    1,014Written 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 $2,682,000 and
$1,433,000 at June 30, 2005 and December 31, 2004, respectively, represents the carrying value
and was recorded in accrued liabilities in the consolidated balance sheets. 57




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   58




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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.
 59




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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)
  60